20141129 sintex-industries-limited 827 initiatingcoverage(1)

CD Equisearch Pvt Ltd Nov 29, 2014

Equities Derivatives Commodities Distribution of Mutual Funds Distribution of Life Insurance

Sintex Industries Ltd.(SINT)

No. of shares (crore) 36.52 Mkt cap (Rs crs) 3321 Current Price (27/11/2014) 91 Price Target (Rs) 128 52 week H/L (Rs.) 105.25/29.10 Book Value (Rs.) 105 P/BV (FY15e/FY16e) 0.9/0.8 P/E (FY15e/FY16e) 9.4/7.1 BSE Code 502742

NSE Code SINTEX Bloomberg SINT IN Daily volume (avg. weekly) 1536135

Shareholding pattern % Promoters 39.66 MFs / Banks / FIs 24.23 Foreign 6.94 Govt. Holding 0.00 Non-Promoter Corp. 7.08 Total Public 22.10 Total 100.00 As on Sep 30, 2014

Recommendation BUY

Analyst TANYA KOTHARY

Phone: + 91 (33) 3027 3023

E- mail: [email protected]

Figures in Rs crs FY12 FY13 FY14 FY15E FY16E Income from operations* 4453.54 5107.86 5864.46 6747.66 8608.39 Other income 50.46 59.57 77.44 40.49 43.04 EBITDA 721.52 738.69 1025.56 1184.46 1438.43 Net profit after EOI & profit/loss associate Co 340.51 398.47 376.80 432.99 571.84 EPS 12.56 12.80 12.11 9.70 12.81 EPS growth (%) -25.2 1.9 -5.4 -19.9 32.1 * include other operating income

Company Brief Sintex Industries Ltd (SINT) operates in two main business segments

namely textiles and plastics. In the recent past the company has

diversified into high growth businesses like monolithic construction,

prefabricated structures and industrial custom molding products. SINT

has made eight acquisitions in the past five years and now has 35

manufacturing plants with presence in nine countries and 4 continents.

Highlights SINT is a leading provider of affordable houses for mass housing

projects by employing alternative technologies like prefabricated

building technology & monolithic concrete construction as against

traditional methods of construction.

During H1FY15, Building products segment sales stood at Rs

1377crs, Custom molding at Rs 1314 crs and textile Rs 325 crs. The

blended margins stood at 16%.

SINT prefab business will see good growth in coming years with the

new government initiatives like Swacch Bharat Mission and

National Mission for Clean Ganga and through various CSR

initiatives by private sectors related to drinking water and

sanitation. The company need not develop any new products and

can get 5% of the total allotted amount for these schemes, ie; Rs

1500-2000 crs.

The order book of EPC business stands at Rs 1700 crs. EPC Business

has recorded revenue of Rs 236 crs in H1FY15. Last year the revenue

from this segment was Rs 340 crs.

The company has incurred nearly Rs 1100 crs in Capex in H1FY15 of

which Rs 1000 crs would be spent on its Spinning Project. The total

project cost of spinning project is Rs 1800crs.

The stock is currently trading at 9.4x FY15E EPS of Rs 9.70 and 7.1x

FY15E EPS of Rs 12.81. We recommend Buy on the stock with a

target price of Rs 128 assuming a P/E multiple of 10x FY16e, an

upside of 41% from the current levels in 9-12 months period.

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CD Equisearch Pvt Ltd


Business Profile

Source: Sintex, CD Research

Company Background Established in India in 1931, Sintex Industries Ltd. is one of the leading providers of plastic products and niche

structured yarn dyed textiles-related products in India. The company has over the years leveraged its established

market dominance in water tanks to tap other higher-margin segments like monolithic construction, prefabricated

structures and industrial custom molding products. It is the only company in India involved in monolithic

construction. It has a market share of about ~ 70% in overhead water tanks, ~ 80% in specialized industrial tanks and

more than 60% in prefabricated structures. With global footprint spanning 9 countries, Sintex has a strong presence in

the European, American, African, and Asian markets including countries like France, Germany and USA. In addition,

through its various subsidiaries, Sintex controls 35 world class manufacturing plants in India & abroad, spread over 9

countries and 4 continents. The company has extensive distribution network with 12 branch offices, over 500

distributors and 10000 retailers spread across India.

Under the textiles division, the company sells high-end structured fabric to the international and domestic

readymade garment manufacturers. In the plastics division, the company manufactures prefabricated building

materials, monolithic structures, custom molded products and composites. Nearly 46% of the company's

consolidated turnover comes from building materials such as prefabs and monolithics, 44% comes from custom

molded and plastic composite products, while the remaining 10% is accounted for by textiles. Textiles and

construction materials are businesses conducted by Sintex on a standalone basis, while the subsidiaries

manufacture molded products.

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Investment Summary

High Growth, High Return Business in Prefabricated Structures

Key developments in H1FY15, post elections can accelerate buoyancy in key products

Looking at the recent initiatives by the Govt. on Swacch Bharat Mission, clean India campaign, all its products from

package treatment plants and biogas are at the cusp of an inflection point. The campaign entails to address open

defecation, disposal of solid waste and liquid waste through recycling. SINT has presence across the spectrum. As per the

circular of Ministry of Urban Development it would cover 1.04 crore households, provide 2.5 lac seats of community

toilets, 2.6 lac public toilets and solid waste management for 4041 statutory towns. The total cost of the programme over 5

years is estimated at Rs 620 bln with Central outlay earmarked at Rs 146 bln over a period of 5 years. The government

apart, private sector is rising to the social cause in a big way through CSR initiatives to address drinking water, sanitation

issues. A large outlay from corporate kitty is available to further bolster the campaign, an estimated Rs 70-80 bln to be

spent per annum.

SINT enjoys important competitive advantages which positions it as

one of the preferred providers for prefabricated solutions. As the

name suggests, these are completely-knocked-down plastic kits for

enclosures (large and small), which can be assembled in six or seven

days making it the fastest and most cost- effective construction

solution. Prefab revenue comprised of 20% of consolidated revenues

and recorded a growth of 21% in FY14. It has got five production

facilities and one is under construction. Product range comprises of

health centres, schools and public administration buildings, project

and site offices, residential units for long gestation projects,

sanitation, shelters for defense. It requires low capex and is a high

return segment.

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Custom molding a low-volume, high margin business

Custom Molding (In Rs Crs) FY10 FY11 FY12 FY13 FY14 FY15E FY16E Domestic (including Bright Auto) 545 670 822 1061 1060 1169.78 1314.33 Growth (%) y-o-y 22.9 22.7 29.1 -0.1 10.4 12.4 Overseas (Wasaukee & Neif Pls.) 946 1190 1115 1298 1506 1667.28 1855.52 Growth (%) y-o-y 25.8 -6.3 16.4 16.0 10.7 11.3

Under National Mission for Clean Ganga it is proposed to spend Rs 510 bln to completely stop discharge of untreated

sewer and waste water from 29000 small and medium industries and 118 urban habitations into the Ganga river. Under

the mission, all 1649 gram panchayats along the river to be free from open defecation. This represents a huge opportunity

for toilet blocks, waste management and package treatment plants (launched under Sintex Nishihara tie-up) for the

company to look ahead to. In fact SINT prefab toilets today command 90-95% of market share. Prefab sales to record a

CAGR of 23% during FY14-FY16e to Rs 1778 crs and the building materials business to continue its strong growth during

the second half of FY15 driven by the prefabricated building business.

SINT is a market leader in roto molding products. The company is equipped with diverse capabilities of molding which

find applications in many industries. In this segment, the company manufactures industrial products specific to the

clients requirements. Its key products in the custom molding business include electrical enclosures, meter boxes, auto

components, customized products for wind energy, FRP tanks (mainly used in storing oil and chemicals), mass transit,

aerospace, defence and automotive. In FY14 the revenue contribution was 44% to the topline. During the latest H1FY15

this segment recorded a growth of 16% to Rs. 1314 crs & a margin of 19%. In Q1FY15, the company acquired Groupe

Simonin for Euro 18mln (Rs 150 crs approx). The acquisition is a stepping stone in consolidating the positioning in the

European continent with metal parts over molded parts, to meet growing demand of fortune 500 OEMs ranging from

electrical, automotive and home automation. The companys facilities are spread across France and Morocco. This will

help integrate French and Indian plants to offer products and services with differential cost basis. A step further in

synergies, the Pune plant in India initiated LRTM (Light Resin Transfer Molding) process. The process has been replicated

from SINT US subsidiary to cater to customers in India ranging from tractors to excavation/ off the road vehicles.

To move up the value chain, SINT adopted to grow inorganically by acquiring companies like Wausaukee Composites

USA, which further acquired Nero Plastics, a competitor in the same business and Neif Plastics in France. In India it

acquired Bright Brothers which specializes in the manufacturing of injection molded plastic components for the

automotive sector. In FY10 Neif Plastics acquired two companies named SICMO and SIMOP, increasing its EU customer

base. With its presence in 9 countries with low cost manufacturing base and access to technology it has opportunities to

cross sell the products. We expect this segment to grow at 11% CAGR for the period FY14-16E.The current market size

of custom moulding is ~$15 bn globally. Since FY08 & FY09 the company acquired 8 companies in Custom Moulding .

In coming years the company expects Bright Auto to gain through the synergies with Neif and Wasaukee. It acquired

customers like Faurecia, Schneidar, Areva, ABB, JCI and also gained foothold in Mass Transit, Off Road Vehicles and

Wind Turbine Segment.

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Strategic blueprint for spinning business

SINT has planned for a 1 million spindle capacity mill to be set up in a phased manner over the next five years. In the first

phase the Company expects to commission 319,872 spindles by April, 2016. This project will enjoy 7% interest subsidy

and over and above 4% TUF (Textile Up gradation Fund) and hence 75% of the debt of total Capex of Rs 1800 crs will cost

less. SINT expects to commence the production by H1FY16 and the revenue from this project to increase the top line by

Rs 800 crs in next two years. Gujarat has 70% of cotton production but production of yarn mainly outside it is not so

power efficient. In this project the company will be provided power on subsidized rate (lesser by Rs. 1/unit.) Duty

exemption @ 15% on power tariff is also expected. The price of cotton fiber to yarn increased only by 4% in China as

compared to 50% in India YOY. In India the cotton prices went down by 3% while yarn prices went up by 19%, hence

margins surged. 75% of the products will be exported and the EBIDTA margin to be in the range of 28-29%.

Textile Business

SINT originally a textile manufacturer has metamorphosed itself into a business Super brand in a plastic processing and

infrastructure business. It is leading continuous fabric processing textile manufacturing in India. It contributes only 10%

to the top line. As a part of this strategy, the company is working on a value driven business model, instead of the low-

margin volume driven approach. It has an integrated plant with a current capacity of 29 mn meters, which can

manufacture high-end niche fabrics that are used by leading fashion brands for their shirtings. It procures 36,000 designs

from design houses annually and sells it to clients across Europe and India.

Around 90% of the company's business volume is exported to EU. In The company holds 70% share of the structured

fabric market in India and is the country's largest player in the Corduroy Segment. Keeping its focus on building strong

relationship with leading fashion houses, SINT consolidated its business further by adding customers like ESPIRIT and

One Star to its largely branded portfolio of its existing clients like Armani, Versace, Burberry, Zara Marcopolo etc. SINT

enhanced its presence in rural and semi-urban markets of India through its ready-to-stitch packages.

Going ahead, we expect this division to grow at a CAGR of 30% over the period FY14-FY16e and contribute 12% to the

total business.

Fund Mobilisation

SINT raised FCCBs in FY12-13 of $140 million (Rs 770 crs) due in Nov 2017. The bond holders are entitled to apply for

equity shares at Rs 65.74. It also raised Rs 175 crs through QIP route. These moves have increased the share capital to

36.52 as on 8 th Nov 2014. $ 42.64 mn FCCB were converted into 3.57 crs equity shares. This increased security premium

account by Rs 230.83 crs. We have assumed in our estimation that the balance $ 97.36 mln FCCBs will be converted into

equity shares at same price and will increase the security premium account by Rs 536 crs.

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Highlights of H1FY15 results

H1FY15 is a reflection of strong growth and a drastic improvement in overall business of the company. Consolidated net

sales increased by 21% to Rs 3025.19 crs and net profit by 37% to Rs 175 crs. Building material segment recorded a growth

of 24%, Custom Molding 16% and Textiles 34%. The spinning project is progressing as per schedule with first 100000

spindles to be on stream by HIFY16 and balance 200000 by H2FY16.

Risks & Concerns

Volatility in cost of raw materials might impact the company adversely, if it is unable to pass on the material price

hikes in a timely manner.

Competition in building products segment is expected to increase due to low/moderate entry barriers.

SINT derives 30% of its revenues in foreign currency due to its foreign subsidiaries and exports. Any adverse

movement in foreign exchange rate would impact its performance.

Other risks include a fall in working capital, global slowdown and decreased government spending in social and

infrastructure which might impact the companys growth in future.

Segment wise Sales breakup (in Rs crs) H1FY15 H1FY14 % Growth

Building Materials 1377 1108 24.26%

Custom Molding 1314 1134 15.87%

Textiles 325 242 34.20%

SIL had allotted 3, 00, 00,000 warrants optionally convertible into equity shares to Promoter Group companies on

preferential basis at a price of Rs 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 Rs 69.01 (inclusive premium of Rs 68.01 per share). In Q1FY15

1.64 cr equity was added on the conversion of 16400000 warrants and this has added another Rs 111 cr to the reserves.

Equity capital is expected to move up to Rs 44.66 crore with reserves improving to Rs 4748.4 crore. This coupled with

our projections of FY15e; the book value of the share will work out to Rs 106.3. Our future projections are made on this

diluted equity assuming full FCCB and Warrants conversion.

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Consolidated Financials

Quarterly Results Figures in Rs crs Q2FY15 Q2FY14 % chg. H1FY15 H1FY14 % chg.

Income from operations 1680.91 1359.6 23.15 3025.19 2493.0 21.35 Other income 6.10 0.51 1096.08 8.62 9.19 -6.20

Total income 1687.01 1365.41 23.55 3033.81 2502.2 21.25 Total expenditure 1398.38 1161.20 20.42 2539.24 2132.1 19.10

PBIDT 288.63 204.18 41.36 494.57 370.1 33.63 Interest 67.65 47.65 41.97 132.55 91.09 45.52 Depreciation 60.19 57.23 5.17 114.82 113.6 1.07

PBT 160.79 99.3 61.92 247.2 165.41 49.45 Tax 54.4 26.91 102.16 79.75 47.02 69.61

PAT 106.39 72.39 46.97 764.11 591.27 29.2

Profit and loss of associate 1.0 0.52 92.31 1.54 1.15 33.91

Extraordinary item -3.47 -6.11 43.21 -6.29 -8.65 27.28 Adjusted net profit 110.86 79.02 40.29 175.24 128.19 36.70

EPS (F.V. 1) 3.04 2.16 40.29 4.80 3.5 37.14

Income Statement Figures in Rs crs Year ended 31st March FY12 FY13 FY14 FY15e FY16e Income from operations 4453.54 5107.86 5864.46 6747.66 8608.39 Growth (%) 34.7 14.7 14.8 15.1 27.6 Other Income 50.46 59.57 77.44 40.49 43.04

Total Income 4504.00 5167.43 5941.90 6788.15 8651.44 Total Expenditure 3782.48 4428.74 4916.34 5603.69 7213.01

EBITDA 721.52 738.69 1025.56 1184.46 1438.43 Interest 135.83 146.24 289.38 271.56 299.22 EBDT 585.69 592.45 736.18 912.90 1139.20 Depreciation 167.82 205.37 254.76 276.13 286.38 Tax 115.96 66.93 118.03 212.05 283.99

Reported PAT 301.91 320.15 363.39 424.73 568.84 Extraordinary item -33.70 -74.73 -12.12 -6.26 0.00

Minority interest 4.90 3.59 1.29 2.00 3.00 Net profit after MI 340.51 398.47 376.80 432.99 571.84

EPS* (Rs.) 12.56 12.80 12.11 9.70 12.81

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Balance Sheet Figures in Rs crs FY12 FY13 FY14 FY15e FY16e

SOURCES OF FUNDS Share Capital 27.11 31.12 31.12 44.66 44.66 Reserves 2621.18 3065.57 3484.43 4703.78 5239.04 Equity Share Warrants 0.00 28.31 28.31 0.00 0.00 Total Shareholders Funds 2648.29 3125.00 3543.86 4748.43 5283.70

Total Debt 3091.46 3653.99 4006.45 4039.73 4214.73 Other Liabilities 31.56 161.96 77.39 150.00 160.00 Total Liabilities 5771.31 6940.95 7627.70 8938.16 9658.43

APPLICATION OF FUNDS Gross Block 3944.5 4448.34 5401.73 6734.79 7234.79 Less: Accumulated Depreciation 1086.32 1333.16 1600.40 1876.53 2162.90 Net Block 2858.18 3115.18 3801.33 4858.26 5071.89 Capital Work in Progress 253.1 359.69 125.50 192.44 200.00 Investments 142.28 130.32 305.79 362.34 362.34

Current Assets, Loans & Advances Inventory 395.51 453.10 451.10 535.83 709.42 Sundry Debtors 1653.45 1780.59 2078.46 2268.23 2926.85 Cash and Bank 720.61 890.19 271.98 827.34 854.24 Loans and Advances 775.89 336.78 315.81 468.29 624.11 Total CA & LA 3545.46 3460.66 3117.35 4099.68 5114.62

Current liabilities 634.64 782.26 1024.08 1530.10 1865.96 Provisions 344.49 94.39 107.92 138.07 118.07 Total Current Liabilities 979.13 876.65 1132.00 1668.17 1984.03 Net Current Assets 2566.33 2584.01 1985.35 2431.51 3130.59

Net Deferred Tax -238.14 -287.91 -328.88 -373.39 -373.39 Other Assets (Net of liabilities) 189.56 1039.66 1738.61 1467.00 1267.00 Total Assets 5771.31 6940.95 7627.70 8938.16 9658.43

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Key Financial Ratios

FY12 FY13 FY14 FY15E FY16E

Growth Ratios

Revenue (%) -0.7 14.7 14.8 15.1 27.6 EBIDTA (%) -16.8 2.4 38.8 15.5 21.4 Net Profit (%) -25.2 17.0 -5.4 14.9 32.1 EPS (%) -25.2 1.9 -5.4 -19.9 32.1 Margins

Operating Profit Margin (%) 15.1 13.3 16.2 17.0 16.2 Net Profit Margin (%) 7.6 7.8 6.4 6.4 6.6 Return

ROCE (%) 9.8 8.4 10.6 11.0 12.4 RONW (%) 13.5 13.9 11.4 10.5 11.5 Valuations

Market Cap / Sales 0.5 0.3 0.2 0.5 0.4

EV/EBIDTA 5.7 5.2 4.0 6.0 4.5

P/E 6.8 3.6 3.6 9.4 7.1

P/BV 0.9 0.5 0.4 0.9 0.8

Other Ratios

Debt-Equity Ratio 1.2 1.2 1.1 0.9 0.8

Current Ratio 3.6 3.9 2.8 2.5 2.6

Turnover Ratios

Fixed Asset Turnover 1.6 1.7 1.7 1.6 1.7

Total Asset Turnover 0.8 0.8 0.8 0.8 0.9

Debtors Turnover 2.9 3.0 3.0 3.1 3.3

Inventory Turnover 9.8 10.4 10.9 11.4 11.6

Creditors Turnover 5.8 6.3 5.4 4.4 4.2

Year ended 31st March FY12 FY13 FY14 FY15e FY16e

Growth Ratios

Revenue (%) -0.7 14.7 14.8 15.1 27.6 PBIDT (%) -16.8 2.4 38.8 15.5 21.4 Net Profit (%) -25.2 17.0 -5.4 14.9 32.1 EPS (%) -25.2 1.9 -5.4 -19.9 32.1 Margins

Operating Profit Margin (%) 15.1 13.3 16.2 17.0 16.2 Net Profit Margin (%) 7.6 7.8 6.4 6.4 6.6 Return

ROCE (%) 9.8 8.4 10.6 11.0 12.4 RONW (%) 13.5 13.9 11.4 10.5 11.5 Valuations

Market Cap / Sales 0.5 0.3 0.2 0.5 0.4

EV/EBIDTA 5.7 5.2 4.0 6.0 4.5

P / E 6.8 3.6 3.6 9.4 7.1

P / BV 0.9 0.5 0.4 0.9 0.8

Other Ratios

Debt-Equity Ratio 1.2 1.2 1.1 0.9 0.8

Interest Coverage 4.1 3.6 2.7 3.3 3.9

Current Ratio 3.6 3.9 2.8 2.5 2.6

Turnover Ratios

Fixed asset turnover 1.6 1.7 1.7 1.6 1.7

Total asset turnover 0.8 0.8 0.8 0.8 0.9

Debtors turnover 2.9 3.0 3.0 3.1 3.3

Inventory turnover 9.8 10.4 10.9 11.4 11.6

Creditors turnover 5.8 6.3 5.4 4.4 4.2

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Valuation & Recommendation

The future growth drivers for the company in prefab segment will be increased Govt. spending on rural infrastructure,

education, health sanitation and defence. The competitive advantage in this segment would be its wide product portfolio

and ability to service diverse market segments. The near term strategy in prefab business will be warehousing and agri

shed products and new products evolving Do-it-yourself kits and gradually vacation homes.

Monolithic segment growth driver would be spending by Govt. on mass housing projects to meet huge shortage (>50mn

houses), slum rehabilitation. The competitive advantage in this segment would be its ability for faster implementation of

the projects at a cost competitive level. The company will look forward for bidding for larger projects and go for a joint

development model.

Custom moulding segment will look to shift from composites to metals, weather resistant and operational efficiency with

weight reduction. This segment clientele includes several fortune 500 companies. The competitive advantages of this

segment are better technology, servicing by the company in four continents and low manufacturing.

Going ahead, we expect the companys business to be primarily driven by its Prefab division, Textile and EPC, which is

expected to grow at a CAGR of 23%, 30% and 43% respectively over the period FY14-FY16e.

The stock is currently trading at 9.4x FY15E EPS of Rs 9.70 and 7.1x FY15E EPS of Rs 12.81. We recommend Buy on the

stock with a target price of Rs 128 assuming a P/E multiple of 10x FY16e, an upside of 41% from the current levels over a

9-12 month period.

Disclaimer

This document is meant for our clients only and is not for public distribution. This material is for the personal information of the authorized recipient, and we are not soliciting any action based upon it. This report is not to be construed as an offer to sell or the solicitation of an offer to buy any security in any jurisdiction where such an offer or solicitation would be illegal. The material is based upon information that we consider reliable, but we do not represent that it is accurate or complete, and it should not be relied upon as such. Neither CD Equisearch Pvt. Ltd., nor any person connected with it, accepts any liability arising from the use of this document. The recipient of this material should rely on their own investigations and take their own professional advice. Opinions expressed are our current opinions as of the date appearing on this material only. While we endeavor to update on a reasonable basis the information discussed in this material, there may be regulatory, compliance, or other reasons that prevent us from doing so. Prospective investors and others are cautioned that any forward-looking statements are not predictions and may be subject to change without notice. If you have any questions about this report please get in touch with CD Equisearch Pvt. Ltd.

CD Equisearch Pvt. Ltd. 10, Vaswani Mansion, 2nd Floor, Dinshaw Wachha Road, Churchgate Mumbai 400 020. Phone: +91(22) 2283 0652 / 0653, Fax +91 (22) 2283 2276, Email: Website: www.cdequi.com

20141129 sintex-industries-limited 827 initiatingcoverage(1)

Documents

revenue of rs

textile rs

fy15e eps of rs

mkt cap rs crs

price target rs

target price of rs

book value rs

sint prefab business