Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Addressing some concerns
Sintex has underperformed the broader market by 14% over the past
three months amidst concerns of the outstanding FCCB and exposure to
overseas subsidiaries. While a slowdown in subsidiaries cannot be ruled
out, the main growth driver remains the domestic monolithic business.
The outstanding FCCB is comfortably covered by cash and liquid
investments. In addition, the positive FCF performance and improving
capital efficiency seen in FY11 lend confidence of debt servicing. BUY.
FY11 saw an improvement in capital efficiency and cashflow
Sintex saw asset turns and return ratios (ROE at 21%) improve in FY11
despite high capex (Rs6.9bn) as working capital saw a sharp improvement
(102 days against 152 in FY10) following two years of deterioration. This
helped Sintex deliver Rs1.14bn of free cashflow (post interest). The company
turned free cash flow positive after four years of negative cash generation.
While cash generation has improved, the quality of earnings remained modest
with interest capitalisation continuing to be high (P&L interest expense was
65% of cashflow amount) and Rs465m relating to impairments in overseas
subsidiaries being written off against balance sheet reserves.
Liquidity position healthy; FCCB concerns overdone
Sintex has a US$225m FCCB due for redemption in late FY13. Including the
redemption premium, the amount due stands at Rs13.4bn (at Rs46/US$) and
the share is trading substantially below conversion price. However, concerns
around this are overdone given that Sintex had Rs13.1bn of cash and short
term investments at the end of FY11. This, along with positive FCF and
modest gearing, lends confidence in the company’s ability to repay the FCCB.
Overseas subsidiaries less relevant now
In FY09, Sintex’s overseas subsidiaries contributed 31% of revenues while the
domestic building products business contributed 37%. Since then, the
balance has shifted with overseas subsidiaries contributing 27% in FY11 while
building products business contributed 44%. In addition, the mix in the main
Nief subsidiary has shifted away from France towards East European and
EMEA (45% of revenues), while the dependence on auto has also declined.
This, along with restructuring efforts and relatively modest revenue declines
seen in the worst quarters of 2008-09, limits worries on this front.
Valuations undemanding; retain BUY
We maintain FY12-13 forecasts. We like Sintex due to its strong growth
drivers in India’s social infrastructure spend, synergy driven opportunities in
the composites business and healthy earnings growth alongside positive FCF.
Maintain BUY with a SOTP based price target of Rs200, 38% upside.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Addressing some concerns
Sintex has underperformed the broader market by 14% over the past
three months amidst concerns of the outstanding FCCB and exposure to
overseas subsidiaries. While a slowdown in subsidiaries cannot be ruled
out, the main growth driver remains the domestic monolithic business.
The outstanding FCCB is comfortably covered by cash and liquid
investments. In addition, the positive FCF performance and improving
capital efficiency seen in FY11 lend confidence of debt servicing. BUY.
FY11 saw an improvement in capital efficiency and cashflow
Sintex saw asset turns and return ratios (ROE at 21%) improve in FY11
despite high capex (Rs6.9bn) as working capital saw a sharp improvement
(102 days against 152 in FY10) following two years of deterioration. This
helped Sintex deliver Rs1.14bn of free cashflow (post interest). The company
turned free cash flow positive after four years of negative cash generation.
While cash generation has improved, the quality of earnings remained modest
with interest capitalisation continuing to be high (P&L interest expense was
65% of cashflow amount) and Rs465m relating to impairments in overseas
subsidiaries being written off against balance sheet reserves.
Liquidity position healthy; FCCB concerns overdone
Sintex has a US$225m FCCB due for redemption in late FY13. Including the
redemption premium, the amount due stands at Rs13.4bn (at Rs46/US$) and
the share is trading substantially below conversion price. However, concerns
around this are overdone given that Sintex had Rs13.1bn of cash and short
term investments at the end of FY11. This, along with positive FCF and
modest gearing, lends confidence in the company’s ability to repay the FCCB.
Overseas subsidiaries less relevant now
In FY09, Sintex’s overseas subsidiaries contributed 31% of revenues while the
domestic building products business contributed 37%. Since then, the
balance has shifted with overseas subsidiaries contributing 27% in FY11 while
building products business contributed 44%. In addition, the mix in the main
Nief subsidiary has shifted away from France towards East European and
EMEA (45% of revenues), while the dependence on auto has also declined.
This, along with restructuring efforts and relatively modest revenue declines
seen in the worst quarters of 2008-09, limits worries on this front.
Valuations undemanding; retain BUY
We maintain FY12-13 forecasts. We like Sintex due to its strong growth
drivers in India’s social infrastructure spend, synergy driven opportunities in
the composites business and healthy earnings growth alongside positive FCF.
Maintain BUY with a SOTP based price target of Rs200, 38% upside.
No comments:
Post a Comment