By Angel Broking

Sintex Industries’ (Sintex) 1QFY2011 results were marginally above our expectations. The company reported strong revenue growth of 37.5%, largely driven by its monolithic, standalone pre-fab and domestic custom moulding segments. During the quarter, Sintex booked Rs20.5cr of one time loss, resulting in a 43.6% yoy decline in other income. Management reiterated its strong outlook for the domestic plastic segment and growth trajectory going ahead. We maintain Buy on the stock.

Strong growth across segments: Sintex’s consolidated net sales grew by 37.5% yoy to Rs911cr. Strong yoy revenue growth was primarily led by the monolithic (up 89.2%), standalone pre-fab (up 30.1%), domestic custom moulding (140.1%) and textile (up 30.0%) segments. Nief and Wausaukee reported moderate revenue growth on account of higher rupee appreciation; however, they reported strong numbers in constant currency terms. Sintex’s 1QFY2011 consolidated operating profit stood at Rs137cr, up 57.2% yoy. OPM for the quarter stood at 15.1%, up 189bp yoy on higher contribution from the high-margin monolithic segment. During the quarter, the company booked Rs17.5cr of MTM loss (on its FCCB), and Rs 3.5cr of one time settlement, resulting in a 43.6% yoy decline in otherincome and higher interest expenses (up 75.5% yoy). Consequently, PAT came in at Rs78.8cr, up 30.1% yoy, which was in line with our expectation.

Outlook and Valuation: At Rs332, the stock is trading at 9.4x FY2012E earnings and 1.7x FY2012E book value. Historically, Sintex has traded at 13.2x its oneyear forward average P/E, which makes current valuations attractive. Moreover, the company’s fundamentals have strengthened with a well-capitalised balance sheet, strong revenue visibility (the monolithic segment’s order book stands at Rs2,300cr) and robust demand in the domestic plastic segment. We maintain a Buy rating on the stock with a target price of Rs385.

Operating performance driven by Monolithic Segment

The plastic segment reported growth in EBIT margin, up 209bp yoy on account of a better product mix in favour of the high-margin monolithic segment. The company reported 19% OPM in the monolithic segment in 1QFY2011, as against 12% in 1QFY2010. EBIT margin in the textile segment expanded by 260bp yoy owing to pick-up in demand in high-end fabrics. In our view, the quarterly margins are not a fair indicator of the company’s performance due to lumpiness of its business.

Segment-wise performance

-The company’s monolithic segment drives the revenue of the domestic plastic segment. Management has guided annual revenue of around Rs1,100cr in FY2011E for the segment and expects strong order inflow.

-All segments have grown on a yoy basis, except the standalone BT shelter and Zeppelin segments.

-The textile segment reported strong revenue growth of 30% yoy to Rs99cr on account of a low base and pick-up in demand in high-end fabrics. Going forward, management is positive about stability in the segment’s current demand.

-The standalone pre-fab segment, which includes BT shelter, grew 30.1% yoy in 1QFY2011. Going forward, Sintex’s exposure in the telecom sector will be limited through its subsidiary Zeppelin.

-The monolithic segment grew 89.2% yoy on a low base and higher execution. Moreover, the order book of Rs2,300cr provides strong revenue visibility over the next two years. We expect the segment’s revenue to grow at a 40% CAGR over the next two years.

-The domestic custom moulding segment’s revenue grew by 140% yoy to Rs127cr, owing to a surge in demand in electrical accessories and investment in the power sector. Bright Autoplast’s revenue continued to report good set of numbers, growing 47.0% yoy, driven by increasing capacity utilisation of its new Chennai plant and addition of new customers. Nief and Wausaukee reported good set of numbers on accountof improving volumes in constant currency terms. Consequently, consolidated custom moulding segment’s revenue grew by 38.9% yoy to Rs451cr.

Investment Arguments

Dominant player in the domestic plastics market

The company’s domestic business contributed around 70% and 80% to overall revenue and EBITDA, respectively, in FY2010. Sintex is 10x the size of its nearest competitor in single-storey pre-fabs; 6x in custom mouldings; and is the sole monolithic construction player in the country. The company derives around 60% of its total domestic revenue from government contracts. The monolithic segment has an order book of around Rs2,300cr, which provides further visibility. We estimate Sintex to register 28% and 30% yoy growth in its domestic revenue and EBITDA in FY2011E, respectively, with high revenue visibility underpinned by the government’s thrust on schools and hospitals in economically backward areas and slum rehab projects.

Synergies in international business showing signs of improvement

The benefits of integration and restructuring of overseas subsidiaries are already reflecting in the company’s improved margins. International acquisitions are yielding 10–11% OPM, an improvement of 500bp since acquisition; and we estimate further improvement of 400bp by FY2012E on account of the integration process.

Trading at attractive valuations

Sintex has low net debt/equity of 0.8x, even after factoring non-conversion of FCCBs maturing in FY2013E. The stock is currently trading at 9.4x FY2012E EPS. Over the last five years, Sintex has traded at an average one-year P/E of 13.2x, which makes current valuations attractive. Moreover, further integration of the foreign subsidiaries will act as a key catalyst for the stock. Valuing the stock at 11x FY2012E EPS (15% discount to five-year average), we arrive at a target price of Rs385.