JPMorgan Focus Stock:: BUY Sintex- Q1 call highlights: growth on track across divisions; FY12 guidance maintained

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Sintex Industries Limited Overweight
SNTX.BO, SINT IN
Q1 call highlights: growth on track across divisions;
FY12 guidance maintained


SINT hosted a Q1FY12 post results conference call today. SINT management
noted that all key divisions remain on track and maintained its FY12E
guidance of 20%-25% revenue growth with steady margins. Key highlights
from the call are below:
 Monolithic order book. Management indicated that govt. spending on
education and healthcare remains robust. Housing boards across various
states continue to invest in mass housing. These initiatives have resulted in
strong monolithic order book, which has increased by ~Rs3.75B in 1Q. In
order to reduce dependence on govt. orders and diversify its revenue
streams, SINT is focusing on private sector order for monolithic
construction. Management indicated that they are in the final stages of
negotiation for two large private corporate orders for monolithic
construction.
 Improving penetration of custom molding in domestic and overseas
markets. Domestic custom molding business pre-dominantly focuses on
auto components. Management indicated that Sintex is now expanding to
new areas of industrial/electrical equipment and healthcare, leveraging off
the expertise of its overseas subsidiaries.
 One-off in interest costs. Management clarified that the interest costs
includes the one-off items: 1) Rs26.6MM interest settlement cost paid to
ONGC. (SINT had sued ONGC for differential gas pricing in 1976, which
they lost), 2) 3 new plants were commissioned in 1QFY12 for which interest
cost of Rs44MM was routed through P&L rather than being capitalised.
Although, these expenses are non-recurring in nature, management noted
that interest costs should remain up YoY due to rising rates.
 Focusing on capital efficiency. Management reiterated its focus on
enhancing capital returns and balance sheet discipline and guided to
potential ROCE levels of 18%-22% over the next 2-3 years driven as
overseas subsidiaries and monolithic businesses achieve critical scale. We
expect SINT to re-rate as its balance sheet profile improves. Reiterate OW
rating with PT of Rs270 based on Sep-12 FY12E P/E.