CMP: Rs194 Target Price: Rs244
Sintex reported a 9% yoy decline in Q1FY10 consolidated revenues to Rs6.6bn led by commodity price deflation and muted volume growth. The EBITDA margins (adjusting for Rs150mn of monolithic expenses in Q1FY09) declined by 180bps YoY driven by low capacity utilization especially in the prefabs and monolithic construction vertical. However, higher other income and lower interest expense resulted in reported PAT growth of 7% YoY to Rs605mn. After adjusting for Rs150mn of monolithic expenses in Q1FY09, the APAT declined by 9% YoY. Sintex reported disappointing performance in standalone operations led by lower execution in monolithic business and lower growth in prefabs business. But, subsidiary performance was positive surprise with all key subsidiaries barring Wausaukee reporting strong performance.
We believe that Q1FY10 standalone performance was brief pause to achieve sustainable long-term growth. Thus, we believe that standalone performance is likely to improve from Q2FY10E led by (1) higher execution in the monolithic business on the back of robust order backlog and (2) better order inflows in prefabs from development programs like JNNURM, Bharat Nirman etc. Further, we have factored marginal contribution to consolidated profits from subsidiary business in FY09-11E period. Considering strong performance by key subsidiaries in Q1FY10E, there is high probability of earnings upgrade in subsequent quarters. Currently, we maintain our earnings estimates of Rs24.7 and Rs29.6 for FY10E and FY11E respectively. At CMP of Rs195, the stock is trading at 6.6x FY11E earnings and 1.1x FY11E Book Value – way below its long-term average. We maintain our 'BUY' rating with a revised price target of Rs244 (Rs197 earlier) based on 9x 1-year fwd rolling PER.
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