Sintex Industries

 

 

Sintex Industries' growth is expected to resume after a lull in FY10. The stock looks attractive at the current levels

 

SINTEX Industries gained over 20% since we last wrote about it in October 2009. After stagnancy in FY10, the company's fourth quarter results showed encouraging signals for the future. Long-term investors should continue to accumulate the scrip.

BUSINESS:

Gujarat-based Sintex Industries (SIL) is a leading producer of high-end plastic products that find use in various industries ranging from automobiles, electrical and construction to telecom. It manufactures prefabricated building materials, monolithic structures, custom moulded products and composites. Moreover, 10% of its consolidated turnover comes from structured fabric that it sales to global as well as local luxury ready-made garment manufacturers. The company and its four subsidiaries operate 35 manufacturing facilities spread across India, Europe and the US.

   Under its pre-fabricated building material business, the company builds customised shelters including school buildings, defence shelters, toilet blocks, healthcare centres and telecom shelters. Its monolithic division executes projects for housing boards, government staff quarters, police quarters and other government organisations across various states. The company is set to write off EURO 7 million (nearly Rs 40 crore at current exchange rate) of its investment in Germany's Geiger Tech, which is undergoing bankruptcy proceedings. This will reduce the company's reserves by a corresponding amount.

GROWTH DRIVERS:

SIL's pre-fabricated building materials and monolithic construction material are finding great demand in low-cost housing projects and rural schools or healthcare shelters. The company has expanded its product portfolio to cater to cold chains, agri sheds and bunk houses for a number of offsite projects.

   Its monolithic division also has done well tripling in the past three years. The company carried Rs 2,200 crore of unexecuted orders at the end of March 2010 to be executed in 20 months. The company is adding 3-4 projects every year with increasing ticket size. The company is carrying a cash balance in excess of Rs 1,150 crore and has a planned capex of over Rs 300 crore in its existing businesses. The company is looking for an acquisition domestically in the infrastructure development business that can supplement its prefab and monolithic businesses. With the economic conditions improving in the US and Europe and a recovery in the auto industry, the custom moulding businesses of SIL's subsidiaries are also expected to do well going forward.

FINANCIALS:

During the five-year period to FY09, net sales of SIL grew at a cumulative annualised growth rate (CAGR) of 42.2%. The profit too grew at 57.5% in the same period. In comparison, FY10 proved to be a stagnant for the company with sales growing by 8.3% to Rs 3,319 crore and profits by 1.1% to Rs 331 crore. The company holds a strong history of operating cashflows and the net debt to equity ratio stood at 0.66 for the year ended March 2009. The funds raised through FCCBs and QIP in early 2008 remains largely unutilised. As a result, the company carried a cash balance of over Rs 1,180 crore as on March 31, 2010. This large cash balance enabled the company to earn more than one-fifth of its FY10 pre-tax profits. The company has approved sub-division of its shares of Rs 2 face value into Re 1 each.

VALUATIONS:

At the current market price of Rs 304, the Sintex scrip is trading at a priceto-earnings multiple (P/E) of 12.6 times. Other comparable plastic processing companies, such as Supreme Industries (P/E of 8.5), Astral Polytechnik (P/E of 9), Time Technoplast (P/E of 18) and Kemrock Industries (P/E of 26.8), are trading at near or higher P/Es. SIL's shares trade around 2.2 times their book value, as against its peers that are trading in the range of 2.2 to 4.5 times.