Sintex Industries - Betting on prefab & moulding business... - ICICIdirect

With better-than-expected results for the quarter led by the prefab & overseas custom moulding business and an improved demand outlook, we expect H2FY14E (estimated growth: 12% YoY) to remain better than H1FY14 (grew 10% YoY). During the quarter, the prefab (22% of topline) and overseas custom moulding business (26% of topline) did exceptionally well with revenues in both segments growing 31% YoY and over 21% YoY, respectively. On the other hand, the monolithic business (19% of topline) reported surprising revenue growth of ~9% YoY, revenues from domestic custom moulding business declined 3.6% YoY led by a slowdown in the domestic automotive segment. On the margins front, the prefab segments & textile reported robust margins of over ~23% & 20%, respectively. This, in turn, led to an 18 bps YoY improvement in consolidated margins for the quarter. With strong visibility in the prefab and overseas custom moulding business, the management has upgraded its FY14E revenue guidance from 10% to 14-15%. However, we continue to remain conservative on the other two segments (i.e. domestic custom moulding business and monolithic segment) and build in revenue growth of 10.6% and 12% for FY14E and FY15E, respectively.

Foraying into new venture to put some pressure on liquidity

The company has laid down plans for setting up spinning projects and is aiming to set up 1 million spindles in three phases over five years under the scheme launched by the Gujarat government. In phase I, it is setting up 300,000 spindles with estimated capex of Rs. 1,800 crore and plans to commission it within 15 months. Since debt (i.e. 75% of total capex), to be taken for this project, would remain interest free, this would not have any material impact on its profit & loss account during the capex phase.

Negatives priced in; upgrade to BUY

With an improved demand outlook for H2FY14, we expect H2FY14E to remain better than H1FY14. The stock has corrected heavily earlier with the announcement on its new spinning business as well as slowdown in monolithic & custom moulding business. However, after getting more clarity on its spinning business as well strong traction in prefab and overseas moulding business, we now upgrade our rating from HOLD to BUY with a revised target price of Rs. 32 (valuing it on an SOTP basis).

Source : Equity Bulls

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