Sintex Industries - Awaiting Sunshine - Edelweiss

Sintex Industries' (Sintex) reported top line at INR11.9bn (up 4% YoY and 10% QoQ) mainly driven by strong growth in the prefab business. Though the topline was ahead of our & consensus estimate, company disappointed at the margin level. EBITDA margin came at 15.3% (down 240bps YoY and 120bps QoQ) predominantly due to pressure in monolithic and international custom moulding businesses. PAT of NR771mn were in line with our estimate (10% ahead of consensus). Management maintained that slowdown in the monolithic business will continue for a few more quarters. We maintain 'HOLD' with TP of INR74.

Prefab maintaining pace, but monolithic business a drag

Sintex reported top line of INR11.9bn, up 4% YoY and 10% QoQ, primarily driven by strong growth in the prefab business (38% YoY) and Indian custom moulding business (9% YoY). However, monolithic business and international custom moulding businesses remained a drag on growth (down 14% and 6%, respectively). Although EBITDA at INR1.82bn was exactly in line with our estimate, the company disappointed at the margin level with EBIDTA margin of 15.3%, 120bps below our estimate (margin decline offset by higher sales). Sintex reported PAT of INR724mn, including forex loss of INR49mn (on FCCB); ex-this loss, PAT is at INR771mn, down 22%YoY and flattish QoQ.

FCCB repayment not a concern; exploring finance structures

Management maintained that raising ~USD160mn for the FCCB repayment due in March 2013 is not a concern. Sintex is still exploring various options like FCCB, ECB, QIP etc., and will finalise the structure soon. However, the company has decided to issue 30mn warrants to promoters on preferential basis, price of which will be decided based on SEBI formula. This will bring in ~INR2,000mn into the company if fully exercised, assuming issued in the INR60-65 price range.

Outlook and valuations: Cautious; maintain 'HOLD'

Sintex is currently trading at attractive valuation of 7.1x on FY13E and 6.4x FY14E earnings. However, we maintain our cautious approach on the stock till further clarity on FCCB and monolithic business emerges. We believe overhang on the stock will remain for some more time; we value it at 6.5x earning (~50% discount to past fiveyear average P/E) to arrive at target price of INR74 per share. Maintain 'HOLD'.

Source : Equity Bulls

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