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
- higher growth margins in domestic moulding consumption
- added revenue from the spinning mill which will be operational in FY15
- 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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