STOCK IDEAS- Sintex Industries Limited

Sintex Industries Limited

BSE Code: 502742

NSE Code: SINTEX

The need for affordable and sturdy structures has led to increased usage of plastics as good alternate to base metals and other material in several automotive, electrical, construction and industrial applications. Sintex Industries Limited (Sintex), a dominant player in the plastic and textile business in India would benefit from this increased plastic consumption.

Business:

Incorporated in the year 1931 as Bharat Vijay Mills, Sintex was primarily a textile company which diversified into plastic business in 1974, with manufacturing of water tanks. Later on, the company diversified into plastic products like doors, custom moldings and building materials taking inorganic route to scale up its operations. Sintex has 35 manufacturing sites out of which 15 plants are located in India and rest outside India in Europe and US.

Sintex’s core business can be broadly classified into two Segments – Textiles and Plastics.

Textiles: This segment contributes to around 15% to sales revenues and is engaged in the

manufacture of fabric for premium retail garmenting and industrial fabric. Sintex’s product mix in textiles comprises of yarn-dyed structured fabrics & design based ready made garments.

Sintex is planning to augment its current installed capacity of 24 million metres by another 5 million metres by FY09 at an investment of Rs. 110 crores. This high margin niche segment (with operating margins of 26-27%) is expected to grow at CAGR of 12-14%, led by capacity expansions and enhanced design capabilities.

Plastics: This segment (contributing around 85% to sales revenues) is the main growth driver for the Company. Sintex has transformed this segment from manufacturing model to a high-value service intensive model and rearranged its business into two main divisions - building materials (comprises pre fabricated structures, monolithic structures and storage tanks) and custom molding.

Building materials: Sintex is the largest player in domestic prefabs market where the demand mainly comes from primary school buildings, army shelters, sanitation blocks, BT shelters for telecom, site offices, godowns, work shelters and other such areas. Recently in last quarter, Sintex has acquired Digvijay Communications Network through its subsidiary, Zeppelin Mobile Systems which will play a vital role in assisting Zeppelin penetrate the telecom infrastructure space in Central India. Sintex generated around 30% revenues in FY08 from its prefabs business. With wider acceptance as alternative source for quick and maintenance free shelters, there is huge potential for prefabs which is expected to grow at CAGR of around 35-40% over next few years.

In the monolithic segment the demand comes for low cost mass housing, slum development and government quarters which has been increasing significantly. Sintex is presently handling projects in 16 states across the country. According to company sources, “Sintex has strong current order book of Rs 1500 crores to be executed over a period of next 2 years and it expects the monolithic construction business to grow at CAGR of 70-80% over next few years”.

Custom molding: Plastic composites are fast becoming a high potential business offering as they offer greater benefits across several applications in automobile and electrical segments besides windmill, aerospace and defence amongst others. Sintex has over last 2 years acquired several companies like Bright Autoplast (India), US based Wausaukee Composites & Nero Plastics, Europe based Nief Plastics and Geiger Technik (Germany), which has enabled Sintex to establish a strong international footprint with customer acquisitions and multi product facilities spread across the globe catering to various verticals. Led by consolidation of these units, custom molding segment is expected to be huge growth driver going ahead.

Expansion plans:

Sintex is expanding very vastly its capacity organically in all segments like textile, prefabs, monolithic and custom molding. To expand its custom molding business including its electrical facilities, the company will spend Rs. 180 crores. Sintex is planning to double the capacity of its prefab facilities by investing around Rs. 200 crores. Sintex is also planning to expand its very important monolithic business at a cost of Rs 810 crores. Additionally it has earmarked around Rs. 900 crores for acquisitions and thereby inorganic growth.

Investment rationale:

Sintex provides differentiated & innovative product offerings both in textile and plastics segment thus enabling the company to grow quicker than peers with significantly higher profitability. The considerable increase in investment by the Government on rural infrastructure, healthcare and education provide excellent scope for business growth in plastics segment. Opportunities in the low cost housing and power segments would continue to drive Sintex’s steady growth in Building Materials and Custom molding businesses. Integration of its recently acquired businesses would help to leverage on the synergies they offer in terms of new products, enhanced offerings to customers and entry into new geographies. Further capacity expansions, investments in machinery and overseas acquisitions make Sintex a great investment prospect in the medium to long term.

Concerns:

Sintex faces execution risks related to scaling up its businesses and integration risks from its acquisitions done in last 2 years. Any hike in cost of raw materials like cotton, polymers and naphtha may impact the margins but Sintex would be able to pass on the hike to end customers. Plastics being low entry barrier business, Sintex faces competition from regional players but the company would be able to tackle the same due to its established relationships and developed product profile..

Valuations:

Sintex has been performing consistently over last 15 years with top line growing at CAGR of 24% and bottom line growing at CAGR of 32% on the back of diversifying business portfolio and reach. With vigorous growth in order book, capacity expansion and huge potential in prefabs & monolithic construction segment, Sintex’s revenues are expected to grow at CAGR of 46% over FY08-FY10E and net profit at CAGR of 44% between FY08-FY10E. At CMP of Rs 275.55, Sintex trades at a P/E of 11.88x & 7.96x its FY09E & FY10E earnings respectively. In view of its diversified portfolio, wide presence, strong order book position and good fundamentals, Sintex can be looked at current levels from medium to long term perspective.

SALES AND PROFIT PROJECTIONS
		Consolidated Annual
in Rs. Crore	Q1 FY09	FY08	FY09(E)	FY10(E)
Net sales	714.81	2274.23	3297.49	4847.31
OP	78.49	382.70	527.60	787.69
PAT	56.48	230.32	316.56	472.61
Capital	27.10	27.10	27.30	27.30
EPS (Rs.)	4.17	19.54	23.19	34.62

PRICE AND VALUE RATIOS
Price	275.55	Date	26/9/2008
PE	14.10	PB	2.50
Book value per share	110.07	EV	3417.13
EV/EBIDTA	7.72	Mcap	3761.13

SHAREHOLDING PATTERN
Share holding	Jun 2008
Promoter owned	29.15
Public owned	6.8
FIIs owned	41.55
Others owned	22.5