SINTEX INDUSTRIES

Sintex (earlier known as Bharat Vijay Mills) has two key divisions: textiles and plastics. In the recent past the company has diversified into high growth businesses like monolithic structures, pre-fabricated products and composite plastics. In the last few years the company has acquired seven companies and now has a manufacturing base of 35 facilities.
Key points

* Monolithic business to drive revenue growth: Sintex Industries (Sintex), known for its water tanks, has pioneered the concept of monolithic construction in India and is the market leader in this segment. The business of monolithic structures, used in low-cost housing, is expected to drive Sintex’ revenue growth in future, on the back of the rising need for affordable and mass housing in India. This business division currently has orders of close to Rs1,400 crore and its revenues are estimated to grow at a CAGR of 98% over FY2008-10E.
* Acquisitions strengthen portfolio of plastic products: Sintex has acquired five companies since May 2006, spread across geographies and catering to niche markets. These acquisitions have been timely and would help Sintex to absorb latest technologies as well as expand its reach and customer base in the composite plastic business. The integration of all these companies can lead to substantial benefits in terms of leveraging of the acquired assets and expansion of the client base.
* Prefabs, another feather in the cap: Sintex’ pre-fabricated products are gaining fast acceptance in the country. There is a huge demand for these products which are increasingly finding use in primary school buildings, toilets and telecom tower shelters. Logistics remain a key to success here. Sintex is also increasing its prefabs capacity to 100,000 sq ft per day. The business is expected to grow at a CAGR of 45% over FY2008-10E.
One can consider BUYING Sintex Industries Ltd (Sintex)as it is a well diversified company having strong domain expertise in range of plastics and concentrates on the niche segment of textiles business. Sintex is a market leader in the plastics processing industry, which has been growing at scorching pace through both organic and inorganic route, with net profit CAGR of around 36% for FY06-08A. Sintex, over the years, leveraged its established market dominance in water tanks (~70% share) to tap other higher-margin segments. Going forward, we expect Sintex's revenue and profit would grow at a CAGR of 46% and 43% respectively during FY08-FY10E, boosting EPS to Rs 25.2 in FY09 and Rs 32.6 in FY10 from Rs 15.7 in FY08.

SHAREKHAN VIEW
Valuations and view
We have valued Sintex using two valuation methods: (1) discounted cash flow (DCF) and (2) sum of the parts (SOTP). For the DCF method, we have built a ten-year, three-stage growth model and derived a fair value of Rs453 for the stock. Under the SOTP method, we have valued the various businesses of the company on the basis of enterprise value (EV)/earnings before interest, depreciation, tax and amortisation (EBIDTA). Our SOTP valuation method has yielded a fair value of Rs346. Hence, our price target is the average of the two fair values: Rs400.

Over the years, Sintex has emerged as a key player in the plastic specialties business in the country. The various acquisitions carried out in the past two years have helped the company gain immediate access to desired technology and enter into some of the largest markets in the composite business. Sintex has time and again displayed its ability to pioneer new technologies (prefabs and monolithic structures) as well as proven its strong execution capabilities.

We like the company’s business model which is spread across various segments (plastics, prefabs, monolithic construction, textiles etc) and geographies. All these business are expected to witness stable to strong growth over the next few years. The ability of the company’s management to acquire companies and scale up their operations further justifies our confidence in the company. We are convinced that the company can grow inorganically as well and create value for not only itself but also for its shareholders. We reinitiate coverage on Sintex in this report. We recommend a Buy on the stock with a price target of Rs400. At the current market price the stock is trading at 13.7x and 9.2x FY2009E and FY2010E fully diluted EPS respectively. On EV/EBIDTA basis, the stock is quoting at 6.8x FY2009 and 4.8x FY2010 estimates.

RELIANCE MONEY VIEW
We expect Sintex's revenues and the net profits to grow at 46% and 43% CAGR respectively over the period FY08-10E, on account of robust growth prospects available across the plastics segment and the international acquisitions. The key driver however would be a significant opportunity coming from the inorganic front alongside its expertise in the monolithic (order book - Rs.1.45bn), prefabs and custom molding segments. Also capacity expansion seen across its plastics and textile segments will boost its performance both domestically and internationally. Looking at the strong revenue traction to come out of its acquisitions, we initiate coverage on Sintex with a Buy rating. Our target price of Rs. 364 implies an upside of 30% from current levels. At the target price, the stock would discount FY10E EPS and EV/EBITDA by 11x and 7.7x respectively.

RELIGARE VIEW
Using Discounted Cash Flow basis, we arrived on a target of 587 for Sintex and maintain a BUY
ANGEL BROKING has initiated an accumulate rating on Sintex Industries with a 12-month target price of Rs 230 in its December 15, 2008 research report.


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