Sintex Pitch Report

Company name: Sintex Industries Limited

Ticker

BSE      502742

NSE      SINTEX

CMP : Rs. 80.30

52-week range:  16.80 - 105.25

Market Cap : 26.55B

Part A

Business Model

• Leading plastic processor with key areas of operations in Building Products, Custom moulding and niche textile products

Competitive Advantage

• Low -cost construction opportunities ( Housing )
• Non- housing structures
• Growing momentum towards plasticization : substitution of metals by plastic composites especially in sectors like auto, healthcare , defense etc..

Growth Opportunities

Plastic business contributes to 90.93% of company’s consolidated revenue

Innovative products provide growth sustenance. Sintex initially was into textile products and  storage tank business,it has currently moved to prefab and custom moulding segment

Engineering ,Procurement and Construction contracts (INR13b order book from Shirpur Power Plant) would offer an additional revenue stream of INR8b-9b in FY15

Shift  in global demand towards composites and synergy between domestic and global operations – segmental diversification,outsourcing of low cost components should drive up the profitability

Pan India presence, with strategic plant locations, tie-ups with various state governments, and strong distribution networks gives Sintex  ability to effectively tap this opportunity.

Textiles

Spinning business to commence revenue in 4QFY15

Gujarat spinning project phase I (0.3m spindle) is likely to commence operations in 4QFY15 with annualized revenue of INR18-20b

Close proximity to Pipavav port and located in India’s largest cotton producing state  would provide added advantage by reducing the lead distance and reducing freight cos

Gujarat state policy renders benefits of lower interest cost adjusted for 7% state subsidy, power tariff subsidy,  and refund of value added tax on cotton based units which make overall profitability healthier.

Part B

Earnings would be driven by

1. higher growth margins in domestic moulding consumption
2. added revenue from the spinning mill which will be operational in FY15
3. Composite revenue recovery is expected due to ramp up in operations in newly acquired plants in Poland and Germany

Industry metrics

WACC Calculation

Risk Free Rate            :  8%

Equity Risk Premium   :  9.44%

Beta    :  2.6

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Cost of Equity              : 11.74 %

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Cost of Debt                :  13%

Tax rate                       : 24%

D/E ratio                      : 1.15

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WACC                         : 12.41 %

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Terminal growth rate   : 4%

Reference for Equity Risk Premium

http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/ctryprem.hml

With consistent dividends for past 10 years. Using the Dividend Discount model  the value of Sintex comes upto 173.87 in next 2 years

Leveraging concerns due to additional requirements of INR10bn  for the operational activities of spinning mill

Relative Valuation

Calculated 16% growth in  PAT

Year	2012	2013	2014	2015E	2016E
PAT	2921	3130	3660	4246	4925
Shares Outstanding	271	311	311	329	329
EPS	10.8	10.1	11.8	12.9	15.0
P/E	7.7	7.6	8.2
Price Estimates			96.5	105.8	122.7

Price / Book value has been consistent between 0.74 to 1 in last 3 years

Risks

• Forecast segment wise revenue  growth and its impact on EBITDA margins
• Growth potential of subsidiaries
• Global Economic factors and its impact on Sintex financials

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