Reduce Sintex Industries; target of Rs 63: Dolat Capital

Dolat Capital is bearish on Sintex Industries and has recommended reduce rating on the stock with a target of Rs 63 in its July 16, 2012 research report.
 
“For the quarter under review, Sintex revenues declined by 3% YoY to ‘10.8bn as against Rs 11.1bn in Q1FY12 led by continued slowdown in the monolithic segment (on account of political logjam and execution issues) & custom moulding segment (led by the overseas subsidiaries). However, strong growth in prefabs and India centric custom moulding business has enabled the company to negate the slowdown in its monolithic and overseas custom moulding segment to a certain extent.”

“Better operating margins in the building product segment was however negated by lower margins in the custom moulding & textiles segment resulting in overall margins to contract by 60 bps to 16.5% (Dolat estimates @15.7%). As a result, operating profit for the quarter fell 7% YoY to Rs 1.78bn. Forex loss of Rs 289mn and subdued operating performance resulted in Q1FY13 PAT to decline by 51% to Rs 468mn as compared to Rs 946mn recorded in Q1FY12. However adjusting for forex losses, reported PAT would have been lower by 21% to Rs 757mn as compared to Rs 956mn recorded in the corresponding quarter of the previous year.”

“We believe that Sintex would continue to face strong headwinds in its building product (read monolithic construction) as well as custom moulding segment (read overseas subsidiaries) over the next couple of quarters which could result in a moderate revenue growth for the company over the next two years. We expect the revenues to grow at a two year CAGR of 11% from FY12-FY14 (Last 5 year CAGR of more than 30%). Sintex currently trades at 5.3x & 4.2x its FY13E & FY14E earnings of Rs 12.6 & Rs 16.1 respectively. With company facing strong headwinds with respect to its key segments, we continue to maintain our cautious stance on the company despite recent stock correction on the bourses. Apart from the operational headwinds, FCCB redemption (due in Q4FY13) would continue to remain an overhang on the stock. We maintain a “Reduce” rating on the stock with a price target of Rs 63, reflecting a downside of 6% from the current levels,” says Dolat Capital research report.     

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