Buy Sintex Industries; target of Rs 191: Way2 Wealth

Way2 Wealth's report on Sintex Industries

In the past, SIL focused on the less profitability business segment with an aim to garner higher order intake. Company’s Monolithic business contributes 17% of FY16 Plastic/Infra revenues and earns lowest EBITDA margin (13%-14%), impacting the overall profitability. Going forward, SIL is shifting its focus towards Prefab business (27% of FY16 Plastic /Infra Revenues), which enjoys better EBITDA margin (23%-24%) and Textile business (12% of FY16Revenues; 23% margin). We expect these changes of focusing on innovative solutions fetching high margin business should translate into staggering 18-19% EBITDA margins by FY18E.

Outlook

The company has planned to demerge its textile business (currently cash burning business) from Plastic/infra business (more profitable business). Hence, we believe, this will augur well for the company going forward. As per the proposed demerger scheme, the two businesses will be listed separately listed. We believe that the plastics entity would trade at 9x FY18E EV/EBITDA and the textile unit would trade at 11x FY18E EPS, thus arriving at a price target of Rs 191.