Sintex demerger: PhillipCapital says listing likely by May-June; upbeat on stock

Although the stock has rallied quite a bit, there is further scope for re-rating post the demerger and so the house has a price target of Rs 115 on it for the medium-term.

Below is the verbatim transcript of Vikram Suryavanshi’s interview on CNBC-TV18.

Prashant: What do you think; I mean this is now finally done, right? There are no other approvals to be taken because the shareholder approval etc, were already in place, so from April 1st this goes in to effect?

A: Shareholder approval and stakeholder approval is major thing which has been done and after that was High Court approval which they got today, so most of the hurdles are now done. So, it is now only procedural that they will now approach to the BSE or NSE and Sebi for getting the date for listing on their exchanges. So de-merger is complete, but listing of the new entity which will be the Sintex Plastics Technology will take some time post they get the dates from the exchange. So, we are expecting by May or June the listing of new entities could happen.

Reema: In terms of the stock price Sintex Industries has already rallied 35 percent since the start of 2017, so it has already put in a good portion of the up move. From here on does it make sense for a retail investor to buy shares of Sintex Industries and what will be the target price that you would set?

A: It does make sense because if you look at post demerger, a lot of value creation opportunities are there, particularly on plastic side of the business which is expected to get rerated, custom moulding will be cash positive from day one. So, management is talking about deleveraging the balance sheet and bringing debt to EBITDA by around 2.5 times. Growth is consistently very high in this business around like 12-15 percent with good return ratios. They do have all India network and good brand in plastic side as well as the custom moulding. So, there is further scope for rerating in the sense investors getting good returns even from current levels as well.

So strong rerating as well as even in textile there is also a case looking at the advantage India has in terms of cotton and government subsidies that they are getting. Therefore, even at low return ratios there is an opportunity for textile business to create value for shareholders. We do have target price of Rs 115 in medium-term on the stock.

Prashant: Just to break it up, could you tell me what is your earnings per share (EPS) expectation from Sintex Industries, what is your earnings expectations from plastics and what multiples would you give both just to kind of break it up?

A: Even currently plastic itself is doing a profit of close to Rs 600 crore, so what we are looking is at a multiple of around 11-12, so it looks conservative for plastic side business, so that gives around like Rs 7,000-8,000 crore kind of market forward for the plastic, so that itself is Rs 120 or close to that in plastic side of the business.

In textile side of the business, it is an investment phase so profit and loss numbers to reflect will take other one-one-and-half year so even phase two capex is over and benefit of phase one starts getting in. So, right now we are looking at discount to the book value or closer to book value, so that gives valuation around Rs 20-25 on textile side of the business as well. So if you club together the investor can still make a decent amount of money looking at the valuation of these two entities post demerger.