>Sintex (CENTRUM)

Company Background: Incorporated in 1931, Sintex Industries Limited is a dominant player in the plastic and textile segments. The company manufactures a wide range of building materials and composites across India. Sintex is expanding its capabilities in the composite market, (composite market in India worth $1 billion) through M&A activities. This provides the company access to technologies and large OEMs that are crucial for technology adoption. Subsequent to several strategic acquisitions, the company possesses a global footprint, spread across the USA and Europe. In the textile segment, the company is focused on niche offerings, specialization in men’s shirting, catering to premium fashion brands like Burberry, Armani, Hugo Boss and Arrow, among others.

Revenue visibility: The monolithic business has an order book of Rs.1,200 cr (approximately), to be executed by the end of FY’10E. Taking into consideration India’s housing shortage at 24.7 mn units and the Government’s focus on the housing sector in the 11th Five year plan, there exists a huge opportunity of growth for the company, going forward.

Monolithic segment – Key growth driver: Monolithic construction has emerged as a preferred substitute for traditional concrete construction, on account of its superiority on various parameters like construction time, cost, etc. A monolithic project can be completed within a timeframe of six months as compared to 18 to 24 months, taken by a concrete structure. Sintex has bagged orders for its monolithics segment from various Governments, including Gujarat, Delhi, Rajasthan and Madhya Pradesh, among others. The present order position is to the tune of Rs.1200 cr (approximately), to be executed by FY’10E.

Entry barriers in the pre-fabricated segment: A key entry barrier in the pre-fabricated segment is getting approval, for every product, from the designated authority of the respective State Government. Even a variant of the existing product requires approval from the authority. Sintex has received approvals from 16 states for all its key products in the prefabricated segment. On an average, an experienced five member team can set up a classroom weighing 1000 kilograms within a span of three days, in addition to the traveling time of two days, from the manufacturing facility to the site.

Financials: In 9MFY’09, the net sales increased by 65.94% to Rs.2,233.26 cr and PAT increased 55.50% to Rs.211.1 cr, compared to 9MFY’08. For FY’09E, the company is expected to achieve a net sales of Rs.2,953 cr and PAT of Rs.281 cr. On an equity of Rs.27.3 cr, the EPS for FY’09E works out to around Rs.20.59. Net Sales and PAT for FY’10E could be around Rs.2,510 cr and Rs.220 cr respectively. This translates into an EPS of 15.02 for FY’10E.

Valuations: At the present market price of Rs.72, the stock is trading at 3.50x its FY’09E earnings and 4.79x its FY’10E earnings. Sintex has a strong balance sheet with cash in hand of about Rs.1,600 cr. On account of the global slowdown, two of the company’s subsidiaries, Wausaukee Composites and Bright Auto would be negatively impacted. However, at the present price of Rs.72, we feel that all the negatives have been factored into the price. Consequent to today’s announcement by General Motors that they do not require the $2 billion loan, the overall sentiments of the auto sector, a key customer to which subsidiaries of Sintex cater to, has improved. Taking all this into consideration, we recommend a “BUY” on the stock with a target price of Rs.97 over a span of nine months.

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