Sell Sintex Industries; target Rs 52: Nirmal Bang

Nirmal Bang is bearish on Sintex Industries (SIL) and has recommended sell rating on the stock with a target price of Rs 52, in its May 11, 2012 research report.

"Sintex Industries (SIL) reported dismal 4QFY12 revenue/operating profit, down 30.1%/44.7% YoY, respectively, and sharply below our/consensus estimates. We expect monolithic order execution to remain weak in 1HFY13 too and demand outlook for overseas subsidiaries, Wausaukee and Nief, to remain challenging. We reduce our FY13 net sales/EBITDA/PAT estimates by 21.9%/22.8%/25.7%, respectively, and introduce our FY14 estimates. Redemption of US$225mn FCCB through new ECB loan would increase interest costs in FY14 and limit PAT CAGR to 4.4% over FY12-14E. Although, SIL is trading at the lower end of its valuation band at 4.4x/4.7x FY13E P/E and EV/EBITDA, there are no near-term triggers to lift valuation." "Following political and other issues coupled with a dire need to control working capital, SIL’s monolithic division faced severe headwinds. Its 5 out of ~17 operating sites are facing severe execution challenges, hurting building product revenue by ~34% in 4QFY12. Weak demand at the US-based Wausaukee and France-based Nief accelerated problems following which consolidated revenue declined 30.1% YoY to Rs10,237mn, 22.3%/23% lower than our/Bloomberg estimates, respectively. We expect execution headwinds at the monolithic division, SIL’s main growth engine, to continue in 1HFY13 also and thereby report flat growth in FY13." "Following flat growth in the monolithic division and subdued demand at overseas subsidiaries, consolidated net sales (after reporting flat growth in FY12) would grow by a mere 6.1% in FY13E. With the redemption of FCCB tentatively with ECB, high growth in sales/EBITDA at 10.2%/12.3%, respectively, in FY14E would be negated by high interest costs, at 36.3%. We expect net profit to show a mere 4.4% CAGR over FY12-14E at Rs3,849mn. SIL is planning to redeem FCCB through un-hedged ECB/foreign debt, but its overseas subsidiaries are not witnessing significant cash flows. Hence, interest/principal repayment of debt has to be financed through cash flows of Indian operations, making the company vulnerable to currency volatility post FY13 too. We retain our Sell rating on the stock with a revised target price of Rs 52, valuing it at 4.4x FY13E EV/EBITDA," says Nirmal Bang research report. Shares held by Insurance Companies Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions. To read the full report click on the attachment

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