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EmkayResearch
Sintex Industries Ltd.
Conglomerate in the making
24th September, 2008
Paragon Center, H -13 -16, 1st Floor, Pandurang Budhkar Marg, Worli, Mumbai – 400 013. India
Init
iati
ng
Co
ve
rag
e
Amit Golchha
+91-22-66242408
BUY
Price TargetRs281 Rs418
Sensex - 13,570
Price Performance
(%) 1M 3M 6M 12M
Absolute (8) (21) (19) (18)
Rel. to Sensex (3) (17) (3) 2
Source: Bloomberg
Stock Details
Sector Diversified
Reuters SNTX.BO
Bloomberg BVML@IN
Equity Capital (Rs mn) 273
Face Value (Rs) 2
No of shares o/s (mn) 136
52 Week H/L (Rs) 615/246
Market Cap (Rs bn/USD mn) 38/831
Daily Avg Vol (No of shares) 310340
Daily Avg Turnover (US$ mn) 2.1
Shareholding Pattern (%)
30/06/08 31/03/08 31/12/07
Promoters 29.2 29.2 30.7
FII/NRI 43.7 42.0 42.2
Institutions 16.3 15.5 14.8
Private Corp 4.4 6.7 4.8
Public 6.4 6.7 7.4
Source:Capitaline
Sintex Industries Ltd., is a conglomerate in the making, with businesses spread
across diverse verticals like textiles, plastics (custom moldings, water tanks, prefabs)
and construction. Strong growth drivers are likely to ensure rapid revenue growth
during the FY08-11E period, led by construction (93% CAGR), custom moldings (50%
CAGR) and prefabs (35% CAGR). Monolithic construction, with a Rs14bn order book, is
likely to be the major growth driver for Sintex. Led by consolidation of its recent
acquisitions in the short-term and successful integration in the long-term, the custom
moldings business lends strong visibility to future operations of the company. We
expect Sintex to report a revenue CAGR of 45% and adjusted PAT CAGR of 43% during
FY08-FY11E. We expect adjusted earnings per share of Rs21.8, Rs31.7 and Rs.41.1
during FY09E, FY10E and FY11E respectively. We initiate coverage on the stock with a
BUY rating and a price target of Rs418, which is based on the weighted average of;
1) DCF (Weight - 50%), 2) SOTP (Weight - 25%) and 3) historical average* 1 yr fwd PER
(Weight - 25%).
Construction, with strong visibility- to be the key growth driver: The overwhelming
response to Sintex's monolithic construction venture has resulted in a Rs.14bn order
book (6.7x FY08 construction revenues). Sintex is planning to invest Rs 7.8bn to augment
its execution capabilities. Led by a strong order book and high capex, we expect a 93%
CAGR in revenues during FY08-FY11E. With Sintex being the first mover in the business
coupled with NHB rating monolithic as the best solution for low income housing, we
expect the company to be a major beneficiary of the huge opportunities ahead.
Custom moldings to be the future of Sintex: Sintex's recent acquisitions have enabled it
to have a rich and diverse client base in multiple geographies. We expect the custom
molding segment to be the future growth driver of Sintex. Huge substitution potential
coupled with successful integration of its acquisitions is likely to make Sintex a global
player in the custom moldings segment. We expect revenues to grow at 50% CAGR
during FY08-FY11E.
Prefabs could prove to be a dark horse: Prefabs, though still at a nascent stage, has
immense potential to grow. We believe that prefabs could prove to be a dark horse for
Sintex. Led by aggressive expansion to the tune of 1.9x FY08 prefab capacities, we expect
revenue CAGR of 35% in the business during FY08-FY11E.
Consolidated ROACE to improve from 10.1% in FY08 to 14.6% by FY11E: Led by (1)
investment of cash in core operations and better deployment of cash & cash equivalents,
(2) higher contribution from construction vertical and (3) improvement in subsidiaries
performance, we expect the ROACE to improve from 10.1% in FY08 to 14.6% in FY11E.
Further, we expect the improvement in ROACE to traverse well beyond FY11E.
Equity dilution unlikely in the near term: Cash balance of Rs.16.9bn and strong internal
accruals in ensuing years puts Sintex in a sweet spot. We believe that, Sintex can fund its
organic as well as inorganic growth (upto Euro 150-200mn) during FY08-FY11E. This
keeps the risk to equity dilution at abeyance.
Net EBITDA AEPS** EV/ Div Yld ROE
YE-Mar Sales (Core) (%) APAT (Rs) EBITDA P/BV (%) (%) P/E
FY08 22742 3826 16.8 2172 14.2 9.5 2.4 0.4 17.7 18.7
FY09E 39513 6030 15.3 3338 21.8 6.0 2.0 0.5 17.0 12.8
FY10E 55754 8590 15.4 4850 31.7 4.2 1.7 0.7 20.7 8.9
FY11E 68637 10783 15.7 6292 41.1 3.4 1.4 1.0 22.0 6.8
Key Financials (Rs.mn)
* 3 year historical average. ** Calculated on fully diluted equity (excluding the warrants outstanding to the extent
money has not been received in to the company)
Pritesh Chheda, CFA
+91 22 6612 1273
24 September, 2008 2Emkay Research
Sintex Industries Ltd. Initiating Coverage
0
8000
16000
24000
FY93 FY98 FY03 FY08
Rs.m
n
0%
33%
66%
99%
Revenues Grow th (%)
Company Background
Sintex Industries Ltd. (Sintex) operates in three business segments - 1) textiles (structured
fabrics), 2) plastics (water tanks, custom moldings and prefabricated structures) and 3)
construction (monolithic construction). It also enjoys market leadership in all the verticals.
Sintex (earlier known as Bharat Vijay Mills (BVM)) was a textiles company in 1931 and later
diversified into the plastics business in 1974, with the manufacturing of water tanks.
Since then, the company has diversified into verticals like plastic products (prefabs, custom
moldings) and recently, into construction. It has adopted the inorganic way to scale up
operations in the custom moldings and prefab segments and has acquired 7 companies,
during the last two years. In the custom moldings segment, it has acquired Nief plastics
in France, WCI & Nero in US, Geiger Technik in Germany and Bright Brothers in India. In
the prefabs segment, it acquired Zeppelin Mobile Systems India and Digvijay
Communication to compliment the products & services provided by Zeppelin. Currently,
Sintex's operations are spread across 35 manufacturing sites, out of which 15 plants are
located in India and 20 outside India i.e. 5 plants in US, 7 plants in France, 3 plants in
Germany, 1 plant in Poland, 1 in Tunisia, 1 in Hungary, 1 in Morocco and 1 in Slovakia.
Sintex is a rare company that has reported consistent growth in revenues and profits over
the last 14 / 15 years. The company has reported a 24% CAGR in revenues and 32%
CAGR in PAT in the FY93-08 period. Further, the EBIDTA margins have risen by 650 bps in
the same time period, due to rising share of value added businesses.
Company Background
Source: Emkay Research, Company
Revenue CAGR of 24% during last 15 years
Source: Emkay Research, Company
PAT CAGR of 32% during last 15 years
Source: Emkay Research, Company
650 bps improvement in EBITDA margins during FY93-08
Source: Emkay Research, Company
Plastics - lead contributor with 76% share in FY08
-600
150
900
1650
2400
FY
93
FY
98
FY
03
FY
08
Rs.m
n
-25%
0%
25%
50%
75%
100%
PAT Grow th (%)
0.0%
8.0%
16.0%
24.0%
FY93 FY98 FY03 FY08
Prefabs
29%
Custom
moldings
40%
Tanks
7%Textiles
15%
Monolithic
construction
9%
Plastics
76%
Sintex is a market leader in all the
verticals
24 September, 2008 3Emkay Research
Sintex Industries Ltd. Initiating CoverageInvestment Arguments
Investment Arguments
Monolithic construction business offers strong visibility & emergesas a key growth driver
The monolithic construction business has a Rs14bn order book, which is 6.7x FY08
construction revenues. The monolithic construction business, apart from lending strong
visibility to revenues during FY08-11E period, also promises immense growth potential.
Housing shortage of 25mn units in India coupled with government's thrust on low income
housing, present a lucrative Rs 4,000bn opportunity for Sintex's construction business.
Moreover, with NHB rating monolithic construction as the best solution for low income
housing, we expect this segment to grow in leaps and bounds (Refer annexure). Sintex's
early entry into the business gives it the competitive edge to garner a major chunk of the
opportunities ahead. Currently, Sintex is the only player in the Rs4bn monolithic construction
market in India with revenues of Rs2.1bn and Rs0.9bn during FY08 and Q1FY09
respectively. The Rs14bn order backlog includes a Rs.7.5bn order from GUDA* to construct
50,000 low cost houses across Gujarat. States like Chhattisgarh, Delhi etc. have also
evinced interest in the technology and are likely to follow the footprints of Gujarat. In a bid
to enhance execution capabilities, Sintex is investing close to Rs.7.8bn or 32% of the total
investments (Capex plus working capital) in FY08-FY11E period in the monolithic
construction vertical. Based on the current order book position, we expect the construction
vertical to contribute 32% of the incremental earnings during FY08-11E and emerge as a
key growth driver.
Total investment of Rs.7.8bn - With favorable response to the monolithic construction
venture, the order book has surged to Rs14 bn within two years of operations. The vertical
has witnessed robust order inflow resulting in over acceptance in the medium term.
Sintex has cut down on order intake in the medium term, owing to limited execution
capabilities. Therefore, Sintex plans to invest Rs.7.8bn in the above business during
FY08-FY11E (Rs.2bn as capex and Rs.5.8bn as working capital). The proposed investment
will augment the execution capabilities and enhance the scale of operations.
Fast-track growth in FY08-11E period - We expect revenues to grow at 93% CAGR in
FY08-FY11E, higher than the consolidated growth of 45% CAGR. The business will
contribute 28% to the incremental revenues in FY08-11E period, witnessing higher share
in revenue from 0% in FY07 to 9% in FY08 to 22% in FY11E. We expect EBITDA margins to
sustain at 17%, resulting in a 91% CAGR in EBITDA in FY08-11E period and contributing
23% to FY11E EBITDA. Consequently, PAT is likely to grow at 94% CAGR during FY08-11E
period with estimated earnings of Rs10 in FY11E. We expect the construction business to
contribute ~ 32% of the incremental earnings of FY08-11E and emerge as the key growth
driver.
Strong contributor to incremental ROACE during FY08-FY11E - We expect strong ROACE
in the construction business at 18 - 22%, higher than the consolidated ROACE of 10-15%
in FY08-11E period. The strong ROACE of the construction business is likely to contribute
significantly to the improvement in consolidated ROACE from 10.1% in FY08 to 14.6% in
FY11E. This is largely attributed to (1) revenue growth at 93% CAGR (2) better asset turns
and (3) stable and healthy EBITDA margins. We expect the construction business to
contribute an incremental ROACE of 0.1%, 0.9% & 0.2% during FY09E, FY10E & FY11E
respectively.
Construction contributes 22% to SoTP value: We have valued the monolithic construction
business at 7.0x FY10E EBITDA, in line with the average valuations of mid-cap construction
peers with similar growth triggers. With the FY10E EBITDA at Rs1.7bn, construction
business is valued at Rs12.1bn or Rs.79 per share. This is equivalent to 22% of the SoTP
value.
Sintex has a construction order book
of Rs14bn, which is 6.7x FY08
construction revenues
Expect an EPS of Rs10 from
construction business during FY11E
24 September, 2008 4Emkay Research
Sintex Industries Ltd. Initiating CoverageInvestment Arguments
Source: NHB's draft Aam Admi Awas Scheme and Emkay Research
NHB has rated monolithic as the best solution for low income housing
Technology type Cost Space Effective PriorityPer sq. utilization costmeter ratio (Rs. per(Rs) sq meter)
Bamboo and mud technology 1600 0.72 2222
Compressed stabilized earth block 2100 0.72 2917
Hollow block masonry with filler slab 4000 0.76 5263
Brick masonry with RCC slab 4500 0.72 6250
Fly ash brick masonry with RCC slab 4600 0.72 6389
In-situ wall - pre-cast 4750 0.76 6250 3RCC joist and slab
Prefab - RCC frame and wall panels 5000 0.82 6098 5
Prefab - steel frame and wall panels 5150 0.91 5659 4
Monolithic construction - 5250 0.88 5966 1plastic formwork
Monolithic construction - 5450 0.88 6193 2alum. formwork
Source: NHB's draft Aam Admi Awas Scheme and Emkay Research
Increase in housing shortage by 6% during 91-01
Source: Emkay Research, Company
Construction revenue CAGR of 93% during FY08-FY11E
Source: Emkay Research, Company
To constitute 22% of the consolidated revenues by FY11E
Source: Emkay Research, Company
Expect margins to be stable
Source: Emkay Research, Company
Construction to contribute 24% of FY11E consol. earnings
16.314.7 15.8
7.08.2 8.9
23.324.7
22.9
0
10
20
30
1981 1991 2001
Household
s (
Mn)
Overall Rural Urban
2100
4000
10000
15000
1721
361 669
2507
0
4000
8000
12000
16000
FY08 FY09E FY10E FY11E
Rs.m
n
Construction revenues Construction EBITDA
9% 10%
18%
22%
0%
10%
20%
30%
FY08 FY09E FY10E FY11E
Construction as % of consolidated revenues
17.2% 16.7% 17.2% 16.7%
0.0%
10.0%
20.0%
30.0%
FY08 FY09E FY10E FY11E
Construction EBITDA margins (%)
1.4 2.56.8
10.014.2
21.8
31.7
41.1
12%
22%24%
10%
0
9
18
27
36
45
FY08 FY09E FY10E FY11E
EP
S (
Rs)
0%
8%
16%
24%
32%
40%
EPS from Construction Consolidated EPS
% of consolidated EPS
24 September, 2008 5Emkay Research
Sintex Industries Ltd. Initiating Coverage
10.1%
0.2%0.9%
0.1%
9.4%
10.1%
10.8%
11.5%
FY08 FY09E FY10E FY11E
Construction's contribution to incremental ROACE
Consolidated ROACE
Source: Emkay Research, Company
Construction will attract 32% of total investments
Source: Emkay Research, Company
Asset turns are expected to be higher
Source: Emkay Research, Company
Construction ROACE to be higher than consolidated ROACE
Source: Emkay Research, Company
Expected to contribute 1.2% to the incremental ROACE
Custom moldings: the future of Sintex
We believe that custom molding is likely to emerge as a stable and secure long-term
growth business for Sintex. The company is making large investments and has adopted
a mix of organic and acquisition-led multi-phased growth strategy. Sintex has made 5
acquisitions at a cost of Rs.7.7bn during the last one year, besides investing Rs.2.3bn in
its standalone custom molding operations. While its own custom moldings operations
cater to only automotive and electrical components, its acquisitions have enabled Sintex
to address diverse industries such as aerospace, wind power, aeronautics, defense,
consumer appliances etc. Thus, (1) armed with a rich client base (2) presence in the
global custom molding market and (3) strong substitution potential, we expect this segment
to be the future growth driver for Sintex. We expect Sintex to integrate the product offerings
of its acquired companies and leverage on its strong relationships with a wide client
base. Sintex is investing Rs.7.3bn or 30% of the total investment during FY08-FY11E in
the above business, to expand the scale of operations. The above investment does not
include allocations for further acquisitions. We expect strong performance from the custom
molding vertical, owing to consolidation in the short-term and successful integration in
long-term. We expect revenues to grow at 50% CAGR during FY08-FY11E and contribute
44% to consolidated revenues in FY11E.
Investment Arguments
1.31.4
1.5
1.6
0.9
1.0
1.3
1.4
0.8
1.1
1.4
1.7
FY08 FY09E FY10E FY11E
Tim
es
Asset Turn - Construction Asset Turn - Consolidated
21.0%18.0%
22.8%20.0%
10.1% 10.6%
14.6%13.1%
0.0%
10.0%
20.0%
30.0%
40.0%
FY08 FY09E FY10E FY11E
Construction ROACE Consolidated ROACE
We expect strong contribution to
overall growth from this segment,
owing to consolidation in the short-
term and successful integration in the
long-term
Sintex's Investment during FY08-FY11E
7858
24343
0
5000
10000
15000
20000
25000
30000
Investment in
monolithic
Total Investments
Rs.m
n
24 September, 2008 6Emkay Research
Sintex Industries Ltd. Initiating Coverage
Sintex's multi-phased growth strategy: Custom Molding segment is the future of Sintex, rightly demonstrated through the 5
acquisitions concluded in the last 2 years. We have analyzed different phases of the growth strategy deployed in custom molding-
Consolidation and Absorption - FY07 To FY11E
Mandate
1) Provide additional resources to acquired companies, 2)
Nurture existing product lines and extract untapped
potential, 3) Instill proactive and reflexive approach.
Actions
This phase started concurrently with the second phase on
acquisition of companies. The company is absorbing and
consolidating the new companies and chalking out the
growth plan. It is expanding capacities, wherever required
(Capex of Rs.1200mn has been planned for subsidiaries
during FY09E).
Expected Outcome
At the end of 3rd phase- Sintex is likely to attain a critical
size in the global market (Estimated revenues of US $
725mn by FY11E based on current acquisitions).
Mandate
Integrate all acquired businesses and capitalize on
potential synergies
Actions
i) Shift the production base to low cost countries, ii) Cross
sell products, iii) Benefit from acquired technology iv)
Rationalize expenses at high cost locations.
Expected Outcome
Emergence of Sintex as an Indian multinational in custom
molding vertical with; a) Presence in multiple geographies
b) Access to low cost manufacturing operations and iii)
use of cost efficient technologies and processes
Initial Phase - FY98 To FY07 Inorganic Growth - FY07 To FY09E
Mandate
1) Set up a manufacturing base in India (a low cost country)
2) Achieve reasonable size and establish accounts with
some multinational OEMs.
Actions taken
i) Facilities at Kalol and Kutch were created.
ii) FY07 revenues at Rs.2.5bn.
iii) Client accounts include multinational clients like
Cummins.
Outcome
Company ready to enter next phase
Mandate
1) Acquire established companies in Europe, US and India
- to acquire technologies and customers across different
products, sectors and geographies.
2) The pre requisites for acquisitions: a) strong customer
base across varied sectors, b) access to good technology
and processes and c) reasonable valuations.
Actions taken / to be taken
In FY08, Sintex acquired 5 companies (2 in the US, 1 in
France, 1 in Germany and 1 in India). The acquisition spree
is likely to continue.
Expected Outcome
Presence across multiple geographies, sectors and
products. Access to new technology and diverse client
base.
Integration and High Growth - FY10E To FY14E
MultiPhasedGrowthStrategy
Investment Arguments
24 September, 2008 7Emkay Research
Sintex Industries Ltd. Initiating Coverage
Proposed investment of Rs7.3bn in Indian operations and acquired companies - Sintex
has adopted a mix of acquisition-led and organic growth strategy in the custom molding
business. It has done 5 acquisitions: Nief plastics and Geiger Technik in Europe,
Wausaukee Composites Inc. and Nero Plastics in US, and Bright Brothers in India. The
company has invested approximately Rs.9.9bn in its custom molding operations during
the last one year. Sintex has charted an additional investment plan of Rs7.3bn during the
FY08-FY11E period to strengthen its custom molding business. Out of the planned
investment, (1) Rs.1.8bn is for augmenting Indian operations, (2) Rs.2.4bn for concluding
Geiger Technik acquisition and (3) balance Rs.3.1bn to augment capabilities in acquired
companies. Further, Sintex is likely to continue its acquisition-led growth strategy and is
on the look out for a large company.
Acquisitions Month of Stake Price paid Country Products Major customersacquisition (EV) Manufactured
Wausaukee June.07 81% US $ 20.5mn US Custom moldings for Auto, Phillips, Siemens, Hitachi,
Composites Inc. (WCI) Wind Power, Medical Imaging Toshiba, GE, Caterpillar, Alstom,Bobcat, Amtrac, Holland Tractors etc.
Bright Brothers Dec.07 100% Rs1.5bn India Auto custom moldings Maruti, M & M, Hyundai,(Slump Sale) Tata Motors etc.
NIEF Plastics Oct.07 100% Euro 44.0mn France Custom moldings for auto, Bosch, Renault, Valeo,electrical, consumer Faurecia, Delphi, Schneider,appliances, aeronautics, Alstom, ABB, Siemens,defense and building industries Legrand, Snecma, Dassault etc.
Nero Plastic Dec.07 81% US $ 4.7mn US Auto custom moldings Caterpiller (65% of sales),
(Through WCI) Ken worth truck, Motor coachindustries etc.
Geiger Technik July.08 90% Euro 35.6mn Germany Auto custom moldings BMW, Daimler, Audi, PorscheOpel, Bosch, Siemens
Source: Emkay Research, Company
Led by consolidation, we expect strong performance in FY08-11E period: Led by benefits
of consolidation of subsidiaries, revenues of the custom molding segment are expected
to grow at 50% CAGR during FY08-11E period. We expect subsidiary companies to lead
growth with 64% CAGR against 30% CAGR in standalone operations in FY08-11E period.
We expect rising importance of custom molding business with 44% contribution to FY11E
revenues. We expect a 140 bps fall in EBITDA margins in FY08-10E period to 12.7%,
mainly due to rising dominance of subsidiary operations. However, FY11E is likely to
witness 80 bps improvements in EBITDA margins, owing to integration benefits causing
50 bps rise in margins of subsidiary operations. Consequently, PAT is expected to grow at
36% CAGR to Rs1.9bn, lower than 50% CAGR in revenues. We expect earnings of Rs12.7
in FY11E from the custom molding vertical, equivalent to 31% of FY11E consolidated
earnings.
Custom molding vertical is expected to report strong ROACE, despite low ROACE of
subsidiaries companies: The standalone operations of custom molding business enjoys
a 25-28% ROACE, highest in the Sintex scheme of things. However, the acquisitions with
low ROACEs of 5-9% are likely to impact the ROACE of custom moldings segment in
FY08-11E period. Despite this, we expect the business to report strong ROACE of 12-16%
in FY08-11E period on a consolidated level.
Customs molding is the lead contributor to SoTP value: On the back of strong visibility in
earnings and attractive return ratios, we have valued standalone operations of custom
molding business at 8x FY10E EBITDA of Rs1.6bn and assigned a value of Rs12.7bn.
The valuations so assigned are highest in the Sintex scheme of things. Further, we have
adopted conservatism in valuing acquired businesses by negating the growth premium
and valuing them at acquisition cost. Consequently, the custom moldings business is
valued at Rs.20.4bn or Rs.134 per share and is the lead contributor with more than 1/3rd
or 37% of SoTP value.
Investment Arguments
The company has adopted a mix of
organic and acquisition-led growth
strategy in the custom molding
segment
We expect subsidiary companies to
lead growth with 64% CAGR against
30% CAGR in standalone operations
in FY08-11E period.
Expect the business to be ROACE
neutral
24 September, 2008 8Emkay Research
Sintex Industries Ltd. Initiating Coverage
78%47% 46% 49%
16%
29% 25% 24%
2%
3% 4% 5%14% 18% 16%
4% 8% 7% 6%
0%
20%
40%
60%
80%
100%
FY08 FY09E FY10E FY11E
Standalone custom moldings Nief Plastics
WCI & Nero Geiger
Bright brothers
24609031
2104226926 30460
11630
22742
39513
55754
68637
0
20000
40000
60000
80000
FY07 FY08 FY09E FY10E FY11E
Rs.m
n
Custom molding revenues Consolidated revenues
Source: Emkay Research, Company
Subsidiaries to contribute hugely to segment performance in FY08-FY11E
Source: Emkay Research, Company
Expect subsidiaries' margins to improve by 410bps
Source: Emkay Research, Company
Strong ROACE at 12-16%, despite low ROACE of subsidiaries
Source: Emkay Research, Company
Revenue CAGR of 50% during FY08-FY11E
Source: Emkay Research, Company
Custom moldings to be 44% of the consolidated revenues
Investment Arguments
40%
53%48%
44%
0%
15%
30%
45%
60%
FY08 FY09E FY10E FY11E
% o
f consolid
ate
d R
evenues
Custom molding revenues
46%25% 26% 29%
39%
36% 31% 31%
11%
9% 8% 8%
23%30% 27%
4% 6% 5% 5%
0%
20%
40%
60%
80%
100%
FY08 FY09E FY10E FY11E
% o
f custo
m m
old
ing r
evenuess
Standalone custom moldings Nief Plastics
WCI & Nero Geiger
Bright brothers
% o
f cust
om
mold
ing E
BIT
DA
14.1% 12.7% 12.7% 13.5%
23.9% 23.5% 23.1% 22.7%
9.0% 9.1% 9.7%
17.3%
17.3%
5.8%
0.0%
10.0%
20.0%
30.0%
FY07 FY08 FY09E FY10E FY11E
EB
ITD
A m
arg
ins
Custom modings Standalone custom molding
Subssidiaries - Custom moldings
0%
7%
14%
21%
28%
35%
FY09E FY10E FY11E
RO
AC
E
Custom moldings Standalone custom moldings
Subsidiaries - Custom moldings
24 September, 2008 9Emkay Research
Sintex Industries Ltd. Initiating Coverage
Prefabricated structures: Dark horse
Sintex is the largest player in the domestic prefabs market, which is still at a nascent
stage in India. This is quite contrary to international markets like US & Europe, where
prefabs occupy 8-10% share of construction industry and compete against traditional
technologies. Though prefabs as an alternative technology, is still to gain acceptance, we
believe that increased awareness could translate into an attractive opportunity and prove
to be a dark horse for Sintex. During FY08, prefabs business earned Rs6.6 bn and
contributed 29% of consolidated revenues. The company has grown at a CAGR of 42% in
prefabs during the last two years. Further, enhancing its presence in the BT shelters
market (Prefabs used in telecom industry), it acquired 74% stake in Zeppelin Mobile
Systems India, one of the leaders in the BT shelters space. Sintex will continue its growth
strategy - largely organic but is also open to attractive acquisitions. During FY08-11E,
Sintex is likely to invest Rs.4.8bn (Capex & working capital) to expand standalone prefab
manufacturing capacity by 1.9x FY08 capacities. We expect revenue CAGR of 35% during
FY08-11E period with 24% contribution to FY11E consolidated revenues. We expect an
attractive long-term ROACE in the 20 - 28% range.
Aggressive expansion in prefabs business: Sintex is expanding its prefab manufacturing
capacities by 1.9x FY08 capacities of 110000 sq feet per day (Refer annexure). It has
planned an investment of Rs4.8bn or 20% of total investments during FY08-11E (Capex &
Working Capital) in the prefabs business.
Eyeing healthy growth in FY08-11E period: Driven by large capacity expansion, we expect
the prefab revenues to grow at a 35% CAGR, during FY08-FY11E. Prefabs business is
likely to contribute 21% of the incremental revenues during FY08-FY11E and 24% of the
FY11E consolidated revenues. We expect stable EBITDA margins of 17% in FY08-11E
period with an ability to stem competition and arrest cost pressures. Better asset turns
and lower effective tax outgo are likely to ensure high PAT margins of 12% (Refer annexure).
Consequently, the PAT is expected to grow at 38% CAGR during FY08-11E period. We
estimate prefab business to report earnings of Rs12.9 in FY11E and contribute 31% to
FY11E consolidated earnings.
Business to be return accretive in FY08-11E period: With (1) lower working capital cycle,
(2) higher fixed asset turnover and (3) better margins, prefabs business operates on
relatively better return ratios to consolidated entity. We expect the long term ROACE in the
range of 20-28% vs. consolidated ROACE of 10-15% in FY08-FY11E. We expect prefabs
to contribute 0.5% to the incremental ROACE in FY08-FY11E period.
Likely to emerge as the second highest contributor to SoTP value: Led by strong growth
and high ROACE, we have valued standalone prefabs business at 6.5x FY10E EBITDA of
Rs1.9bn and assigned value of Rs12.2bn. However, we have valued ZMISL conservatively,
at 4x FY10E EBITDA of Rs0.2bn and assigned a value of Rs1bn, due to much smaller
scale of operations. The total value assigned to prefabs business is Rs13.2bn or 24% of
the SoTP value.
Investment Arguments
Prefabs constitutes 8-10% of the
construction industry in US and
Europe
Likely to contribute 0.5% to the
incremental ROACE during FY08 -
FY11E
24 September, 2008 10Emkay Research
Sintex Industries Ltd. Initiating Coverage
Source: Emkay Research, Company
Revenue CAGR of 35% during FY08-11E period
Source: Emkay Research, Company
EBITDA to converge into PAT every year
Source: Emkay Research, Company
Capital requirement is relatively lower
Source: Emkay Research, Company
Low effective tax rate due to tax exemptions
Source: Emkay Research, Company
Consequently, PAT margins are significantly higher
Source: Emkay Research, Company
Prefabs expected to be ROACE accretive
Investment Arguments
4760
6613
8958
12606
1618641%
29%
24%23%23%
0
6000
12000
18000
FY07 FY08 FY09E FY10E FY11E
Rs.m
n
0%
9%
18%
27%
36%
45%
Prefabricated revenues % of consolidated revenues
790
1126
1504
2133
2721
527752
1017
1510
1971
0
1000
2000
3000
FY07 FY08 FY09E FY10E FY11E
Rs.m
n
EBITDA from prefabs PAT from prefabs
7081 81 8183 79
86 90
2.42.2
2.3
2.7
1.92.1
2.31.70
25
50
75
100
FY08 FY09E FY10E FY11E
Days
1.5
2.0
2.5
3.0
3.5
4.0
Tim
es
Prefabs - w c cycle Consol. - w c cycle
Prefabs - f ixed asset turn Consol. - f ixed asset turn
13.0% 13.1%11.2% 10.6%
22.7%
26.4% 26.3% 26.3%
0.0%
6.0%
12.0%
18.0%
24.0%
30.0%
FY08 FY09E FY10E FY11E
Effectiv
e tax r
ate
Prefabs Consolidated
11.4% 12.0% 12.2%
9.5%8.4% 8.7% 9.2%
11.4%
0.0%
5.0%
10.0%
15.0%
FY08 FY09E FY10E FY11E
PA
T m
arg
ins
Prefabs Consolidated
10.1%
0.4%
0.6%
-0.5%
9.1%
9.6%
10.1%
10.6%
FY08 FY09E FY10E FY11E
Prefab's contribution to the incremental ROACE
Consolidated ROACE
24 September, 2008 11Emkay Research
Sintex Industries Ltd. Initiating Coverage
Textiles: Stable growth and cash flow positive business
The textile business is accredited as a stable growth and cash flow positive business.
Sintex manufactures structured fabrics for shirting, which is a niche segment. Revenues
grew at 22% CAGR during FY03-08 period with EBITDA margins in the 23-29% range.
Currently, Sintex has an installed capacity of 24mn meters operating at near 100% capacity
utilization. Sintex is planning to augment its capacity by another 5mn meters in FY09E. We
expect textile revenues to grow at a 13.3% CAGR during FY08-11E, led by capacity
expansion. We view that the textiles business will be largely self funded and is expected
to be a 'Cash Cow' business for the company.
Capacity expansion from 24mn meters to 29mn meters in FY09: Sintex is expanding its
textile capacity by 5mn meters at an expected investment of Rs1.0 bn. This will augment
the capacity from 24mn meters to 29mn meters. Further, Sintex is planning total investment
of Rs2.2bn (Capex and working capital) during FY08-11E period, equivalent to 9.1% of
total investment during the same time period.
Stable growth in FY08-11E period, but to witness sliding contribution to consolidated
performance- Led by capacity expansion, we expect a revenue CAGR of 13.3% during
FY08-11E period. We expect a further decline in the textile business' contribution from
15.3% of consolidated revenues in FY08 to 7.4% of consolidated revenues in FY11E, due
to high growth in other businesses. We expect stable EBITDA margins in the 23-29%
range, owing to presence in niche segments. We expect PAT to grow at a 14.2% CAGR in
FY08-11E period, in line with the CAGR in revenues. We expect textile business to report
earnings of Rs.3.2 in FY11E, contributing 7.7% of FY11E consolidated earnings.
Business is expected to generate positive cash flows: Despite high working capital
requirement at 165 days, we expect the business to generate positive operating cash
flows. This is largely attributed to the high EBITDA margins of 23-29%. We expect positive
operating cash flows of Rs0.6 bn, higher than the proportionate capital expenditure of
Rs0.3bn in FY11E. This indicates the self funding stature of the textile business.
De-merger of textile business is likely to be return accretive: In event of a de-merger of
the textile business, FY11E return ratios will improve considerably from 16.4% to 18.2% in
standalone operations and 14.6% to 15.6% of consolidated operations. This is, despite
sliding contribution of textiles business from 15% of consolidated revenues in FY08 to
7.5% of consolidated revenues in FY11E. Post de-merger, rise in return ratios can be
attributed to (1) textiles contributing 15% of capital employed and (2) textiles operating on
abysmally low return ratios of 7-8%.
Textile business valued at Rs3.0bn or Rs.19 per share: We have valued the textile
business at 2.5x FY10E EBITDA, in line with the mid cap textile companies. With an
expected EBITDA of Rs.1.2bn in FY10E, textile business is valued at Rs3.0bn or Rs.19 per
share. This is equivalent to 5.3% of SoTP value.
Investment Arguments
Operates in the high margin, niche
segment of structured fabrics
We expect the textile business to be
largely self funded
24 September, 2008 12Emkay Research
Sintex Industries Ltd. Initiating Coverage
38284403
5063
3483
9.7%7.9% 7.4%
15.3%
0
1500
3000
4500
6000
FY08 FY09E FY10E FY11E
Rs.m
n
0.0%
5.0%
10.0%
15.0%
20.0%
Textiles Revenues Textiles as % of overall revenues
28.3%
23.3%
28.6%25.3%
25.8%
27.1%27.4%
28.4%
15.7%15.4%
15.3%
16.8%19.1%
17.0%
17.3%16.9%
0.0%
10.0%
20.0%
30.0%
40.0%
FY
04
FY
05
FY
06
FY
07
FY
08
FY
09E
FY
10E
FY
11E
EB
ITD
A m
arg
ins
Textiles Consolidated
Source: Emkay Research, Company
Textile business accredited with stable growth
Source: Emkay Research, Company
Operating at near 100% utilization levels
Source: Emkay Research, Company
Capacity expansion from 24mn meters to 29mn meters
Source: Emkay Research, Company
Revenue CAGR of 13.3% in FY08-11E period
Source: Emkay Research, Company
Textile Ebidta margins are higher than consolidated margins
Source: Emkay Research, Company
Positive cash flows to support expansion
Investment Arguments
18
21 2124
14 14
18
22
119162 163 146
0
8
16
24
FY05 FY06 FY07 FY08
Mn m
ete
rs
0
100
200
300
400
Rs. per
mete
r
Installed Capacity Capacity sold
Average realizations
29
24
0
10
20
30
40
FY08 FY9E
mn m
ete
rs
17106 68
-453
211
570 591 642
-600
-400
-200
0
200
400
600
800
FY
04
FY
05
FY
06
FY
07
FY
08
FY
09E
FY
10E
FY
11E
Rs.m
n
Operating cash f low s
1290 1454 1910 2494 3180 3483
29.2% 27.6% 29.0% 29.2% 27.3%
15.3%
0
1000
2000
3000
4000
FY03 FY04 FY05 FY06 FY07 FY08
Rs.m
n
0.0%
15.0%
30.0%
45.0%
60.0%
Textiles Revenues Textiles as % of overall revenues
24 September, 2008 13Emkay Research
Sintex Industries Ltd. Initiating Coverage
Source: Emkay Research, Company
Textile de-merger will cause 100 and 180 bps expansion in consolidated and standalone ROACE
Sintex loaded with multiple levers: verticals, products &geographies
Over the last 3 decades, Sintex has created multiple levers and layers within it. It has
ventured into multiple verticals (textiles, plastics, and construction), multiple products
within plastics (tanks, prefabs, custom moldings) and multiple geographies through
acquisitions (India, US, Europe). This, we believe, should bode well for the company in
the long-term as its performance would not be dependent on a single product or vertical
or geography.
Creating multiple verticals: The Company has traveled a long distance from being a pure
play textile player until a large part of 70's. Since then, it has diversified into plastics and
now, into construction in a big way. Textiles contributed a meagre 15% of consolidated
revenues in FY08 against 29% in FY03 and 100% in the mid 70's. We expect further slide
in its share to ~ 7% by FY11E. Currently, 76% of consolidated revenues are contributed by
plastics business and a meager 9% of the consolidated revenues are attributed to
construction business. Based on the current order backlog in the construction vertical
(Rs14 bn at the end of Q1FY09), we expect the contribution from construction business to
rise sharply to 22% of consolidated revenues by FY11E. Further, our back-of-envelope
calculations, indicate that diversification will continue in favor of construction business
past FY11E as well.
Source: Emkay Research, Company
Construction to contribute 22% of FY11E consol. revenues
Source: Emkay Research, Company
Post FY11E- shift to continue in favor of construction
Investment Arguments
10.6%11.3%
14.1%
15.6%
10.1%10.6%
13.1%
14.6%
8.0%
10.0%
12.0%
14.0%
16.0%
FY08 FY09E FY10E FY11E
RO
AC
E
Consolidated w ithout textiles Consolidated
12.1% 12.3%
16.8%
18.2%
11.1% 11.2%
14.8%
16.4%
8.0%
11.0%
14.0%
17.0%
20.0%
FY08 FY09E FY10E FY11E
RO
AC
E
Standalone w ithout textiles Standalone
0%
25%
50%
75%
100%
Mid
70's
FY
03
FY
04
FY
05
FY
06
FY
07
FY
08
FY
09E
FY
10E
FY
11E
% o
f C
onsolid
ate
d R
evenue
Textiles Plastics Construction
25%
24%
22%
23%
20%
22%
24%
26%
FY11E FY12E FY13E FY14E
% O
f C
onsolid
ate
d R
evenues
In the long-term, Sintex’s performance
would not be dependent on a single
product or vertical or geography
24 September, 2008 14Emkay Research
Sintex Industries Ltd. Initiating Coverage
Creating multiple products: Currently, plastics vertical is the largest contributor to the
consolidated revenues. Also, the plastics vertical itself has witnessed radical changes in
favor of high value products. From just water tanks business within the plastics vertical
until late 90's, the company has diversified into prefabs and custom moldings. This is
evident from the fact that revenue from water tanks has come down from 25% in FY05 to
9% in FY08 and has shifted in favor of custom moldings and prefabs with 53% and 38%
of FY08 consolidated plastic revenues.
Source: Emkay Research, Company
Proportion of custom moldings has risen in past years
Source: Emkay Research, Company
To shift in favor of prefabs in the mid-term
Entering multiple geographies: Sintex has extended its scale of operations beyond Indian
boundaries. After stabilizing its operations at Kalol and expanding within India at multiple
locations, Sintex has ventured abroad through a string of acquisitions. Today, Sintex has
35 manufacturing facilities that include 20 international facilities- coming through
acquisitions concluded in the last 12 months. In terms of revenues earned, India dominates
with 80% contribution to FY08 consolidated revenues, whereas balance is contributed by
Europe & US, largely on account of acquisitions. This, we believe, would slide down to
around 70% by FY11E, the balance 30% would be contributed by US and Europe.
Source: Emkay Research, Company
US and Europe will contribute 30% of FY11E consol. revenues
Source: Emkay Research, Company
35 manufacturing facilities in multiple countries
By virtue of creation of multiple verticals, products and geographies, Sintex is transforming
itself into an Indian multinational, which has large and diversified operations. Thus, by the
very nature of its transforming business, Sintex can be accredited as a conglomerate in
the making.
Investment Arguments
0%
25%
50%
75%
100%
Late
70's
FY
05
FY
06
FY
07
FY
08
FY
09E
FY
10E
FY
11E
% o
f C
onsolid
ate
d P
lastic
s R
evenue
Tanks Custom moldings Prefabs
39%
33%
30%
35%
37%
25%
29%
33%
37%
41%
FY10E FY11E FY12E FY13E FY14E
% O
f C
onsolid
ate
d p
lastic
s r
evenues
0%
25%
50%
75%
100%
FY
08
FY
09E
FY
10E
FY
11E%
of C
onsolid
ate
d R
evenue
India US Europe
35 1111135
7
15
0
5
10
15
20
25
30
35
40
Total
Indi
a
Franc
eUS
Ger
man
y
Polan
d
Hun
gary
Tunisia
Mor
occo
Slova
kia
No. of pla
nts
From just water tanks, the company
has diversified into prefabs and
custom moldings
24 September, 2008 15Emkay Research
Sintex Industries Ltd. Initiating Coverage
Insulated against economic cycles: thanks to proactive steps
Just taking a leaf from the historical performance, Sintex has reported continuous growth
in revenues and PAT during the FY93-FY08 period - A record worth commending. We
attribute this to the proactive and dynamic strategy adopted by the management, instilling
changes from time to time. Most of the products and solutions offered by Sintex are
favorable and globally accepted substitutions to well identified and established needs.
This has enabled Sintex to rapidly sail through product life cycle stages and successfully
scale them up to the high growth stage. We expect the proactive and dynamic approach to
continue - indicated by recent addition of products like low cost housing solutions and
custom moldings in the portfolio. This proactive and dynamic approach and value addition
strategy will result in continued and strong growth in ensuing years. We view that, Sintex
is better placed to avert any economic slowdown.
Consistent profitable growth during last 15 years
FY93 FY94 FY95 FY96 FY97 FY98 FY99 FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08
Revenues 875 946 1213 1380 1468 1497 1780 2020 2850 3710 4418 5278 6577 8550 11630 22742
Growth (%) 8 28 14 6 2 19 14 41 30 19 19 25 30 36 96
EBITDA 90 127 155 184 209 254 274 352 576 623 799 894 1138 1454 2221 3826
Margins (%) 10 13 13 13 14 17 15 17 20 17 18 17 17 17 19 17
PAT 34 42 48 52 60 102 111 132 242 186 237 321 507 809 1313 2172
Growth (%) 25 12 10 15 69 9 19 83 -23 27 35 58 60 62 65
Source: Emkay Research, Company
Sintex has 'diversification' against 'focal' and 'conglomerate' against 'single-product'
Products and solutions Substitution Product life cycle phase Growth potential
Custom moldings Substituting metal components Initial growth phase Only 8-9 countries constitute 85%
used in Auto, T & D, Wind Power, of the global custom moldings
Aeronautics, Aerospace, Defense, market
Consumer Appliances etc.
Monolithic construction Substitutes conventional brick by Introductory phase Sintex is the only player at present
brick construction, especially in with estimated revenues of Rs4bn
low income housing during FY09E and opportunity size
of Rs.4000bn during 11th plan
Prefabricated structures Substitutes site built construction Introductory phase Forms 8-10% of the total
construction industry in US and
Europe
Source: Emkay Research, Company
ROACE is expected to improve significantly in FY08-11E period
Current consolidated ROACE of the company at 10.1% is low, primarily due to high cash
and cash equivalents (average cash was 43% of average capital employed during FY08)
in the balance sheet. The company has raised funds (Rs16.6bn) through QIP (Rs5.9bn),
FCCB (Rs.9.0bn) and promoter warrants (Rs1.7bn) during the last 8 months to fund (1)
capital expenditure (~ Rs9.6bn), (2) working capital (~ Rs11.8bn) and (3) new acquisitions
during FY08-FY11E. We expect the proportion of cash and cash equivalents to come
down significantly by FY11E (22.3% of average capital employed during FY11E). We expect
the ROACE to improve by 4.5% during FY08-FY11E and to be 14.6% in FY11E. The increase
in ROACE would be contributed by multiple factors like (1) investment of cash into core
operations and better deployment of cash & cash equivalents, (2) increase in the proportion
of high ROACE businesses, (3) improvement in ROACE of subsidiaries, (4) increase in
miscellaneous income etc.
Investment Arguments
Sintex has reported continuous growth
in revenues and PAT during FY93-
FY08 period
Expect the ROACE to improve from
10.1% during FY08 to 14.6% during
FY11E
24 September, 2008 16Emkay Research
Sintex Industries Ltd. Initiating Coverage
43.0% 35.0%23.9% 22.3%
58.2%71.7%
76.1%
51.4%
5.6% 6.9% 4.4% 1.6%
0.0%
25.0%
50.0%
75.0%
100.0%
FY08 FY09E FY10E FY11E
% o
f consolid
ate
d A
CE
Avg. Cash & cash Equivalents Avg. Core Capital (Without WIP)
Avg. Capital WIP
Source: Emkay Research, Company
Consolidated core capital is expected to increase
Source: Emkay Research, Company
Mainly due to increase in standalone core capital
Improvement in ROACE traverses well beyond FY11E: We believe that, improvement in
return ratios will continue beyond FY11E. This is largely led by (1) higher growth in Indian
operations compared with international operations and (2) integration benefits of acquired
companies. The growth of Indian operations should be viewed in light of high return ratios
in its key verticals of plastics at 23 - 27% and construction at 18 - 22%. Considering
assumptions of 16.6% CAGR and 7.4% CAGR in revenues of standalone and subsidiary
operations in FY11E-14E period, we expect ROACE to improve from 14.6% in FY11E to
15.8% in FY14E.
Source: Emkay Research, Company
Plastics and Construction will report high ROACE
ROACE (%) FY08 FY09E FY10E FY11E
Textiles 8.1 7.1 7.4 8.2
Standalone Plastics 31.0 24.3 26.1 28.5
Monolithic 21.0 18.0 22.8 20.0
Subsidiaries 4.4 8.3 8.1 9.1
Cash & Cash Equivalents 1.9 2.9 2.9 2.9
Consolidated 10.1 10.6 13.1 14.6
Source: Emkay Research, Company *Average capital employed
Subsidiaries will offset benefits of standalone operation
% of consolidated ACE* FY08 FY09E FY10E FY11E
ACE* - Textiles 20.7 15.8 15.4 13.8
ACE* - Plastics 19.6 20.4 23.3 24.3
ACE* - Construction 3.1 5.7 10.8 15.9
ACE* - Subsidiaries 13.6 23.1 26.6 23.6
Avg. Cash & Cash Equivalents 43.0 35.0 23.9 22.3
Investment Arguments
49.2%
44.9%
31.7% 27.1%
65.2%71.5%
48.8%
44.6%
6.2% 6.3% 3.1% 1.4%
0.0%
20.0%
40.0%
60.0%
80.0%
FY08 FY09E FY10E FY11E
% o
f sta
ndalo
ne A
CE
Avg. Cash & cash Equivalents Avg. Core Capital (Without WIP)
Avg. Capital WIP
Source: Emkay Research, Company
Leading to increase in consolidated ROACE by 4.5% during FY08-FY11E
Due to higher growth of Indian
operations
14.6%13.1%
10.6%10.1%
11.1%11.2%
14.8%16.4%
4.4%
8.3% 8.1%9.1%
0.0%
6.0%
12.0%
18.0%
FY08 FY09E FY10E FY11E
RO
AC
E
Consolidated Standalone Subsidiaries
4.6%
2.3%
1.2%0.5%
0.4%0.2%
-0.1%
-1.0%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
Incre
ase in
RO
AC
E
Cash &
Mis
c.
Incom
e
Constr
uctio
n
Subsid
iaries
Sta
ndalo
ne
pre
fabs
Textil
es
Sta
ndalo
ne
custo
m
mold
ings
Drivers
of in
cre
menta
l RO
AC
E
24 September, 2008 17Emkay Research
Sintex Industries Ltd. Initiating Coverage
Source: Emkay Research, Company
Beyond FY11E, standalone growth higher than subsidiaries
Source: Emkay Research, Company
Upward trajectory in ROACE to continue beyond FY11E
Investment Arguments
13.6%
14.0%
14.4%
14.8%
15.2%
15.6%
16.0%
FY11E FY12E FY13E FY14E
ROACE
13.6%13.6%
18.3%
17.9%
7.3%6.2%
7.5%7.4%
0.0%
5.0%
10.0%
15.0%
20.0%
FY11E FY12E FY13E FY14E
Revenue G
row
th
Standalone Subsidiaries
24 September, 2008 18Emkay Research
Sintex Industries Ltd. Initiating Coverage
Investment Concerns
Equity Dilution: regular phenomenon
Sintex has diluted its equity at 17% CAGR in FY93-08 period (assuming fully diluted
equity). Consequently, the earnings grew lower at 13% CAGR versus higher 32% CAGR
in PAT during the same period. In FY93-08 period, Sintex has expanded ferociously and
added multiple growth avenues, both organic & inorganic. Consequently, the company
has recorded negative cash flows in 15 years of operations and adopted equity financing
at various stages of its growth trajectory. In light of the management's aggressive style, we
believe that, equity dilution will continue to remain a key overhang on the company.
Investment Concerns
* Equity includes proportionate dilution in case of partial inflow of cash
Earnings grew lower than PAT, thanks to equity dilution
Source: Emkay Research, Company
Negative cash flows resulted in recourse to equity
Low entry barriers in most of the businesses
We view that businesses like prefabs & water tanks in plastics vertical and monolithic
construction vertical itself, which contribute hugely to incremental growth of Sintex in
ensuing years, are susceptible to competition. This is largely due to low entry barriers in
the above businesses. Thus, in the event of entry of multiple players or alternative
technologies, we believe that both growth & profitability are at risk. This could be a key risk
to future earnings of the company.
Prefabricated structures: a regional business
Prefabs business is regional in nature, thus entailing creation of multiple manufacturing
locations serving 500-1000km in radius. The growth in the prefab business is directly
linked to network of facilities and coverage. This entails higher capital investment in the
business. Any mistake or judgmental error in identification of location could result in
below expected performance of the particular facility and consequently, impact the earnings
from prefabs business. Fixed costs are associated with individual sites and threshold
capacity utilization will result in breakeven. Consequently, this could pose a threat to our
earnings projection and could result in downward revision.
We have taken Q1FY09, miscellaneous other income as recurringincome
Sintex reported other income of Rs.380mn during Q1FY09, which includes non operational
income (except earnings from FCCB funds) on surplus cash in balance sheet alongside
income from rendering services on prefabs and custom moldings. This is contrary to
previous/earlier quarters, where Sintex reported only non operational income like rent,
interest and other non recurring incomes under the head 'other income'. We have
considered the income linked to prefabs and custom moldings (miscellaneous income)
-4400
-3300
-2200
-1100
0
1100
FY94 FY96 FY98 FY00 FY02 FY04 FY06 FY08
Rs.m
n
Free cash f low s
Regular equity dilution during past 15
years
-100%
-50%
0%
50%
100%
150%
200%
250%
FY
94
FY
96
FY
98
FY
00
FY
02
FY
04
FY
06
FY
08
Gro
wth
PAT Equity EPS
24 September, 2008 19Emkay Research
Sintex Industries Ltd. Initiating Coverage
as recurring income resulting in higher earnings for FY08-11E period. Any clarification
related to classification of above income could materially impact our earnings estimates
for FY08-FY11E. Our sensitivity analysis indicates a downside of 12.8%, 8.8%, and 6.8%
to our projected earnings for FY09E, FY10E and FY11E respectively if the miscellaneous
income turns out to be fully non-recurring.
Sensitivity of EPS to the nature of Q1FY09 other income FY09E FY10E FY11E
Adjusted PAT - our estimate 3338 4850 6292
Projected miscellaneous income 646 646 646
Adjusted EPS - our estimate 21.8 31.7 41.1
Downward revision of EPS - assuming Q1 FY09 miscelleneous
income as fully non recurring -12.8% -8.8% -6.8%
Downward revision of EPS - assuming Q1 FY09 miscelleneous
income as 2/3rd non recurring -8.5% -5.9% -4.5%
Downward revision of EPS - assuming Q1 FY09 miscelleneous
income as half non recurring -6.4% -4.4% -3.4%
Downward revision of EPS - assuming Q1 FY09 miscelleneous
income as 1/3rd non recurring -4.3% -2.9% -2.3%
Source: Emkay Research, Company
Other Income FY05 FY06 FY07 FY08 Q1FY09 FY09E FY10E FY11E
Total other income reported 105 297 267 599 380 1288 1113 1128
Interest received 19 68 106 140 47
Dividend on mutual funds 14 34 100 18 56
Profit on sale of fixed asset 3 8 0
Profit on sale of investment 158 13 125 87
Provision written back 5 0 82 22
Forex gain 15 97 6
Miscellaneous income 72 32 30 129 162
Financial Income 33 102 219 283 191 614 466 482
Recurring misc. income 72 32 30 129 162 646 646 646
Non recurring or EO income 0 163 18 187 28 28 0 0
Source: Emkay Research, Company
Integration of Subsidiaries
Sintex has concluded 7 acquisitions in the last two years and spent an aggregate sum of
Rs.8.5bn. Considering the current EV of the company at around Rs36 bn, the value of the
acquisitions constitutes around 23% of the total EV. The positive side of these acquisitions
is that the aggregate EV of subsidiaries at 5.2x FY09E EBITDA is lower than Sintex's
standalone EV of 6.3x FY09E EBITDA, giving adequate cushion.
We believe that, all acquisitions are complimentary to the mainline business of the
company. Consequently, during FY08-FY11E, we have considered a 360bps improvement
in EBITDA margins of subsidiary companies on account of benefits of integration. Thus,
any delay in integration of subsidiaries or any hindrances or obstacles or liabilities thereof,
could result in lower than expected contribution from subsidiaries to the consolidated
earnings. Moreover, we believe that successful integration of multiple acquisitions with
presence in multiple geographies is a challenging task and therefore, will remain a key
risk.
Investment Concerns
Miscellaneous income is assumed
to be income linked to prefabs and
custom moldings
24 September, 2008 20Emkay Research
Sintex Industries Ltd. Initiating Coverage
8471
36320
0
10000
20000
30000
40000
EV of Subsidiaries
(Price paid )
EV of the consolidated
entity
Rs.m
n
Source: Emkay Research, Company
Cost of acquisitions constitute 23% of EV
Source: Emkay Research, Company
Integration to drive sharp increase in margins of subsidiaries
Investment Concerns
6.3%
9.4% 9.4% 9.9%
0.0%
4.0%
8.0%
12.0%
FY08 FY09E FY10E FY11E
EBITDA margins
24 September, 2008 21Emkay Research
Sintex Industries Ltd. Initiating CoverageFinancials
Financials
Consolidated revenues are expected to triple to Rs68.6 bn byFY11E
We expect consolidated revenues to grow at a 45% CAGR in FY08-11E period from
Rs22.7 bn in FY08 to Rs68.6 bn in FY11E. We expect the new business initiatives of
monolithic construction, prefabs and custom molding to drive growth in FY08-FY11E
period. Further, we expect the growth to be triggered by a mix of organic and inorganic
attributes. Our analysis indicates that construction, prefabs and custom moldings will
contribute 28%, 21% and 47% of the incremental growth during FY08-FY11E. We estimate
the organic route to contribute 61% and inorganic to contribute 39% to the consolidated
growth in FY08-FY11E period. The business mix is likely to change in favor of construction
and custom moldings.
Source: Emkay Research, Company
Consolidated revenues are expected to triple by FY11E
Source: Emkay Research, Company
Significant growth is attributed to new businesses
Source: Emkay Research, Company
Custom moldings to contribute 47% to incremental revenues
Source: Emkay Research, Company
Construction to rise sharply to 22% of consolidated revenues
68637
44346
24291
55754
39513
2274233549
22151
1655722205
17362
61870
14000
28000
42000
56000
70000
FY08 FY09E FY10E FY11E
Rs.m
n
Consolidated revenues Standalone revenues
Subsidiaries
61645
6992
17744
34000
49532
50435513 6222
0
14000
28000
42000
56000
70000
FY08 FY09E FY10E FY11E
Rs.m
n
New busniesses (prefabs, custom molding & monolithic)
Mature businesses (tanks & textiles)
45895
12900
9573
21426 1580 369
0
10000
20000
30000
40000
50000
Incre
menta
l
revenues
constr
uctio
n
Pre
fabs
Custo
m
mold
ings
Textil
es
Tanks
Rs.m
n
FY11E
Plastics
71%
Construction
22%
Textiles
7%Prefabs
24%Tanks
3%
Custom
moldings
44%
We expect the new business initiatives
of monolithic construction, prefabs
and custom molding to drive growth
in FY08-FY11E period
24 September, 2008 22Emkay Research
Sintex Industries Ltd. Initiating Coverage
FY08-FY11E
-111
33
40
-6-14
-52
-112
-220
-110
0
Declin
e in
consolid
ate
d
EB
ITD
A
Textil
es
Sta
ndalo
ne
custo
m
mold
ings
Sta
ndalo
ne
Pre
fabs
Constr
uctio
n
subsid
iaries
tanksReasons o
f m
arg
in d
rop (
bps)
Consolidated EBITDA margins are expected to decline by 110 bpsduring FY08-FY11E
We expect the margins to contract by 152 bps during FY09E, attributed to 90 bps decline
in EBITDA margins of standalone operations, mainly on account of changing business
mix. The fall is also attributed to full impact of subsidiaries coming into numbers. We
expect a stable margin regime thereafter, with improvement of 14 bps and 30 bps in
margins during FY10E and FY11E mainly due to (1) improvement in subsidiaries margins
owing to integration and (2) declining share of low margin water tanks. Consequently, we
expect the EBITDA to grow at a 41% CAGR in FY08-11E period from Rs3.8bn in FY08 to
Rs10.8bn in FY11E.
Source: Emkay Research, Company
110 bps decline in consolidated EBITDA margins
Source: Emkay Research, Company
Subsidiaries margins to improve by 360 bps
Financials
15.7%15.4%15.3%
16.8%
0.0%
5.0%
10.0%
15.0%
20.0%
FY08 FY09E FY10E FY11E
EB
ITD
A m
arg
ins
Consolidated
18.9%
6.3%
9.4% 9.4% 9.9%
19.4%19.9%20.8%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
FY08 FY09E FY10E FY11E
EB
ITD
A m
arg
ins
Standalone Subsidiaries
Source: Emkay Research, Company
152 bps fall in consolidated margins during FY09E
Source: Emkay Research, Company
14 bps improvement in consolidated margins during FY10E
Source: Emkay Research, Company
30 bps improvement in consolidated margins during FY11E
Source: Emkay Research, Company
The fall is due to declining share of high margin textiles
-15220-5
-14-38
-40
-75
-220
-110
0
Declin
e in
consolid
ate
d
EB
ITD
A
Textil
es
subsid
iaries
Sta
ndalo
ne
custo
m
mold
ings
Sta
ndalo
ne
Pre
fabs
Constr
uctio
n
tanksReasons o
f m
arg
in d
rop (
bps)
14
189
31-13-21
-50
-40
-30
-20
-10
0
10
20
Declin
e in
consolid
ate
d
EB
ITD
A
Textil
es
Sta
ndalo
ne
custo
m
mold
ings
subsid
iaries
tanks
Constr
uctio
n
Sta
ndalo
ne
Pre
fabsR
easons o
f m
arg
in d
rop (
bps)
304
52
-1-1-9-15
-50
-20
10
40
Declin
e in
consolid
ate
d
EB
ITD
A
Textil
es
Constr
uctio
n
Sta
ndalo
ne
custo
m
mold
ings
Sta
ndalo
ne
Pre
fabs
subsid
iaries
tanksR
easons o
f m
arg
in d
rop (
bps)
24 September, 2008 23Emkay Research
Sintex Industries Ltd. Initiating CoverageFinancials
Earnings will follow equity dilution with a lag effect
Sintex has diluted 36% of equity during FY06-08 period with 21% equity dilution undertaken
in the last 8 months. The dilution was undertaken to support its ambitious growth plans -
both organic & inorganic. The company concluded 7 acquisitions and also invested in
expansion of core business in India. However, there are unutilized funds in the balance
sheet to the tune of Rs.16.9bn at the end of FY08. We view that, the dilution has been front
loaded with the contribution to earnings expected in forthcoming years. Our estimates
indicate a higher trajectory of 43% earnings growth during FY08-FY11E after slower growth
of 32% during FY06-FY08 - largely attributed to the lag effect of equity dilution.
* does not include the part of outstanding warrants for which money has not
been received
Equity dilution of 21% during last 8 months
Rs.mn Funds Money Price / Equityreceived conversion dilution /
price potential(Rs/ equity
share) dilution
FCCBs 8998 8998 580 31
Warrants 5915 1706 455 8*
QIP 5899 5899 470 25
Total 16603 64*
Equity outstanding as at the end of Jan.08 243
Fully diluted equity* 3068.2
11.8
41.1
14.2
21.8
31.7
306306
197222
0.0
10.0
20.0
30.0
40.0
50.0
FY06 FY07 FY08 FY09E FY10E FY11E
Rs.m
n
0
100
200
300
400
Rs.m
n
EPS Equity
Source: Emkay Research, Company
Earnings to kick start from FY09E, post FY08 dilution
Expect earnings growth of 43% in
FY08-FY11E, higher than 32% growth
in FY06-FY08
Sintex is lowly geared (excluding FCCB) and sitting on huge cashbalance of Rs.16.9bn
In FY08, debt equity ratio (excluding FCCB) for Sintex stood at 0.4X. Sintex is sitting on a
huge cash balance of Rs.16.9bn. During the last 2 years, Sintex has made huge
investments in both organic & inorganic options, the benefits of which, are expected in the
coming years. Consequently, we expect Sintex to generate surplus cash in FY09-11E
period. Sintex is expected to continue its expansion in FY08-11E period and is also
contemplating a large acquisition. We believe that current cash reserves and strong
internal accruals are sufficient enough to support organic growth plans and inorganic
plans- not exceeding Euro 150-200mn. Thus, Sintex is not likely to undertake equity
dilution in the near term.
Source: Emkay Research, Company
Cash reserves and internal accruals to support large acquisition
(Rs.mn) FY09E FY10E FY11E
Internal accruals 4971 6914 8645
Funds needed for organic growth 7694 7750 6010
Net funding needed for organic growth 2724 835 -2635
Cash and cash equivalents in thebeginning 16935 11103 9947
Dividends paid during the year 219 320 415
Remaining cash after fundingorganic growth 13993 9947 12167
Sufficient to fund furtheracquisitions (Mn euros) 233 166 203
Acquisitions already made (Mn euros) 48 - -
Remaining funds available foracquisition (Mn euros) 185 166 203
Source: Emkay Research, Company
Exponential growth in operating cash flow
-2000
0
2000
4000
6000
8000
10000
FY08 FY09E FY10E FY11E
Rs.m
n
0
5000
10000
15000
20000
Rs.m
n
Operating cash f low s Cash profits
Cash & cash equivalents
We believe that current cash reserves
and strong internal accruals are
sufficient enough to support organic
growth plans and inorganic plans- not
exceeding Euro 150-200mn.
24 September, 2008 24Emkay Research
Sintex Industries Ltd. Initiating Coverage
Redemption of FCCBs after 5 years: sufficient cash flows
Based on our analysis, we expect Sintex to earn huge surplus cash in FY11E and thereafter.
This will result in accumulation of surplus cash on the balance sheet. The FCCB
redemption at ~ 130% (prefixed) of FCCB value would entail cash outflow of ~ Rs11.7 bn
as single payment in FY13E. Considering expansion plans, Sintex will have adequate
cash to redeem the FCCB amount. In line with principle of conservatism, Sintex has
already adjusted premium on redemption of FCCBs against the share premium account.
Our earnings estimates will remain insulated, since ~ 30% premium on redemption of
FCCB amount will not be adjusted in P&L account.
Earnings highly sensitive to EBITDA margins
We checked the sensitivity of earnings to changes in revenues and EBITDA margins. In
the event of a 100 bps higher than expected revenue growth, earnings are likely to be
revised upwards by 1.5%, 1.6% and 1.4% in FY09E, FY10E and FY11E respectively. In the
event of 100 bps jump in EBIDTA margins, earnings are likely to be revised upwards by
11.8% 11.5% and 10.9% in FY09E, FY10E and FY11E respectively. Our sensitivity analysis
reveals very high sensitivity of earnings to EBITDA margins. Any change in EBITDA margins
can have a substantial impact on Sintex's earnings.
Financials
Considering expansion plans, Sintex
will have adequate cash to redeem
the FCCB amount
100 bps jump in EBIDTA margins, to
result in upward revision in earnings
by 11.8% 11.5% and 10.9% in FY09E,
FY10E and FY11E respectively
Sensitivity of consolidated EPS to 1% change in revenue growth
Estimated revenue growth (%) Change in consolidated earnings (%)
FY09E FY10E FY11E FY09E FY10E FY11E
Textiles 9.9 15.0 15.0 0.2 0.2 0.1
Water tanks 8.0 8.0 6.0 0.1 0.1 0.0
Standalone custom moldings 30 29 30 0.2 0.2 0.2
Standalone prefabs 36.8 43.1 28.1 0.4 0.4 0.4
Monolithic construction 90.0 150.0 50.0 0.2 0.4 0.4
Subsidiaries 181.0 28.0 9.0 0.3 0.3 0.3
Consolidated revenues growth 74.0 41.0 23.0 1.5 1.6 1.4
Sensitive to of earnings to 1% change in EBITDA margins
Estimated EBITDA margins (%) Change in consolidated earnings (%)
FY09E FY10E FY11E FY09E FY10E FY11E
Consolidated EBITDA margins 15.3 15.4 15.7 11.8 11.5 10.9
Source: Emkay Research, Company
24 September, 2008 25Emkay Research
Sintex Industries Ltd. Initiating Coverage
Valuations
While valuing Sintex, we have used multiple valuation tools to arrive at fair value per share.
Adoption of multiple valuation tools is to even out the dependence on a single valuation
method and avoid biased outcome. Also, multiple valuation tools highlight the different
spheres of the business. For instance; 1) DCF captures the long term growth potential 2)
SOTP & PER captures effect of current high growth phase.
DCF value of Rs.419
We have valued Sintex using multi stage DCF with an explicit growth period of 3 years. We
have assumed growth rates for different businesses separately, worked out NOPLAT
business wise and added those figures to arrive at consolidated NOPLAT. Our assumption
on WACC is 12.8% with cost of equity of 14.3% and cost of debt (tax adj.) of 9.0%. Based
on above, DCF value for Sintex is Rs64.2bn or Rs419/Share.
Valuations
DCF calculations FY09E FY10E FY11E FY12E FY13E FY14E FY15E FY16E FY17E FY18E FY19E FY20E FY21E FY22E FY23E Term.Value
NOPLAT (EBIT(1-T)) 3638 5266 6722 7468 8562 9457 10370 11177 12140 13037 14001 15036 15938 16894 17486
Add: Depreciation 1277 1638 1855 2028 2185 2322 2491 2686 2884 3069 3170 3274 3361 3450 3504
Less: Increase in WC 3342 4592 3916 2690 3218 2901 3241 3015 3230 3045 2835 3044 2654 2813 1739
Less: Capex 7242 3158 2094 3930 1855 3148 3078 4049 3215 3674 3000 2500 2000 1500 1250
FCFf -5668 -846 2567 2876 5673 5730 6543 6798 8579 9388 11336 12765 14645 16032 18000 167053
PV of FCFf -5026 -665 1790 1778 3110 2785 2820 2598 2907 2821 3021 3016 3068 2978 2965 27520
Total EV 57489
Net Debt -6693
Equity Value 64181
Per Share Value 419
Interest cost (Tax Adj.) 9.0% Sensitivity analysis
Risk Free rate 9.0% Term / WACC 12.4% 12.6% 12.8% 13.0% 13.2%
Debt to Equity 0.4 1.0% 425 414 404 392 382
Beta 0.75 1.5% 434 422 411 399 388
Risk Premium 7.0% 2.0% 443 430 419 406 395
Terminal growth rate 2.0% 2.5% 453 439 428 414 403
WACC 12.8% 3.0% 463 449 438 423 411
Source: Emkay Research, Company
Business Expected Expected FY10 Rationale 1 Yr Forward EVLong term growth - EBITDA EV / EBITDA (Rs.bn)
ROACE FY11E (Rs.bn) (x)
Textiles 9% 15% 1.2 In line with midcap textile peers 2.5 3.0
Tanks 10% 6% 0.1 Return and growth adjusted multiple 3.5 0.5
Monolithic 20% 50% 1.7 In line with midcap construction peers 7.0 12.1
Standalone Prefabs 23% 28% 1.9 Lower than midcap construction peers 6.5 12.2
Standalone custom moldings 25% 30% 1.6 Return and growth adjusted multiple 8.0 12.7
Subsidiaries 10% 9% 2.1 At cost** 4.2 8.8
Total 8.6 5.7* 49.2
Net Debt -6.7
Total Equity 55.9
Per Share Value (Rs.) 365
Source: Emkay Research, Company, *Implied **Zepellin (including Digvijay) is valued at 4x FY10E EBITDA
SOTP value of Rs.365 per share
We have valued standalone operations of all the businesses on 1 yr forward EV/EBITDA.
We have valued subsidiaries separately at cost of acquisition. We have valued standalone
operations of (1) textiles at 2.5x FY10E EBITDA - in line with industry valuations (2) water
tanks at 3.5x and custom molding at 8.0x - based on the growth and return profile of
individual business and in comparison with acquired business (3) prefabs at 6.5x - lower
than mid-cap construction companies and (4) construction at 7.0x EBITDA - in line with
midcap construction companies. The EV is Rs49.2bn, implying multiple of 5.7x 1 yr forward
EBITDA. On SoTP basis, Sintex is valued at Rs55.9bn or Rs365/Share.
SOTP value is Rs363/share
24 September, 2008 26Emkay Research
Sintex Industries Ltd. Initiating Coverage
Sintex-1yr Fwd Ev/Ebitda (x)
0.0
5.0
10.0
15.0
20.0
Apr-0
3
Sep-0
3
Feb-0
4
Jul-0
4
Dec
-04
May
-05
Oct-0
5
Mar
-06
Aug-0
6
Jan-
07
Jun-
07
Nov
-07
Apr-0
8
Sep-0
8
Sintex-1yr Fwd PB (x)
0.0
1.0
2.0
3.0
4.0
5.0
6.0
Apr-0
3
Sep-0
3
Feb-0
4
Jul-0
4
Dec
-04
May
-05
Oct-0
5
Mar
-06
Aug-0
6
Jan-
07
Jun-
07
Nov
-07
Apr-0
8
Sep-0
8
Sintex-1yr Fwd PE (x)
0
5
10
15
20
25
30
35
Apr-0
3
Sep-0
3
Feb-0
4
Jul-0
4
Dec
-04
May
-05
Oct-0
5
Mar
-06
Aug-0
6
Jan-
07
Jun-
07
Nov
-07
Apr-0
8
Sep-0
8
Sintex-P/E band
0
200
400
600
800
1000
Apr-0
3
Sep-0
3
Feb-0
4
Jul-0
4
Dec
-04
May
-05
Oct-0
5
Mar
-06
Aug-0
6
Jan-
07
Jun-
07
Nov-0
7
Apr-0
8
Sep-0
8
7xPrice
14x
28x
21x
1 yr fwd PER during last 3 years, gives us a value of Rs.469
We expect earnings of Rs.31.7 during FY10E. Sintex has traded at an average of 14.8x 1 yr
forward earnings during the last 3 years. Based on the historical PE band, Sintex at 14.8X
PER is valued at Rs469/Share or Rs71.8 bn.
We initiate coverage on the stock with a BUY rating and a 12-month price target of
Rs.418, based on the weighted average of the three methods. We have assigned a
weight of 50% to DCF and weights of 25% to SoTP and PER each, to capture the equal
impact of longer and shorter duration multiples in our fair value for Sintex. Our target
price implies an upside of 49% from the current levels.
Valuations
Source: Emkay Research, Company
Sintex-1yr Fwd PE (x)
Source: Emkay Research, Company
Sintex- P/E band
Source: Emkay Research, Company
Sintex-1yr Fwd PB (x)
Source: Emkay Research, Company
Sintex- P/B band
Source: Emkay Research, Company
Sintex- 1yr Fwd EV/EBITDA (x)
Source: Emkay Research, Company
Sintex- EV/EBITDA Band
Sintex-PB Band
0
100
200
300
400
500
600
Apr-0
3
Sep-0
3
Feb-
04
Jul-0
4
Dec-0
4
May
-05
Oct-0
5
Mar
-06
Aug-0
6
Jan-
07
Jun-
07
Nov-07
Apr-0
8
Sep-0
8
2x
3x
1x
4x
Price
Sintex - Ev/Ebitda Band
0
300
600
900
Jan-
04
Jun-
04
Nov-0
4
Apr-0
5
Sep-0
5
Feb-
06
Jul-0
6
Dec-0
6
May
-07
Oct-0
7
Mar-0
8
Aug-0
8
16x
5x
8x
4x
12x
5x
24 September, 2008 27Emkay Research
Sintex Industries Ltd. Initiating Coverage
Balance Sheet Rs Mn
FY08 FY09E FY10E FY11E
Equity Share Capital 273 273 273 273
Reserves 17752 20871 25401 31277
Networth 18025 21144 25674 31550
Long term Loans 8430 8430 8430 8430
Short Term Loans 1843 1843 1843 1843
FCCBs 8989 8989 8989 8989
Loan Funds 19262 19262 19262 19262
Minority Interest 203 254 321 408
Total Liabilities 37490 40660 45256 51220
Gross Block 17212 24039 29241 31631
Less: Depreciation 5185 6462 8100 9955
Net Block 12027 17577 21141 21676
Capital Work in Progress 2550 2965 921 625
Goodwill 1845 1661 1476 1292
Investments 3252 3252 3252 3252
Current Assets 26288 31989 40896 50588
Inventories 3022 5966 8143 9628
Debtors 7938 15702 22441 27411
Cash & Bank 13713 7881 6725 8945
Loans & advances 1615 2440 3586 4604
Current Liabilities & Provisions 7415 15606 21077 24633
Net Current Assets 18873 16383 19819 25955
Miscelleneous Expenditure 11 11 11 11
Deferred Tax -1069 -1189 -1364 -1591
Total Assets 37489 40659 45256 51219
Source: Company, Emkay research
Profit & Loss Account Rs Mn
FY08 FY09E FY10E FY11E
Consolidated Revenues 22742 39513 55754 68637
Growth 96% 74% 41% 23%
Expenses 18916 33484 47164 57854
% of Sales 101% 77% 41% 23%
Raw materials 13001 21156 30638 38472
% of Sales 57.2% 53.5% 55.0% 56.1%
Employee Cost 2091 5228 6597 7289
% of Sales 9.2% 13.2% 11.8% 10.6%
Other Expenses 3824 7100 9929 12094
% of Sales 16.8% 18.0% 17.8% 17.6%
EBITDA 3826 6030 8590 10783
Growth 72.3% 57.6% 42.5% 25.5%
EBITDA % 16.8% 15.3% 15.4% 15.7%
Other Income 599 1288 1113 1128
Interest 643 1200 1176 1176
Depreciation 765 1277 1638 1855
Goodwill amortization* 0 185 185 185
PBT 3017 4656 6704 8695
Tax 698 1249 1787 2317
Minority Interest 19 51 67 87
PAT before EO Items 2300 3356 4850 6292
EO and Non Recurring Items 129 18 0 0
Adjusted PAT 2172 3338 4850 6292
Key Ratios
FY08 FY09E FY10E FY11E
Profitability (%)
EBITDA Margin 16.8% 15.3% 15.4% 15.7%
Adj. PAT Margin 9.5% 8.4% 8.7% 9.2%
ROCE 10.1% 10.6% 13.1% 14.6%
ROE 17.7% 17.0% 20.7% 22.0%
Per Share Data (Rs)
Adj. EPS** 14.2 21.8 31.7 41.1
Adj. CEPS 20.1 32.4 45.2 56.5
BVPS 117.8 138.1 167.7 206.1
DVPS 1.0 1.4 2.1 2.7
Valuations (X)
PER 18.7 12.8 8.9 6.8
CPER 14.0 8.7 6.2 5.0
P/BV 2.4 2.0 1.7 1.4
EV / Sales 1.6 0.9 0.7 0.5
EV / EBITDA 9.5 6.0 4.2 3.4
Dividend Yield (%) 0.4% 0.5% 0.7% 1.0%
Turnover Days (x)
Working Capital Cycle 83 79 86 90
Debtors Cycle 127 145 147 146
Inventory Cycle 59 66 64 61
Gearing Ratios
Net Debt / Equity 0.1 0.4 0.4 0.2
Total Debt to Equity 1.1 0.9 0.8 0.6
Source: Company, Emkay research
Cash Flow Statement Rs Mn
FY08 FY09E FY10E FY11E
PAT 2172 3338 4850 6292
Depreciation & amortization 765 1462 1822 2039
Deferred tax 256 120 175 227
Change in Working Cap 3499 3342 4592 3916
Operating Cash Flow -306 1578 2255 4642
Capex 9712 7242 3158 2094
Free Cash Flow -10018 -5664 -902 2548
Equity Capital 7595 0 0 0
Loans 13935 0 0 0
Dividend 159 219 320 415
Others 178 -28 -48 -68
Net Change in Cash 11175 -5855 -1175 2201
Opening cash & cash equivalent 5760 16935 11103 9947
Closing cash & cash equivalent 16935 11080 9928 12148
Financials
Financials
Source: Company, Emkay research Source: Company, Emkay research
* Amortisation period of 10 years with respect to goodwill of Rs1845mn has been assumed starting from FY09E.
** Full amount of FCCBs and part of warrants for which money is received has been considered for calculating fully diluted equity.
24 September, 2008 28Emkay Research
Sintex Industries Ltd. Initiating CoverageAnnexure
Annexure
A - Monolithic construction
NHB rates monolithic as the most appropriate construction solution for low income
housing: Based on the criteria laid down by NHB for selection of construction technology
coupled with effective cost, monolithic is rated as the most suitable construction solution
for low income housing by the National Housing Bank (NHB).
Criteria for selection of construction technology for low income housing: The draft Aam
Aadmi Awas scheme by NHB* outlines the criteria for choice of appropriate construction
technology. The criteria requires; i) simplicity, ii) quality of construction, iii) durability, iv)
economy v) speed of execution, vi) minimum skilled workforce requirements, vii) energy
conservation, viii) eco-friendly, ix) minimum maintenance efforts and cost, x) earthquake
resistant.
Low income housing is an urgent need for developing countries like India: Low income
housing solutions are the need of countries with high population and congestion (India,
China etc.). As per Census 2001, India has a housing shortage of approximately 25mn
units. The shortage increases to 31mn units, if obsolescence and congestion are
considered.
Basics of Monolithic Construction: As opposed to conventional brick by brick construction, monolithic is a constructionmethod using cement concrete, rods and formwork. Under monolithic, the form work is erected on the site and the walls,slabs and roof are constructed by reinforcing steel rods and pouring in concrete in the form work. The form work (made ofeither timber or aluminum or plastics) can be reused several times. Monolithic is mainly suitable for low income masshousing (more than 200-300 houses of similar size and shape).
Comparison between monolithic and conventional construction
Monolithic construction Conventional Construction
Quality I) Superior because of one stone structure I) Normal, II) Comparatively, more prone toII) More tough and resistant to severe collapse during earthquakeearthquake shocks without collapse
Increased Durability Higher Lower compared to Monolithic
Carpet area The walls are thin thus increasing the carpet area. The walls being thicker,thereby reducing theOn an average, the efficiency ratio is 87.5% efficiency ratio to around 83.5%.
Negligible maintenance I) Lesser number of joints, thereby reducing the I) Repairs and maintenance of plaster ofleakages, II) Smooth finish, no projections thereby walls / ceiling etc., II) Painting of outer andeliminating the need for plastering and inner walls and III) Leakages due tofrequent painting plumbing and sanitation installation
Labor The labor requirement is lesser More
Foundation Simplified foundation design, due to consistent The load distribution is concentratedload distribution
Sound transmission The natural density of concrete wall results in Comparatively poorcoefficient better sound transmission coefficient
Faster completion Takes almost 1/3rd the time required for The pace of construction is slow due to stepconventional construction, because in this by step completion of different stages ofsystem, the walls and floors are cast together activity; I) The masonry is required to be laidin one continuous operation in matter of few brick by brick, II) Erection of formwork,hours and in built accelerated curing overnight concreting and deshuttering forms is a two -enables removal and re-use of forms on week cycle and III) The plastering and otherdaily cycle basis finishing activities can commence only
thereafter.
Dead Load 50% of the conventional construction Double of Monolithic Construction
24 September, 2008 29Emkay Research
Sintex Industries Ltd. Initiating Coverage
Investment
Required
(Rs.bn)
Dw elling Units
(Mn)
Low income housing
Overall housing10000 45
4000 31
Market addresses the upper / middle segment
Government intervention is required for
investments in this segment
Source: Emkay Research, Company
Population grew at 1.96% CAGR during 1991-2001
Source: Emkay Research, Company
Households grew at 2.43% CAGR during the same period
Annexure
Source: NHB's draft Aam Admi Awas Scheme * Gujarat Urban Development Authority
Leading to an increase in housing shortage during 91-01 Migration - biggest growth driver for low income housing
Low income housing presents Rs4000bn opportunity for the monolithic construction:
NHB estimates indicate total investment requirements of Rs.10000bn in housing during
the 11th plan, out of which, Rs.4000bn is towards low income housing. Currently, Sintex is
the only player in monolithic construction in India and market size is pegged at Rs.4bn
(Sintex's expected monolithic revenues during FY09E). If 50% of the expected opportunity
fructifies during 11th plan, it translate into a huge opportunity worth Rs.2000bn.
Source: NHB's draft Aam Admi Awas Scheme * Dwelling Unit
40% of the investment in housing during 11th plan is likely to be directed towards low income housing
629743
218285
846
1028
0
600
1200
1991 2001
Popula
tion (
Mn)
Overall Rural Urban
112
138
3954
192
151
0
100
200
1991 2001
Household
s (
Mn)
Overall Rural Urban
16.314.7 15.8
7.0 8.2 8.9
22.924.7
23.3
0
10
20
30
1981 1991 2001
Household
s (
Mn)
Overall Rural Urban
36%
64%
32%28%
30%
68%70%72%
0%
40%
80%
2001 2010E 2015E 2025E
% o
f overa
ll p
opula
tion
Urban population Rural population
Major increasein shortagewitnessed onlyin urban areas
24 September, 2008 30Emkay Research
Sintex Industries Ltd. Initiating CoverageAnnexure
The National common minimum program (NCMP) is largely committed towards low
income housing: The Government believes that housing is the most important tool for
poverty alleviation and has given a major thrust to low income housing in the NCMP. The
two major constraints in development of low income housing till recently were; i)
appropriate method or technology of construction and ii) financing of low cost housing.
We believe above concerns have subsided and states like Gujarat have taken concerted
steps to invest in low income housing.
Basics of prefabricated structures: Prefabricated structures, as the name suggests, is a building structure manufacturedin the plant and assembled at site. These structures can be prefabricated homes, schools, toilets, site offices, policechowkies, security cabins, defense shelters, telephone booths, base translation (BT) shelters for telecom towers, prefabs forcold chain solutions etc.
Characteristics of the business: The key facets of prefabs business are manufacturing, assembling & execution. The key toprofitability in prefabs is skillful workforce & freight economics (30-35% of the total cost is towards logistics). Prefab facilityhas to be located within a radius of 1000Kms of the site of installation & hence, it is a regional business.
B - Prefabs
Sintex's prefab capacity details
SIL's total capacity of prefabs at the end of FY08 was 110,000 sq feet per day (excluding
Zeppelin) from 5 plants located across the country. The company sold 53,700* sq feet per
day of prefabs (excluding Zeppelin) during FY08, realizing on an average Rs.332* per Sq.
feet (excluding Zeppelin).
Capacity Capacity
Plant location Commissioned FY08 FY09E FY10E FY11E Utilization (FY08)
Kalol, West Oct.071 20000+10000 40000 (Dec.08) 40000 50000 (Dec.10) 85%
Nagpur, Centre Feb.07 20000 20000 20000 20000 40%
Baddi, North Aug.06 20000 20000 30000 (Jan.10) 30000 65%
Kolkata, East March.08 20000 20000 20000 20000 0%
Salem, South July.06 20000 30000 (March.09) 40000 (Jan.10) 50000 (Dec.10) 60%
UP, North Planned - 20000 (March.09) 20000 20000 -
New Plant Planned - - 20000 (March.09) 20000 -
Total capacity 110000 150000 190000 210000
1 Expansion, Note: all the planned expansion commissioning is assumed arbitrarily, Note: the capacity is excluding the capacity of its subsidiary Zeppelin Mobile systems,
* these figures have been calculated based on capacity utilizations figures provided by the company
Increased awareness and acceptability to drive Prefab business- Prefabs is a very big
business in western countries and represents 8 to 10% of the total construction industry.
It is not so in the developing part of the world, mainly because of low product awareness
and acceptability. Prefabs are maintenance free, take 60-70% less time as compared to
site built construction and depending upon the logistics, are 10-15% cheaper than site
built construction. Though the product has many advantages as compared to site built
construction, the major disadvantage is the lack of natural feel. Nonetheless, there is a
large untapped potential.
24 September, 2008 31Emkay Research
Sintex Industries Ltd. Initiating CoverageAnnexure
Plant State / Country Company Products Manufactured Country's Cost Structure
Kalol Gujarat / India Sintex Industries Textiles, Water Tanks, Prefabs, Low Cost
Custom Moldings
Kutch Gujarat / India Sintex Industries Custom moldings Low Cost
Bangalore Karnataka / India Sintex Industries Water tanks Low Cost
Nagpur Maharashtra / India Sintex Industries Prefabs, Water tanks Low Cost
Baddi Himachal / India Sintex Industries Prefabs, Water Tanks Low Cost
Salem Karnataka / India Sintex Industries Prefabs, Water tanks Low Cost
Kolkata West Bengal / India Sintex Industries Prefabs, Water tanks Low Cost
Daman UT / India Sintex Industries Water tanks Low Cost
Pune Maharashtra / India Bright Auto Plast1 Auto Custom moldings Low Cost
Sohna North / India Bright Auto Plast1 Auto Custom moldings Low Cost
Chennai TN / India Bright Auto Plast1 Auto Custom moldings Low Cost
Pithampur MP / India Bright Auto Plast1 Auto Custom moldings Low Cost
Nasik Maharashtra / India Bright Auto Plast1 Auto Custom moldings Low Cost
Noida UP / India Zeppelin Mobile2 Prefabs - BT Shelters Low Cost
Indore MP / India Dig Vijay Comm3 Telecom Towers Low Cost
7 Plants France Nief Plastics4 Multiple custom moldings
NP Hungaria Kft Hungary Nief Plastics4 Multiple custom moldings Low Cost
NP Tunisia Tunisia. Nief Plastics4 Multiple custom moldings Low Cost
Segaplast Maroc SARL Morocco Nief Plastics4 Multiple custom moldings Low Cost
NP Slovakia S.R.O Slovakia Nief Plastics4 Multiple custom moldings Low Cost
3 Plants US WCI5 Multiple custom moldings
2 Plants US Nero Plastics6 Multiple custom moldings
3 Plants Germany Geiger Technik7 Auto Custom moldings
1 Plant Poland Geiger Technik7 Auto Custom moldings
1 - 100% Subsidiary of Sintex Industries, 2 - 74% Subsidiary of Sintex Industries, 3 - 100% Subsidiary of Zeppelin Mobile, 4 - 100% Subsidiary of Sintex Industries, 5 -
81% Subsidiary of Sintex Industries, 6 - 100% Subsidiary of WCI, 7 - 90% Subsidiary of Sintex Industries.
D - Effective tax rate to increase after FY11E
The effective tax rate (ETR) of the consolidated entity was around 22.7%, lower than the normal rate because of some of the plants
being located in tax free zones.
Plants Tax status Products Manufactured Tax holiday up to
Kalol Fully Taxable Textiles, Water Tanks, Prefabs, Custom Moldings -
Daman Fully Taxable Water Tanks -
Bangalore Fully Taxable Water Tanks -
Kutch Tax Holidays Electrical Custom Moldings FY11
Baddi Tax Holidays Prefabs FY14
Salem Tax Holidays Prefabs FY12
Nagpur Tax Holidays Prefabs FY13
Kolkata Tax Holidays Prefabs FY14
Due to higher tax rate of subsidiaries at 35% and also because of the changing business mix in favor of fully taxable businesses,
we have assumed an ETR of 26.4% for next three years, which is an increase of 3.7% over FY08 ETR. We believe that because of
some of the plants going out of the tax holiday regime, ETR would increase post FY11E and the PAT growth is expected to be lower
than the revenue growth, assuming other thing remain unchanged.
C - Sintex’s plant details
24 September, 2008 32Emkay Research
Sintex Industries Ltd. Initiating CoverageThe team
www.emkayshare.com
BUY Expected total return (%) of stock price appreciation and dividend yield) of over 25% within the next 12-18 months.ACCUMULATE Expected total return (%) of stock price appreciation and dividend yield) of over 10% within the next 12-18 months.REDUCE Expected total return (%) of stock price appreciation and dividend yield) of below 10% within the next 12-18 months.SELL The stock is believed to under perform the broad market indices or its related universe within the next 12-18 months.NEUTRAL Analyst has no investment opinion on the stock under review.
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