Sintex Industries - Religare

Margins beat estimates

SINT posted a modestly better Q1FY13 on above-expected margins of 16.1% (vs. 14.5% estimated), even as topline/EBITDA/adj. PAT were down 3%/7%/20% YoY. While a depreciating Re, a deteriorating working capital position and growth concerns across segments would remain near-term stock overhangs, we believe these negatives are largely priced in at current levels. We value the stock at 6x one-year forward earnings to arrive at a PT of Rs 90. We restate a BUY on SINT given its attractive valuations.

- Topline drops 3% YoY: Topline fell 3% YoY to Rs 10.8bn as the Building Material (BM)/Custom Moulding segments declined 4.6%/2.1% YoY. Under BM, while the Monolithic segment reported a 22% drop, Prefabs grew by a strong 23%. The domestic Custom Moulding segment clocked a 25% YoY growth for the quarter.

- Margins beat estimates: SINT's margins beat estimates, coming in at 16.1% (vs. 14.5% estimated) down 72bps YoY/up 118bps QoQ, on better margins in the Monolith and domestic Custom Moulding segments. Adjusting for forex losses of Rs 289mn, PAT fell 20% YoY to Rs 757mn, but came in higher than the estimated Rs 709mn aided by a below-expected tax rate of 24.6% (vs. 27% estimated).

- Slowdown in Monolithic to continue; Prefabs improve: The management expects improvements in the Monolithic segment only post Q3FY13 due to continued slowdown in government projects. Prefabs, however, continued to see healthy growth on new order inflows and entry into new regions (Maharashtra, MP).

- BUY on valuations: The stock is trading at 4.4x FY14E earnings and, in our view, prices in concerns related to businesses and a stretched working capital position. We maintain a BUY on SINT, valuing the stock at 6x one-year forward earnings, which translates into a TP of Rs 90. However, growth concerns across segments and a depreciating Re could continue to weigh on the stock in the near term.

Source : Equity Bulls

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