Equity Capital – Rs.28 Cr
No. of equity shares – 136494833
Promoter holding – 30.15 %
Institutions – 62 %
General Public holding – 7.56% (10318849)
Market Cap – Rs.3750 Cr
Reserves – Rs.1600 Cr
EPS (Rs.) – Rs.19.62
52 week high/low – Rs.296.90/Rs. 70.30
CMP – Rs.274
Domestic plastic business picking up; Revenues in line:
Sintex Industries' (Sintex) consolidated Net Sales grew by 3.4% to Rs848cr (Rs820cr) in 3QFY2010; however, sequentially they grew by 18.5%, in line with our estimates. The strong sequential revenue growth was largely led by the domestic single storey pre-fabs and the domestic custom moulding segments, due to better capacity utilisation and a pick-up in orders. The monolithic segment witnessed a moderate Y-o-Y growth of 1.6%, much below our expectation, due to slower execution. The management has maintained its annual revenue guidance of ~Rs700cr. Standalone BT Shelters and the textile segment continue to drag the revenues. The benefit of higher raw materials prices will kick-in from the ensuing quarters, there by boosting Sintex's Top-Line.
Operational performance impacted by a lower contribution from the textile and monolithic segments:
Sintex's 3QFY2010 consolidated Operating profit was at Rs.126.9cr (Rs127.3cr), flat Y-o-Y due to lower contribution from the high margin monolithic and textile segments. The OPM for the quarter stood at 15.0%. The international business has shown stability in its operating margins, due to the ongoing integration process. The EBIT margin for the Plastic segment improved by 85bp Y-o-Y, but was lower by 308bp Q-o-Q, due to lower contribution from the high margin monolithic segment. Though the quarterly margins are not a fair indicator, we can expect a high contribution from both the segments in 4QFY2010.
Management maintains its FY2010 guidance:
The management has maintained its annual revenue guidance of Rs.3,300 Cr and of a 5% Y-o-Y PAT growth in FY2010. As on 2QFY2010, Sintex has a cash balance of Rs.1,100 Cr and debt of Rs1,900cr on its books; thus sufficiently funded for capex and for acquisitions.
Outlook and Valuation:
Sintex's higher exposure to government orders provides it with higher visibility and a lesser risk of cancellation in the domestic plastic segment. The Monolithic segment has an order book position of around Rs1,500cr. Going ahead, we can expect the company's business to be primarily driven by its domestic plastic segment, on account of the government's higher thrust on infrastructure and a pick-up in private capex.
We expect growth to accelerate in the ensuing quarters, as the company starts passing on the higher input prices to its customers; additionally, the recovery in the domestic auto and electrical segments will boost its custom moulding segment.
We believe that Sintex will resume its historical growth trajectory from FY2011 onwards. The integration of foreign subsidiaries will act as a key catalyst for the stock's performance. However, early signs of margin recovery are already visible.
At Rs270, the stock is currently trading at a P/E of 9.4x its FY11E & 7.7x its FY12E Earnings and at 1.4x its FY2012E Book Value. Historically, Sintex has traded at 13.6x its one-year forward average (two, three and five-year) P/E. So if we consider P/E of 13x, price target for FY11E should be Rs.370 & for FY12E it should be Rs.450. So this makes the current valuations attractive. Moreover, its fundamentals have been strengthened with a well-capitalized balance sheet, strong revenue visibility (monolithic order book of Rs.1,500 Cr), and a demand revival in its domestic plastic segment.
ACCUMULATE this stock, with a Target Price of Rs.370 & then Rs.450.
Y/E March (Rs cr) - FY2009; FY2010E; FY2011E; FY2012E
Net Sales - 3,136; 3,280; 3,845; 4,595
Net Profit - 325.1; 306.5; 375.8; 455.6FDEPS (Rs) - 24.0; 22.6; 27.7; 33.6
P/E (x) - 10.8; 11.5; 9.4; 7.7
P/BV (x) - 2.4; 2.0; 1.7; 1.0
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