Sintex Industries - Strong revenue growth; FY14 capex revised upwards - IDFC

Q2FY14 result highlights

- Consol revenues at Rs13.6bn came above, on better than expected revenues across segments. While monolithic and prefab reported a 9%/31% yoy growth at Rs2.6/3bn, overall custom molding revenues came at Rs5.9bn (+13% yoy).

- Consolidated operating margins were up 120bps qoq to 15.5%, led by textiles - 22.9% (+390 bps qoq) and custom molding overseas - 9.6% (+160 bps qoq), even as pressure at monolithic business continued.

- Sintex is planning to commission its 3,00,000 spindles project in Gujarat (total capacity ~1m spindles) under the state's new textile policy over FY15 and expects a total capex of ~Rs18bn for the entire project.

- Adj. PAT came above on higher revenue growth, even as average tax rate was down 330bps qoq at 27.1%. FY14 capex guidance upward revised to ~Rs4.5bn.

Key positives: Higher revenue growth across business and margin improvement in textiles and custom molding overseas

Key negatives: Higher tax rate; upward revision in FY14 capex

Impact on financials: We revise our FY14/15 EPS to Rs10.2/12.5 from Rs11/13.7 as we raise our interest costs on higher debt (led by higher capex) and increase tax rate to 27% (from 24%).

Valuations & view

While the recent results throw a positive surprise on revenue growth and improving operating profitability, we are negatively surprised at no improvement in working capital cycle and upward revising of capex. In addition, we believe capex intensity to increase in coming quarters, as greenfield project on textile fructify. We believe a longer term re-rating would only happen on easing of working capital cycle and improvement in earnings momentum at monolithic and overseas custom molding business. Maintain Outperformer with a revised TP of Rs62/share - valuing it at 5x FY15E EPS

Source : Equity Bulls

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