Thursday, March 11, 2010


Growth rebound and reasonable valuations. We expect robust 18% revenue growth (led by 40% growth in the monolithic segment) and 90 bps EBITDA margin expansion in FY2011E to drive a 21% EPS CAGR over FY2010E-FY2012E. The stock is trading at 9.2X FY2011E EPS. Outperformance in 4QFY10E versus KIE estimates—even if only in-line with management guidance—could be a near-term trigger. A rebound in BT shelter and textiles business is another potential trigger in FY2011E.

Building products: Signs of demand growth visible
We expect the company’s building product revenues to grow 25% (versus 10% in FY2010E) in FY2011E based on (1) 40% growth in the monolithic segment based on a strong order book of Rs15 bn (2X FY2011E revenues) with an execution cycle of less than two years; (2) low probability of a further decline in BT shelters revenue and low impact of the same given its much lower proportion of total revenues and (3) increase in growth in the domestic pre-fab business based on a pick-up in overall growth.

Custom Molding: The worst is past
We expect custom molding revenues to rebound on the back of (1) revenue flows begin from BrightAuto’s Chennai plant which has been set up to supply electrical accessories to Schneider; (2) higher growth in Nief Plastics (subsidiary) which has historically been impacted by its high proportion of revenues from the global automotive segment (55% in CY2007 when it was acquired) but now the exposure is only 25% and (3) focus over the past 18 months on the aerospace and medical equipment industry contributing revenues in FY2011E.

Raise target price, reiterate BUY
We reiterate our BUY rating with a target price of Rs310 (earlier Rs280) based on 11X FY2011E EPS. The stock is currently trading at 11.7X FY2010E and 9.2X FY2011E EPS. We are raising our EPS estimates for FY2010E and FY2011E to Rs22.2 and Rs28.1 from Rs21.3 and Rs26.8, respectively, on the back of higher revenue from the building products segment (7% increase in FY2010E and 8% in FY2011E). We expect revenue growth to revive from 4QFY10E driven as (1) revenues from the monolithic segment begin to be recognized (44% of FY2010E revenues to be booked in 4QFY10) and (2) the revenue decline in its BT shelter and textiles business over FY2011E is arrested.

To read the full report: SINTEX INDUSTRIES