Sintex Industries

At PE Multiple Of 10.8, The Stock Of Water Tanks Player Appears To Be Fully Valued

ON A day when the markets cheered strong economic numbers and the Sensex gained 2.3%, the stock of Sintex Industries shed 1.4% to close at Rs 248.6, following dampened quarterly numbers.

The scrip is now trading at a price-toearnings multiple of 10.8, at which it appears fully valued considering its future growth prospects. The company has underperformed the broad market since the start of 2009 registering just 27.7% gain till date against a 71.9% jump in the Sensex. In 2007, the scrip had substantially outpaced gains in the Sensex. However, the market meltdown of 2008 saw it lose sheen.

Well-known for manufacturing water tanks, the company has over the past few years entered into an array of businesses through a series of acquisitions. Its subsidiary Zeppelin Mobile Systems acquired a mobile tower company Digvijay for Rs 64.5 crore to emerge as a total solution provider in the telecom space. Zeppelin clocked a turnover of Rs 66.7 crore in the first half of FY2010, representing 7.2% of the company’s consolidated turnover.

For quite some time, the company has encountered problems. It had raised close to Rs 1,800 crore in FY09 through issue of FCCBs, QIP and preferential allotment for an acquisition, which did not happen due to the market meltdown. Its acquisition of Geiger Tech in Germany a year ago ran into trouble, when the company filed for bankruptcy. Sintex’s other overseas subsidiaries Wausaukee Composites in the US and Nief Plastics in France, too, have been hit by the global economic slowdown.

The company, which invested Rs 500 crore in its organic growth in FY09, carried a cash balance of Rs 1,168.5 crore as of end-March 2009. In fact, the other income earned on this surplus cash balance at Rs 156.3 crore in FY09 represented nearly 48% of the company’s consolidated net profit. A drop in other income was the main reason behind a fall in its profitability during September 2009 quarter.

Investors of Sintex Industries can take heart from the fact that despite a fall in profits, the company has maintained its operating profit margin at the past year’s level. The company’s domestic business continues to do well with rising capacity utilisation. However, the company is likely to report a dismal profit growth in the December 2009 quarter considering the high level of other income in the corresponding quarter of the previous year. An economic revival in the US and Europe next year and a well-timed acquisition could see the company grow its profits substantially in FY11.

Stock views on Corporation Bank, Orchid Chemicals, Aventis Pharma

Sunidhi Securities on Corporation Bank - Target Rs 195

Sunidhi Securities & Finance has recommended a buy rating on Corporation Bank with a target price of Rs 195 in its research report. "During Q3FY09, total income has gone up by 50 per cent to Rs 1906 crore whereas net profit has gone up 34 per cent to Rs 256 crore. Net margin however, declined form 15% to 12.7%. During the nine months ended December 2008, net profit surged 19% to Rs 632 crore. NP margin stood at 12.7% against 14% in the previous nine months ended December 2007. At CMP, the share is trading at a P/BV of 0.5 (FY09), P/E of 2.8x on FY09E and 2.5x on FY10E. We recommend BUY on the stock with a price target of Rs 195 in the medium term," says Sunidhi Securities & Finance's research report.


Angel Broking on Orchid Chemicals - Target Rs 128

Angel Broking has maintained its buy rating on Orchid Chemicals and Pharmaceuticals with a target price of Rs 128 in its research report. "Orchid Chemicals & Pharmaceuticals (Orchid) will raise overseas debt to retire the USD 175 million (Rs 858 crore) foreign currency convertible bonds (FCCBs). A resolution passed by the company’s Board recently allowed it to raise up to Rs 1,500 crore, for which shareholder approval is expected to be sought soon."


"The company’s FCCBs are currently being traded at a significant discount and are set to mature in February 2012 at a strike price of Rs348 for conversion to Equity. The current yield-to-maturity is 7.25%. This move takes advantage of the recent liberalised norms that permit companies to use proceeds from overseas debt to retire FCCBs. The company did not confirm about the price at which the bonds would be bought back. We maintain a Buy on the stock, with a target price of Rs 128," says Angel's research report.


Angel Broking on Aventis Pharma - Target Rs 1,027

Angel Broking has maintained its buy rating on Aventis Pharma with a revised target price of Rs 1,027 in its research report. "For 4QCY2008, the company posted net sales of Rs 269.9 crore registering a yoy growth of 32.3% on the back of strong traction in both the domestic and export segments. Robust growth in sales, rise in OPM and higher other income led to 67.8% increase in Net Profit to Rs 45.3 crore during the quarter. For CY2008, the company posted 15.1% yoy growth in Net Profit to Rs 166.2 crore on the back of Sales growth. We maintain a Buy on the stock, with a revised target price of Rs 1,027," says Angel Broking's research report.

Stock Views on Mahindra & Mahindra, Dabur, Reliance Power

Merrill Lynch on Mahindra & Mahindra

WHILE Merrill Lynch has reiterated its ‘underperform’ rating on Mahindra & Mahindra (M&M), it has revised the price target to Rs 536 from Rs 499 due to additional value of listed subsidiaries, and a 4% lower dilution on assumed non-conversion of foreign currency convertible bonds (FCCBs). Merrill Lynch has the following concerns: Unexciting overall prospects of core business, restricted by highly competitive and margineroding utility vehicles segment, as well as substantial investments, which will dilute earnings and return parameters. Over the next three years, capital outlay is estimated at Rs 9,000 crore on an existing base of Rs 7,000 crore. Around 50% of the company’s investments are expected to be related to acquisitions/joint ventures, possibly in new forays, or where the management’s capability is yet to be proven, for example two-wheelers, auto parts etc. Standalone capital expenditure (capex) surge will sharply increase fixed overheads, and therefore, drag down mediumterm profitability, as well as the return ratio.

HSBC on Dabur

HSBC has assigned an ‘overweight’ rating to Dabur India with a price target of Rs 110. The recent sluggishness in the share price can be attributed to the slowdown in growth for foods from 20%+ earlier to around 15% in the past few quarters. However, since the integration with the consumer care division (CCD) has been completed, and supply chain issues have been sorted out, the foods segment is set to return to 20%+ growth in the next quarter. This may be the trigger that the market seeks to re-rate the stock. HSBC has valued Dabur at 21x FY10E earnings per share (EPS) of Rs 5.25 to get a target price of Rs 110. Dabur has averaged a 12-month forward price-earnings (P/E) multiple of 24.6x over the past two years with minimum and maximum P/Es of 17.1x and 29.9x, respectively. The stock is currently trading at 21.1x FY09E EPS. Given its robust business model, which is well-diversified over a large number of segments, with brands targeted at each category of consumers, Dabur is currently trading below its deserved multiple.

BNP Paribas on Reliance Power

BNP Paribas has initiated coverage on Reliance Power by assigning a ‘reduce’ rating. Reliance Power is a power utility at an early stage of development with revenue expected to start only in FY10, when its first power project becomes operational. The company has an ambitious plan to become the second-largest power generator in India by adding ~31 gigawatts (gw) of capacity by FY16. However, the company faces significant headwinds as only one project has attained financial closure. Further, 66% of the land required for its projects is yet to be acquired. Its hydroelectric projects are in very early stages of development with the risk of being shelved. BNP Paribas believes that Reliance Power will find it difficult to prevent project cost escalations on rising equipment and construction costs. Rising interest rates and a global credit crunch can increase debt costs above the company’s estimates.