12 July 2013
1QFY14 Results Update | Sector: Diversified
Sintex Industries
BSE Sensex
S&P CNX
19,958
6,009
Bloomberg
SINT IN
Equity shares (m)
324.1
M. Cap. (INR b)/(USD b)
13.0/0.2
52-Week Range (INR)
76/37
1, 6, 12 Rel. Perf. (%)
-19/-45/-53
CMP: INR40
TP: INR49
Buy
Financials & Valuation (INR b)
Y/E March
Net sales
EBITDA
Adj. PAT
Adj EPS (INR)
EPS Gr. (%)
BV/sh. (INR)
RoE (%)
RoCE (%)
Payout (%)
Valuations
P/E (x)
P/BV (x)
EV/EBITDA (x)
Div. Yield (%)
2013 2014E 2015E
51.1
7.7
4.1
13.3
2.1
100.4
14.3
10.3
7.8
3.0
0.4
5.1
1.8
53.0
8.2
3.5
10.9
-17.9
108.0
10.7
9.4
7.9
3.7
0.4
4.7
1.8
59.1
9.5
4.4
12.6
15.5
121.1
11.0
9.7
5.9
3.2
0.3
3.9
1.8
Sintex Industries' (SINT) 1QFY14 revenue was up 4.4% YoY (-19% QoQ) to
INR11.3b (v/s est of INR13b), led by 16% and 13% YoY decline in domestic
composites (largely Bright) and Monolithic respectively. EBITDA margin was
down by 2.1pp YoY (0.8pp QoQ) to 14.3% (v/s est of 15.5%), which translates
into an EBITDA decline of 13% YoY (-15% QoQ) to INR1.6b (v/s est of INR2b).
Margins shrunk across segments (barring Prefab), with a sharp decline in
Monolithic (-5.3pp YoY) and domestic composites (-6.1pp YoY). Adjusted PAT
was down 34% YoY to INR503m.
SINT witnessed a sharp decline (-13% YoY, -21% QoQ) in sales and 5.3pp fall in
operating margin in the monolithic segment, with problems of less
remunerative sites continuing. Management guidance is likely to translate
into almost 25%+ decline in FY14E monolithic revenue to INR7-7.5b.
Prefab vertical continues to remain the bright spot, with 19% YoY (-30% QoQ)
growth in sales and 3.4pp QoQ expansion in margin to 23.4%. Declining
contribution from telecom shelter segment (a lower margin business) has
been a key to margin improvement.
It plans to set up a new spinning unit (320,000 spindle) for the textile division
(likely capex of ~INR17b over 24-30 months) in Gujarat on the back of
favorable state government policy and tax exemption.
Despite possible long term benefits of overseas acquisitions and plan textile
capex, we believe any deterioration in balance sheet strength would create
near term stock overhang and restrict immediate re-rating of the stock.
We downgrade SINT's adjusted EPS by 14%/22% to INR10.9/INR12.6 for FY14E/
15E led by (a) 34%/11% reduction in Monolithic/Domestic composites FY14
revenue and (b) 1%/3% reduction in FY14E margins to 15%/15.1%. It translates
into FY14E and FY15E based target price of INR49/share (4.5x EPS) and INR55/
share (4x) respectively. The stock trades at 3.7x FY14E and 3.2x FY15E EPS. We
remain cautiously optimistic and maintain a
Buy.
Sandipan Pal
(Sandipan.Pal@MotilalOswal.com); +91 22 3982 5436
Investors are advised to refer through disclosures made at the end of the Research Report.
1

Sintex Industries
1QFY14 revenue, margins disappoint - led by sharp plunge in monolithic
and domestic composites
1QFY14 revenue was up 4.4% YoY (-19%QoQ) to INR11.3b (v/s est of INR13b), led
by 16% and 13% YoY decline in domestic composites (largely Bright) and Monolithic
business.
EBITDA margin wasdown 2.1pp YoY (+0.8pp QoQ) to 14.3% (v/s est of INR15.5%),
which translate into EBITDA de-growth of 13% YoY (-15%QoQ) to INR1.6b (v/s est
of INR2b).
Margins shrunk across segments (barring Prefab), with sharp decline in Monolithic
(-5.3pp YoY) and domestic composites (-6.1pp YoY).
Adjusted PAT was down 34% YoY to INR503m, while MTM forex loss stood at INR37m
(lower than expectation as it sold USD30m of hedging during the quarter). Higher
interest cost is attributable to 7.5% coupon payment on USD140m of FCCB.
Hibernation continues with weakening visibility on monolithic
SINT has witnessed a sharp decline (-13%YoY, -21%QoQ) in sales and 5.3pp fall in
operating margin in monolithic segment, with problem of less remunerative sites
continuing.
On the back of management's focus to execute only better profitable projects is
likely to translate into almost 25%+ de-growth in FY14 monolithic revenue to
INR7-7.5b (v/s INR10b in FY13).
While it may improve working capital position and margin moderately, the overall
growth of the company is expected to taper owing to this.
We assume 27%YoY de-growth in monolithic in FY14, followed by +10%YoY growths
in FY15.
Struggling automobile demand worsens near-term custom molding outlook;
overseas composites improved
1QFY14 have raised concerns over outlook on domestic custom molding which is
meaningfully impacted by struggling growth in automobile segment (Bright
business).
While the management highlights stability of growth in non-auto segments
(industrial, electrical etc), we expect a possible deceleration in auto-linked
demand to curb overall domestic business (leading to denting Bright's utilization)
to moderate (we assumed 6%/9%YoY in FY14/15) growth trajectory in near-term.
Overseas composites business improved on rupee depreciation and uptick in
demand (tonnage growth of 14% YoY), leading to 23%YoY (+3.6%QoQ) growth in
sales, along with 2.1pp QoQ expansion in margin. SINT's recent acquisitions in
Germany and Poland, have also contributed partially in improving overseas
revenue.
While the management earlier guided for Euro 20m/ Euro 40m revenue in 2HFY14/
15 from these assets, over 1HFY14, the plants are operating partially with Euro
7-9m contribution (4% margin). It expects overseas margin to improve on the
back of stabilization of these new acquisitions.
12 July 2013
2

Sintex Industries
Prefab business a bright spot - continue to post robust growth
Prefab vertical posted 19%YoY (-30%QoQ) growth in sales with 3.4ppQoQ
expansion in margin to 23.4%. Declining in contribution from telecom shelter
segment (lower margin business) has been a key to margin improvement - which
is expected to aid margin stability at 23-34% for prefab business here on.
We believe the segment is expected to drive strong growth in FY14/15 (assumed
23%/20% sales growth in FY14/15) on the back of (1) steady execution, (2) new
market entry in MP, UP, and recent inroads into Bihar, and (3) rising social spending
before elections.
INR17b Investment plan in textile would be a pressure point to balance
sheet strengthening
The management plan to set up new Spinning Unit (320,000 spindle) of Textile
Division (likely capex of ~INR17b over 24-30months) in Gujarat on the back of
favorable state government policy and tax exemption. Where the plan is still
under evaluation stage, the management expects 18-20% RoIC on such investment.
It has also guided for capex of INR4b in FY14 (v/s INR1.5-2b earlier), largely focused
towards Prefab and custom molding segments for plant rationalizations. On the
same strategy, to augment cost efficiency, the company has also shut down storage
tank plants in three locations.
Near-term outlook on key business segments (monolithic, composites) remain
uncertain, diluting the likelihood of any sharp improvement in working capital
situations. Therefore, the huge investment plan in textile, along with higher capex
guidance, would be a key pressure point for balance sheet strengthening over
immediate horizon.
Valuation and view
We downgrade SINT's adjusted EPS by 14%/22% to INR10.9/INR12.6 for FY14E/15E
led by (a) 34%/11% reduction in Monolithic/Domestic composites FY14 revenue
and (b) 1%/3% reduction in FY14E margins to 15%/15.1%. It translates into FY14E
and FY15E based target price of INR49/share (4.5x EPS) and INR55/share (4x)
respectively.
Despite possible long term benefits of overseas acquisitions and potential textile
12 July 2013
3

Sintex Industries
capex, we expect any deterioration in balance sheet strength due to these would
create near term stock overhang and restrict immediate re-rating. The stock trades
at 3.8x FY14E and 3.3x FY15E EPS. We remain cautiously optimistic and maintain a
Buy.
Monolithic: sharp de-growth
Prefab: Robust growth continues
Textile: margin deteriorates
Domestic composites: Weakens sharply
Foreign composites: growth led by currency impact, better
demand and new acquisitions
Trend in Tank business
Source: Company, MOSL
12 July 2013
4

Sintex Industries
Sintex Industries: an investment profile
Company description
Sintex Industries (SINT) is one of the most integrated
plastics processors in India. The key areas of operation
are Building materials (Prefab and monolithic
construction), custom moldings, storage products and
textiles. Building Materials business caters to two kinds
of low-cost construction opportunities - (1) Housing, via
monolithic construction, and (2) Non-housing, via prefab
structures (rural classrooms and healthcare clinics,
sanitation, army barracks, worker shelters, etc). The
company will continue to benefit from the rising trend
of "plasticization", i.e. substitution of metals by plastic
composites across industries, mainly autos, electrical,
erospace, and healthcare, defense, etc.
Recent developments
The management plan to set up new Spinning Unit
(320,000 spindle) of Textile Division (likely capex of
~INR17b over 24-30months) in Gujarat on the back
of favorable state government policy and tax
exemption. Where the plan is still under evaluation
stage, the management expects 18-20% RoIC on
such investment.
It has also guided for capex of INR4b in FY14 (v/s
INR1.5-2b earlier), largely focused towards Prefab
and custom molding segments for plant
rationalizations.
Valuation and view
We downgrade SINT's adjusted EPS by 14%/22% to
INR10.9/INR12.6 for FY14E/15E led by (a) 34%/11%
reduction in Monolithic/Domestic composites FY14
revenue and (b) 1%/3% reduction in FY14E margins
to 15%/15.1%. It translates into FY14E and FY15E
based target price of INR49/share (4.5x EPS) and
INR55/share (4x) respectively.
Despite possible long term benefits of overseas
acquisitions and potential textile capex, we expect
any deterioration in balance sheet strength due to
these would create near term stock overhang and
restrict immediate re-rating. The stock trades at 3.7x
FY14E and 3.2x FY15E EPS. We remain cautiously
optimistic and maintain a
Buy.
Key investment arguments
We believe Sintex's long-term growth story is
broadly intact.
Building materials offers secular play on
government's spending on low cost housing and
social infrastructure e.g. slum rehabilitation is an
INR4.5t opportunity.
Composites would enjoy synergies with overseas
subsidiaries and continuous innovations to drive
next phase of profitable growth.
EPS: MOSL forecast v/s consensus (INR)
MOSL
Forecast
10.9
12.6
Consensus
Forecast
10.7
12.1
Variation
(%)
1.6
3.9
Target price and recommendation
Current
Price (INR)
40
Target
Price (INR)
49
Upside
(%)
22.5
Reco.
Buy
FY14
FY15
Stock performance (1 year)
Shareholding pattern (%)
Mar-13
Promoter
Domestic Inst
Foreign
Others
12 July 2013
36.2
12.1
23.9
27.9
Dec-12
36.2
11.2
23.5
29.2
Mar-12
36.5
8.2
30.0
25.3
5

Sintex Industries
Financials and Valuations
12 July 2013
6

Sintex Industries
N O T E S
12 July 2013
7

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Sintex Industries
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