Sintex Industries - Moulding a better future - IDFC

Sintex Industries (Sintex) is making a strong comeback with revenue CAGR of 11% and ~200bp EBITDA margin expansion, to 16.6%, over FY14-16E. While revenues will be mainly driven by prefab and custom molding businesses, easing working capital cycle through a calibrated pace of execution in monolithic busiess should drive operating margins higher. With earnings CAGR of 23% expected over FY14-16E and lower net gearing ( 0.85x in FY16E vs 1.1x in FY14E), we expect multiples to re-rate. At 3.3x FY15E EPS, reiterate Outperformer with a revised price target of Rs78 - 86% upside from CMP.

Revenue growth set to rebound, led mainly by prefab: We expect 11% revenue CAGR for Sintex over FY14-16E, led by increasing government focus on social spending, driving growth in prefab segment. In custom molding, a larger 'acquired' footprint in overseas markets and newer product offerings in India would be key growth drivers. Also, monolithic business should stabilise as Sintex looks to correct working capital cycle through a calibrated pace of execution.

Margins have hit a trough; net gearing to taper: After hitting a low of 15.1% in FY13, we see EBITDA margins rising to 17.2% in FY15, with easing of working capital cycle and higher revenues. With a series of capital raising programmes in FY13/14, balance sheet issues are largely behind. We expect net gearing to fall gradually to 0.8x by FY16 (1x in FY15) on the back of strong operating cash flows.

Attractive valuations; reiterate Outperformer: A macroeconomic turnaround, improving trajectory of businesses linked to government spending and easing working capital cycle would drive a 23% earnings CAGR over FY14-16E. With better growth prospects and high visibility on RoE expansion ahead, we expect a re-rating in the stock. Reiterate Outperformer with a revised price target of Rs78.

Source : Equity Bulls

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