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Research
Sintex Industries - Better than estimates... - ICICIdirect
Posted On : 2013-01-14 09:10:11( TIMEZONE : IST )
Sintex Industries' (SIL) Q3FY13 numbers were far ahead of our estimates at the operating level due to an improvement in the monolithic & overseas custom moulding segments, which reported revenue growth of ~40.4% and ~27.5% YoY, respectively. In the monolithic segment, SIL cleared three slow moving sites in the first nine months and booked revenue for some large order this quarter that led to robust revenue growth and margins expansion. Margins in this segment improved 300 bps YoY, 400 QoQ to 19.0%. The custom moulding business also clocked growth of over 22% YoY led by 14.9% growth in the domestic and 27.5% growth in the international segment. Growth in this segment was aided by good volumes and better utilisation rates while margins in this segment improved a bit by 39 bps YoY to 12.9%.
The prefab segment continued to put up a good performance (revenues up 22.5% YoY to Rs.277.6 crore) while growth in storage tank (revenue of Rs.60 crore, flat YoY) and textile division (revenues up 1.2% to Rs.115.4 crore) continued to remain subdued. During the quarter, SIL also reported a forex loss of Rs.45 crore on its long term FCCB that dragged down its net profit growth. Going ahead, with improving visibility in the custom moulding business, strong momentum in the prefab segment and improvement in working capital cycle in the monolithic business, we expect growth to come back on track with margin expansion. However, we would like to wait for a couple of quarters for better earnings visibility and growth forecast.
Concerns overdone, valuations cheap but re-rating not to happen soon We believe concerns on the monolithic and European CM business coupled with high working capital requirement are overdone. However, due to its nature of business, a re-rating is unlikely due to the highly volatile nature of the business especially in the monolithic segment and high working capital requirement. We expect single digit topline growth of 7.4% in FY14E. However, margin improvement is visible with the management's high focus on working capital improvement. Hence, we have revised our target price upwards to Rs.80 per share (valuing on an SOTP basis) with a BUY rating.
