Buy Sintex Industries - 1QFY14 Results Update - Motilal Oswal

Sintex Industries' (SINT) 1QFY14 revenue was up 4.4% YoY (-19% QoQ) to INR11.3b (v/s est of INR13b), led by 16% and 13% YoY decline in domestic composites (largely Bright) and Monolithic respectively. EBITDA margin was down by 2.1pp YoY (0.8pp QoQ) to 14.3% (v/s est of 15.5%), which translates into an EBITDA decline of 13% YoY (-15% QoQ) to INR1.6b (v/s est of INR2b).

Margins shrunk across segments (barring Prefab), with a sharp decline in Monolithic (-5.3pp YoY) and domestic composites (-6.1pp YoY). Adjusted PAT was down 34% YoY to INR503m.

SINT witnessed a sharp decline (-13% YoY, -21% QoQ) in sales and 5.3pp fall in operating margin in the monolithic segment, with problems of less remunerative sites continuing. Management guidance is likely to translate into almost 25%+ decline in FY14E monolithic revenue to INR7-7.5b.

Prefab vertical continues to remain the bright spot, with 19% YoY (-30% QoQ) growth in sales and 3.4pp QoQ expansion in margin to 23.4%. Declining contribution from telecom shelter segment (a lower margin business) has been a key to margin improvement.

It plans to set up a new spinning unit (320,000 spindle) for the textile division (likely capex of ~INR17b over 24-30 months) in Gujarat on the back of favorable state government policy and tax exemption.

Despite possible long term benefits of overseas acquisitions and plan textile capex, we believe any deterioration in balance sheet strength would create near term stock overhang and restrict immediate re-rating of the stock.

We downgrade SINT's adjusted EPS by 14%/22% to INR10.9/INR12.6 for FY14E/15E led by (a) 34%/11% reduction in Monolithic/Domestic composites FY14 revenue and (b) 1%/3% reduction in FY14E margins to 15%/15.1%. It translates into FY14E and FY15E based target price of INR49/share (4.5x EPS) and INR55/ share (4x) respectively. The stock trades at 3.7x FY14E and 3.2x FY15E EPS. We remain cautiously optimistic and maintain a Buy.

Source : Equity Bulls

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