>SINTEX INDUSTRIES LIMITED: Will significantly cut capex and slow down execution of its working-capital-intensive monolithic business.

Looking to improve the balance sheet profile, but at a cost of lower growth; cut PT to Rs115

■ Looking to improve its balance sheet profile as the operating environment becomes more challenging: We expect SINT to significantly cut its capex over the next two years, while slowing down the execution of its monolithic projects to preserve working capital, as payments from the government have slowed considerably over past 1-2 quarters.


■ Monolithic business likely to slow down sharply: Execution for the monolithic business is slowing down, as payments from the government are being delayed, and delays in government clearances and site handovers are adding to the slowdown. We reduce our monolithic business growth estimates for FY12/13 from 30% to 5%.


■ Receivables cycle getting stretched, but cash flows to improve: We believe that while working capital in FY12 is likely to deteriorate at the margin on account of the delay in government payments, free cash generation should improve aided by slower growth of the working-capitalintensive monolithic business and lower capital expenditure.


■ Comfortable on FCCB repayment: Management is comfortable on the FCCB maturing in Mar 2013. The repayment of US$278MM will be partly met through US$170MM of US$-denominated cash deposits. The remaining US$110MM will likely be refinanced through a US$-denominated ECB.


■ We reduce our PT to Rs115: We cut our FY12-FY14 EPS estimates by 14%-20% to incorporate lower growth for the monolithic business. We also reduce our Sep-12 PT to Rs115 based on 7x FY13E P/E (from Rs208 based on 10x FY13E P/E). We cut our target multiple from 10x to 7x to factor in the lower growth outlook; our target multiple is in line with the domestic peer group average. Key risks include deteriorating working capital, nonrelated ventures, and a further slowdown in the European business.


RISH TRADER