Sunidhi Securities' report on Sintex Industries
Sintex enjoys early-mover advantage in businesses that are levered to social sector spending in India (schools/low cost housing/ healthcare centers), funded almost entirely by the government. It is believed this spending will continue, given the socio economic context. Sintex’s India construction (monolithic and prefab) business (40% of revenue) is geared to social sector spending in India by the central and state governments on low-cost housing, slum rehabilitation, schools and rural healthcare center construction in remote areas. Though the monolithic business, which has been suffering due to sluggishness from government activity and consequent delays in execution and receivables pulled down overall performance, things are expected to get better as SIL has reduced the number of slow moving sites.
Valuation & Recommendation: "According SIL, the recent spate of reforms by the government will help revive the domestic economy and augurs well for SIL as a buoyant social spending and an improved Capex from the private sector will ensure a strong revival in its fortunes. But, even before the benefits of the reforms start trickling in; SIL is witnessing improvement in the business.
SIL has highlighted generating free cash flows for the next couple of years, improving return on capital, shrinking the overall balance sheet size and improving working capital through stringent controls on the monolithic business, as key focus areas to strengthen its balance sheet, going forward.
SIL offers a one of the widest wide plastic-based solution in global plastic processing space – from creating housing units to small components that find application in the medical equipment and electrical businesses. SIL is the only Indian plastic processing with a pan-India manufacturing presence and manufacturing operations in twelve nations to cater to the global demand.
SIL’s India construction (monolithic and prefab) business (45% of revenue) is geared to social sector spending by the central and state governments on low-cost housing, slum rehabilitation, schools and rural healthcare center construction in remote areas. Sintex enjoys early-mover advantage in businesses that are levered to social sector spending in India (schools/low cost housing/ healthcare centers), funded almost entirely by government.
Q4FY15 & FY15 is a reflection of strong growth and a drastic improvement in business sentiment. Utilisations are picking up across businesses, upturn in margins and topline growth is clearly visible. The initiatives on clean India campaign have thrown open new set of opportunities to SIL.
"A macroeconomic turnaround, improving trajectory of businesses linked to government spending, better utilization at its Greenfield spinning project, improving financial performance for the past few quarters and a further easing of working capital would drive the expected improvement in operating environment. This in turn will improve revenue and profitability going forward. At the current market price of Rs 109, the share is trading at a P/E of 7.1x on FY16E and 5.7x on FY17E. We reiterate BUY with an increased target price of Rs 163 in the medium-to-long term at which the share will trade at a P/E of 8.5x on FY17", says Sunidhi Securities research report.
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