Robust Q2FY15 & H1FY15 Results

Maintain
BUY

S I N TE X I ND U S TR I ES
HAS GOOD POTENTIAL

Retail Desk
17 October 2014

Rating

Buy

CMP (`)

81

Company Description:
Sintex Industries was incorporated as Bharat Vijay Mills in Kalol, Gujarat in 1931
and was engaged in the textile business over 1931-74. In 1975, SIL commenced
manufacturing of plastic molded polyethylene liquid storage tanks including
water tanks and introduced new plastic products like doors, window frames and
pallets. Sintex group has 36 manufacturing plants in India and abroad.

CORP.

Target Price (`)

135

Upside (%)

Key Data
BSE Code
NSE Code
Reuters code
Bloomberg Code
Sensex
Face Value (`)
Mcap (` Cr.)
52 week H/L (`)10
2 Wk Avg Qty
Share holding,
September14
Promoters
FIIs
DIs
Corporates
Public
Performance
(%)
3M
Stock-SIL
-16.0
BSE 200
0.9
BSE 500
0.7

67

502742
SINTEX
SNTX.BO
SINT IN
26108
1
2876
107/27
2656000

Holding %
40.6
17.6
4.3
6.8
30.7

In 1995, company was renamed as Sintex Industries and commenced

manufacturing of SMC molded products, undertook modernization and expansion
of the textile unit and commenced structured yarn dyed business. SIL entered
prefab structures business in 2001 and started monolithic business in 2005.
Today, SIL, a business Superbrand is a plastic processing MNC with operations in
13 manufacturing locations and 12 nations across four continents. SIL divides its
business into two segments namely plastics and textiles the plastics business
contributes more than 90% of topline. Exports constitute about 25% of sales.

Subsidiaries:

SIL has subsidiaries like Zep Infratech India, Sintex Holdings BV, Netherlands and
other six subsidiaries in UK, USA, India and France. Sintexs customised moldings
business caters to Fortune 500 customers across continents and various sectors.

Acquisitions:

Sintex made four acquisitions in India and overseas to enhance its presence in
the composites segment. SILs acquisitions in the composites segment include
Wausaukee Components and Nero Plastics in the US, Bright Autoplast in India,
and NIEF Plastics in France. These acquisitions have strengthened Sintexs
position by giving it access to technology and customers.

LTD

Price Chart: (One-Year)

http://www.sintex.in
Vijay Dave
vijaydave@sunidhi.com
Ph: 91-22-6760 7700

Technicals by
Niranjan Sane
nbsane@sunidhi.com

6M
71.7
16.1
17.1

12M
172.4
31.9
34.2

Expansion and Capex:

Total planned Capex for FY15E/16E stands at `1400 crore/`350 crore, including
total maintenance Capex of `200 crore in the period. Of the total earmarked
Capex of `1400 crore in FY15, `1000 crore would be spent on the spinning
project, `200 crore for acquisitions and the remaining as ongoing Capex.
However, with phase-I Capex of spinning likely to be over in FY15, total Capex in
FY16 will be curtailed to `200 crore.

(GMDV)

Key Financial: (Consolidated)

Year-March

Sales/OP Inc
PBIDT
Interest
PBDT
Depreciation
PBT
Tax
PAT
Equity
Reserves
Book Value (`)
EPS (`)
OP Margin (%)
NP Margin (%)
P/E

H1FY15A

3025.2
496.2
132.6
363.6
114.8
248.8
79.8
169.0
35.5
3872.1
110.1
4.8
16.4
5.6

H1FY14A

2493.0
370.1
91.1
279.0
113.6
165.4
47.0
118.4
31.1
3252.3
105.6
3.8
14.8
7.7

(` crore)

FY13A

FY14A

FY15E

FY16E

5079.4
742.3
146.2
596.1
205.4
390.7
66.9
323.8
31.1
3065.6
99.5
10.4
15.0
5.3

5864.5
1026.9
289.4
737.5
254.8
482.7
118.0
364.7
31.1
3484.4
113.0
11.7
17.5
6.2

7060.0
1235.5
270.0
965.5
295.0
670.5
222.5
448.0
44.5
4730.5
107.3
10.1
17.5
6.3
8.0

8600.0
1470.5
290.0
1180.5
300.0
880.5
281.8
598.7
44.5
5329.2
120.8
13.5
17.1
7.0
6.0

Sintex Industries
Q2FY15, H1FY15 & FY14 Results

During Q2FY15, net profit rose 47% to `107.4 crore on 23% higher revenue of
`1680 crore. Q2FY15 EPS stands at `3.0. OPM and NPM stood at 17.1% and
6.4% against 15.5% and 5.3% respectively in Q2FY14.
During H1FY15, net profit rose 42.7% to `167.4 crore on 21% higher revenue
of `3025 crore. H1FY14 EPS stands at `4.8.
During FY14, consolidated net profit rose 13% to `364.7 crore on 15% higher
sales of `5864 crore. EPS stood at `11.7. A dividend of 70% was paid.

Monolithic Concrete Constructions

This business, a key revenue contributor and growth engine for the building
products vertical and the entire Company, witnessed a very challenging
FY14. This was largely due to the following reasons:
Governments persistent fire-fighting on multiple fronts impeded
decision-making and staggered payments
High interest costs due to an expanded working capital cycle, which
impacted business margins
To maintain business profitability, SIL took a strategic decision to
focus on executing projects, which provided cash-flow visibility.
Additionally, SIL has strategised to restrict its geographic spread to
ensure fast project execution of its order book.
SIL continued to maintain an order book comprising 24 months of business. A
sizeable proportion of these orders comprised tall structures (above G+5
structures) and MIG projects.

Water Storage Tanks

Water storage tanks revolutionised Sintex from a corporate brand in Kalol to

a house-hold name known across India. Despite significant competition from
national, regional and local players, SIL maintains its dominance in this space
with a more than a 60% share and continues to enjoy a significant premium
in this business.
The product range comprises every conceivable application loft tanks in
individual apartments to water storage solutions for an entire pin code
positioning it as the preferred name in this business.

Prefabricated Structures

This business was the star performer in FY14 with the business registering a
good growth; it largely covered up for the reduced MCC business.
SIL enjoys important competitive advantages, which positions it as one of the
preferred partners for prefabricated solutions.
A five-plant manufacturing presence (allows faster execution and
optimised logistics cost)
A product mix comprising medium and small structures enables it to
cater to diverse demands
In-house availability of majority of the inputs namely the sandwich
panels, doors and windows improving the speed from order
acceptance to final delivery
A wide opportunity canvass comprising product approvals in 17 states
The strong performance was due to increased government spending towards
healthcare and education. The prefab order book provides business visibility
for about 18-24 months.

Interiors

Sunidhi Research |

SIL marketed these environment-friendly solutions to replace traditional

timber, aluminium and steel with numerous advantages low-cost
maintenance, rust, water and termite-proof, light-weight and easy-to-install.
In 2012-13, the Company launched Indiana Doors, a completely new range of
doors with sophisticated designs and looks which comprised kitchen and
internal doors for houses. The team successfully marketed about 2,000 doors
in the first year of launch and is creating avenues to multiply this number.

Sintex Industries
Sub-Ground Structures

Sub-ground structures represented a new focus area for the Company. This
business comprised pollution management solutions namely manhole
structures with covers, septic tanks, packaged waste water treatment
systems and biogas plants. These products are primarily targeted at
municipal corporations of various states and the private sector.

Textile

Sintex carved a niche in the value-added textile segment through the

manufacture of high-end yarn-dyed structured fabrics for mens shirting,
yarn-dyed corduroy, ultima cotton yarn-based corduroy and fabrics for
women.
This business is a value-driven, margin accretive business which contributes
only about 10% to SILs topline its contribution to SILs profitability is
actually more pronounced. The textile business is largely export-oriented
with majority of the output being exported (directly or indirectly) to global
fashion labels. Its other customers are reputed male and female apparel
brands in India.

Expansion in Textile

SIL has chalked out plans to expand the textile business. It is actively
implementing a spinning project with 3, 19,872 spindles in Gujarat under the
New Textile Policy 2012 of the State Government. It is likely to be ramped
up to 10 lakh spindles in the next five years.
Since debt (i.e. 75% of total Capex of about `1, 800 crore), to be taken for
this project, would remain at low interest cost, this would not have any
material impact on its profit & loss account during the Capex phase. SIL
expects to commence commercial production by H1FY16 (with conservative
estimates of 3-6 month delay).
Several tax sops and interest rebates, which the project expects to receive
from the state government should aid margin expansion. The said benefits
include: (a) interest subsidy of 5% without a ceiling for the period of five
years on new plant & machinery for ginning and processing, (b) interest
subsidy of 7% on new plant & machinery for cotton and spinning, and (c)
power tariff concession on new investment for cotton spinning at the rate of
`1.8 per unit for five years.
Around 75% of products from this project will be exported. SIL is expecting
an RoIC of ~18-20% from the project while expected EBITDA margin is ~2829% with calculating the government incentives.

Fund Mobilisation

SIL recently raised a total of `946 crore in November 2012, through the QIP
route (`175 crore) and FCCBs of $140 million (`770 crore) due in 2017, which
provided relief on the liquidity front.
These moves had increased the equity capital to `31.1 crore in FY13 from
`27.1 crore in FY12 sans FCCB conversion.

FCCB Conversion

Out of the above $140 million, during Q1FY15, FCCBs aggregating to US$1.3
million were converted into 10.87 equity shares @`65.74/share. This added
`7.04 crore to the security premium account.
Further in Q2FY15, US$31.65 million were converted into 2.65 crore equity
shares, which added `171.30 crore in the security premium account.
It is assumed that the balance $107.05 million FCCBs will be converted into
equity shares at the same price, which will increase security premium by
further `579.40 crore.

Equity Capital & Reserves

SIL had allotted 3, 00, 00,000 warrants optionally convertible into equity
shares to Promoter Group companies on preferential basis at a price of
`69.01 per warrant (25% consideration paid upfront).
During FY13-14, the 1, 36, 00, 000 warrants were converted into equity
shares at a price of `69.01 (inclusive premium of `68.01 per share).

Sunidhi Research |

Sintex Industries
During Q1FY15, Promoter Group companies further exercised the options for
conversion of the balance 1, 64, 00, 000 warrants into equity at a price of
`69.01 (inclusive premium of `68.01 per share).
The conversion of warrants and FCCBs has increased the equity capital to
`35.5 crore and reserves by `218.67 crore (As per H1FY15 Balance Sheet).
As aforesaid, we assume that the balance $107.05 million FCCBs will be
converted into equity shares at the same price, which will increase security
premium by further `579.40 crore.
Equity capital is expected to move up to `44.5 crore with reserves improving
to `4451.5 crore. This coupled with our projections of FY15, the book value
of the share will work out to `107.3.
Growth Initiatives

In custom moulding business, SIL is moving from automobile to other business

also, which will help it grow going forward. Also the recent strategic
acquisition in Germany and Poland will help the custom moulding business.
These two assets were under liquidation and were brought from settlement
commission. At full capacity, they can generate revenue of Euro 40 million.
For FY14, it expected to generate Euro 15 million.
SIL expects prefab to continue its strong growth in FY15 also and may see
robust growth. It expects strong top-line growth for custom moulding and
textile.
Prefab business added two new territories - Maharashtra and Madhya
Pradesh. Margin has also improved in prefab business. While monolithic
business is on a consolidated mode, SIL has successfully unlocked a
significant amount from working capital.

Opportunity

Unlike prefabs, which can be used to construct only single storey houses,
monolithic construction can be used to construct multistory houses as well
and hence is suitable for building structures which can be used for
permanent dwellings (e.g. houses), unlike prefabs which are preferred for
constructing structures which are not used as permanent dwellings (e.g.
classrooms).

Financial

Equity capital is `35.5 crore is supported by huge reserves of `3872 crore,

which gives the book value of the share of `110 as on H1FY15.
The gross block has gone up by 421% from `937 crore in FY07 to `5215 crore
as at FY14. The net worth of `3908 crore gives the DER of almost 1:1 as at
H1FY15.
Besides, the cash on hand, current investments and loans etc as at H1FY15
stands at `1082 crore (`30.5/share) whereas the value of noncurrent
investments is `250 crore (`7.0/share).

Sale of Plants

As part of cost cutting measures, SIL has closed down two plants, one in
Kutch and other in Bangalore, which were used for making storage tank.
The company may close down one more plant in Daman, which is also used
for making storage tank. SIL expects sale of these plants along with land can
fetch around `80- 100 crore.

Prospects

According to census 2011, Indias urban population has grown 31.8% in 2011
over 2001. This compares with 17.6% growth in overall population. The urban
population constitutes 31.2% of the total population in 2011 Vs 27.8% in
2001. Demand for low-cost housing remains high.
While the latest estimates are not available (as the 12th plan has yet to be
finalized), at the start of 11th plan, estimated investment required for lowcost housing stood at US$32bn (`1, 664bn).Thus prospects for SILs main
business looks quite rosy.

Sunidhi Research |

Sintex Industries
The spending on social infrastructure remains buoyant as it is primarily
funded directly by central and state governments. It is expected that an
under-developed democracy like India will have to continue spending on
social infrastructure for a long time.
Given the governments focus on the social sector in India, the spending on
social infra is likely to remain insulated from the current slowdown. This
augurs well for the monolithic segment.
Plastic Industry Holds Promise

According to the All India Plastics Manufacturers Association (AIPMA),

domestic consumption has been growing at 10-12% CAGR over the last
decade. Going ahead, the size of the plastic processing industry which
currently stands at Rs 850 billion (9 million tonnes), is expected to touch
`1.3 trillion (18.9 million tonnes) by 2015.
The exponential growth will see this number go up to 40,000 units;
employment will increase to 7 million by 2015 from the current 3.5 millionplus people (direct and indirect). To achieve this target, India will require
42,000 new machines and an investment estimated at US$10billion by 2015.
Plastics industry Vision 2015
Turnover (` billion)

1332

Per Capita Consumption (Kgs) 2015

16

Consumption (million tonnes) 2015

18.9

Employment generation (million)

Outlook

Figures

7.0

Processing machines (units)

125,636
Sintex enjoys early-mover advantage in businesses that are levered to social
sector spending in India (schools/low cost housing/ healthcare centers),
funded almost entirely by government. It is believed this spending will
continue, given the socio economic context.
Sintexs India construction (monolithic and prefab) business (40% of revenue)
is geared to social sector spending in India by the central and state
governments on low-cost housing, slum rehabilitation, schools and rural
healthcare center construction in remote areas.
Though the monolithic business, which has been suffering due to sluggishness
from government activity and consequent delays in execution and
receivables pulled down overall performance, things are expected to get
better as Sintex has reduced the number of slow moving sites from seven to
five and this will soon come down to three in the near future.

Valuation & Recommendation

According SIL, the recent spate of reforms from the government will help
gradually revive the domestic economy and augurs well for SIL as a buoyant
social spending and an improved Capex from the private sector will ensure a
strong revival in the companys fortunes. But, even before the benefits of
the reforms start trickling in, the company is witnessing improvement in the
business.
SIL has highlighted generating free cash flows for the next couple of years,
improving return on capital, shrinking the overall balance sheet size and
improving working capital through stringent controls on the monolithic
business, as key focus areas to strengthen its balance sheet, going forward.
SIL offers a one of the widest wide plastic-based solution in global plastic
processing space from creating housing units to small components that find
application in the medical equipment and electrical businesses.
SIL is the only Indian plastic processing company with a pan-India
manufacturing presence and manufacturing operations in 12 nations to cater
to the global demand.

Sunidhi Research |

Sintex Industries
Sintexs customised moldings business caters to Fortune 500 customers
across continents and various sectors. It intends to leverage these customers
and potentially enhance domestic manufacturing and outsourcing. This will
significantly improve margin in the business over the next couple of years.
Q2FY15 is a reflection of strong growth and a drastic improvement in
business sentiment. Utilisations are picking up across businesses, upturn in
margins and topline growth is clearly visible. The initiatives on clean India
campaign have thrown open new set of opportunities to SIL.
Despite economic adversities across the globe, SIL grew its topline by about
21 percent in H1FY15 and strengthened its balance sheet. This was achieved
through a disciplined approach in streamlining business systems and
processes to maximise efficiencies and a continued focus on improving the
business mix. Now, SIL is perfectly poised to accelerate profitable business
growth going forward with a hawk eye on maintaining a lean balance sheet.
At the current market price of `81, the share is trading at a P/E of 8.0x on
FY15E and 6.0x on FY16E. We recommend BUY with a target price of `135 in
the medium-to-long term at which the share will trade at a P/E of 10.0x on
FY16.

Sintex Industries Technical

In the weekly chart, the stock of Sintex Industries has given the first sign of a trend reversal to the upside. Prices have
taken support of the 38.2% retracement level. RSI indicator has turned up. Prices are expected to rally upto the last
top of `105. The long-term target for Sintex stock seems to be `138.

Sunidhi Research |

Sintex Industries

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