[Investors] Sintex Positive surprises ahead, BUY on Sintex, with a target price of Rs293/Share,

Sintex Industries Ltd.

 

Positive surprises ahead, Reiterate BUY

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BUY

 

CMP: Rs 220                                   Target Price: Rs 293

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Discussion with Sintex's management suggests (1) pick up in volumes and execution in standalone businesses (except Textiles and BT Shelters) and (2) signs of improvement in overall demand environment of subsidiaries. We expect Sintex to report strong H2FY10E performance driven by - (1) strong volume growth of 10-12%, (2) raw material price levels ~ 10% higher yoy and (3) inventory MTM of Rs300mn in Q3FY09 no longer there. Our estimates imply earnings growth of 25% yoy in H2FY10E, Sintex might surprise positively. Secondly, the better performance is likely to be led by high margin verticals - (1) monolithic (EBITDA margins of 18-19%), (2) Standalone prefabs-ex BT Shelters (18% EBITDA margins) and (3) standalone electrical custom moldings (25% EBITDA margins). Further, with improvement in demand environment and margins, subsidiaries are set for yet another positive surprise amidst negligible contribution built in. Our earnings estimate stands at Rs24.4 and 29.3 for FY10E and FY11E respectively. At CMP of Rs220, the stock is trading attractively at 7.5x FY11E earnings and 1.3x FY11E Book Value. This is 25% discount to its 5yr average multiple of 10x 1yr Fwd earnings. We reiterate BUY on Sintex, with a target price of Rs293/Share, amidst - (1) attractive valuations, (2) likely positive surprises, (3) strong balance sheet with cash in hand of Rs12bn and (4) healthy ROE of 19%.

 

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