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http://content.icicidirect.com/mailimages/ICICIdirect_SintexIndustries_InitiatingCoverage.pdf
C o n s e r v i n g c a s h f o r f u t u r e g r o w t h …
Sintex is one of the leading providers of plastic and textile products in
India. With a global footprint, the company is well diversified and has a
presence in businesses like building products, textiles and custom
moulding. The company gains from increasing government spending in
social welfare schemes as these are a huge opportunity set for the
building products segment. In custom moulding, it benefits from
increasing usage of composites. Though earnings growth is expected to
be moderate during FY12-13E due to a slowdown in order execution in
monolithics and industrial slowdown in the overseas businesses, we
expect an improvement in earnings in FY14E. However, on account of
the company’s focus on improvement in balance sheet through working
capital management and moderation in capex, we expect a progressive
improvement in return ratios and cash flows.
Huge growth opportunity in building products segment
Sintex’ building products segment benefits from increasing government
spend in key areas like public housing, education and health. Monolithic
construction derives ~90% of its revenues from the government and
gains on increase in spending in public housing and slum rehab projects.
Prefabs account for ~70% of revenue from government and benefit from
increasing spending in setting up prefabricated schools, healthcare
centres, etc. though various schemes in education and healthcare. These
are the focus areas of the government and have seen an increase in
spending at 14-15% CAGR in the past five years. We expect these areas
to remain the government’s priority and expenditure to increase in
coming years despite the government’s deteriorating financials.
Focus on conserving cash
Against FY08-11, when Sintex had negative free cash flow (FCF) due to a
delay in payments and high capex, we expect an improvement in balance
sheet and cash flows on account of the company’s focus on working
capital management and moderation in capex. We expect the FCF to be
positive in FY13-14E and a progressive improvement in return ratios.
Valuations
At the CMP of | 101, Sintex is trading at 8.0x FY12E EPS, 7.2x FY13E EPS
and 6.3x FY14E EPS. On an EV/EBITDA basis, the stock is trading at 5.5x
FY12E EBITDA, 5.1x FY13E EBITDA and 4.3x FY14E EBITDA. On account
of the company’s focus on working capital management with progressive
improvement in return ratios, we are initiating coverage on the stock with
a BUY rating and target price of | 120/share based on SOTP valuation.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
http://content.icicidirect.com/mailimages/ICICIdirect_SintexIndustries_InitiatingCoverage.pdf
C o n s e r v i n g c a s h f o r f u t u r e g r o w t h …
Sintex is one of the leading providers of plastic and textile products in
India. With a global footprint, the company is well diversified and has a
presence in businesses like building products, textiles and custom
moulding. The company gains from increasing government spending in
social welfare schemes as these are a huge opportunity set for the
building products segment. In custom moulding, it benefits from
increasing usage of composites. Though earnings growth is expected to
be moderate during FY12-13E due to a slowdown in order execution in
monolithics and industrial slowdown in the overseas businesses, we
expect an improvement in earnings in FY14E. However, on account of
the company’s focus on improvement in balance sheet through working
capital management and moderation in capex, we expect a progressive
improvement in return ratios and cash flows.
Huge growth opportunity in building products segment
Sintex’ building products segment benefits from increasing government
spend in key areas like public housing, education and health. Monolithic
construction derives ~90% of its revenues from the government and
gains on increase in spending in public housing and slum rehab projects.
Prefabs account for ~70% of revenue from government and benefit from
increasing spending in setting up prefabricated schools, healthcare
centres, etc. though various schemes in education and healthcare. These
are the focus areas of the government and have seen an increase in
spending at 14-15% CAGR in the past five years. We expect these areas
to remain the government’s priority and expenditure to increase in
coming years despite the government’s deteriorating financials.
Focus on conserving cash
Against FY08-11, when Sintex had negative free cash flow (FCF) due to a
delay in payments and high capex, we expect an improvement in balance
sheet and cash flows on account of the company’s focus on working
capital management and moderation in capex. We expect the FCF to be
positive in FY13-14E and a progressive improvement in return ratios.
Valuations
At the CMP of | 101, Sintex is trading at 8.0x FY12E EPS, 7.2x FY13E EPS
and 6.3x FY14E EPS. On an EV/EBITDA basis, the stock is trading at 5.5x
FY12E EBITDA, 5.1x FY13E EBITDA and 4.3x FY14E EBITDA. On account
of the company’s focus on working capital management with progressive
improvement in return ratios, we are initiating coverage on the stock with
a BUY rating and target price of | 120/share based on SOTP valuation.
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