EQUI-GRADE Analytical Power for Investment Decisions Sintex Industries Limited Plastics and Textiles SINTEX INDUSTRIES LIMITED December 29, 2011 Very Good Fundamentals; Considerable Upside Potential CMP: Rs.62.2 / CIV: Rs.257 Sensex: 15544 Update Q2FY12 CARE Equity Research maintains fundamental grade of 4/5 on Sintex Industries Ltd (Sintex). This indicates Very Good Fundamentals. Revenue up 25.3 per cent The revenue for Sintex stood at Rs.1157 crores in Q2FY12 up 25.3 per cent year-over-year. All the three segments, building materials, custom mouldings and textiles, contributed to the high growth. EBITDA margins decline due to rise in raw materials cost Sintex s reported an EBITDA of Rs.204.3 crores in Q2FY12, resulting in EBITDA margins of 17.7 per cent as against EBITDA margins of 18.6 per cent. The drop in the EBITDA was on account of higher raw materials cost in the current quarter. Order book stays healthy The monolithic construction order book was maintained at Rs. 3000 crores at the end of Q2FY12, providing a revenue visibility of around 2 years. Rupee depreciation results in drop in net profit The company reported a forex loss in the current quarter of around Rs. 59.6 crores as against a forex gain of Rs. 20.3 crores in Q2FY11. Valuation We have valued Sintex at a CIV of Rs.257 per share; however our estimates are under review. We shall revise our estimates post management discussion. Financial Information Snapshot (Rs Crore) FY09 FY10 FY11 FY12 P Operating Income 3,135 3,319 4,484 5,271 EBITDA 522 538 815 1,027 PAT (After minority interest) 325 329 460 558 Fully Diluted EPS* (Rs.) 12.0 12.1 16.9 20.4 Dividend Per Share (Rs.) 0.6 0.6 0.7 0.9 P/E (times) 3.7 3.0 EV/EBITDA (times) 4.2 3.3 * Calculated on Current Face Value of Rs. 1/- per share 1 www.careratings.com
SINTEX INDUSTRIES LIMITED CARE Equity Research retains the fundamental grade at 4/5, indicating Very Good Fundamentals CARE Equity Research retains fundamental grade of 4/5 to Sintex. This indicates Very Good Fundamentals. The grade draws strength from leadership position in plastic water tanks, prefabricated building systems and monolithic construction segment with strong order book coupled with an experienced management. While, the current order book for monolithic construction at around Rs. 3000 crores gives revenue visibility for next 2 years, an increased Government focus on social spending provides huge growth opportunities for Sintex. CARE Equity Research believes that risks associated with acquired subsidiaries are behind and Sintex has started realizing synergy benefits. Sintex: Interim Financial Snapshot (Rs Crore) Q2FY12 Q2FY11 Growth (y-o-y) H1FY12 H1FY11 Growth (y-o-y) Net Sales 1154 921 25.30% 2263 1829 23.76% Total Operating Income 1157 923 25.35% 2269 1834 23.74% EBITDA 204 172 19.09% 395 327 20.80% EBITDA Margin 17.66% 18.59% 17.39% 17.81% PAT 39 100 (61.67%) 132 179 (26.43%) PAT Margin 3.34% 10.85% 5.81% 9.77% Fully Diluted EPS* (Rs.) 1.43 3.69 (61.25%) 4.92 6.6 (25.45%) Source: Company and CARE Equity Research Healthy growth in revenue Sintex s revenue for Q2FY12 (July 1 to September 30, 2011) grew by 25.3 per cent y-o-y, to Rs. 1157 crores as against revenue of Rs. 923 crores in Q2FY11. All three segments, i.e. buildings materials, custom mouldings and textiles witnessed healthy growth (between 20-30 per cent y-o-y). When comparing the half yearly results, textiles segment has been a slight underperformer growing at around 16 per cent. www.careratings.com 2
SINTEX INDUSTRIES LIMITED Sintex: Segmental Snapshot Q2 (July, 1 September, 30) H1 (April, 1 September, 30) 94 113 193 223 506 413 771 979 534 414 1062 864 Building materials Custom mouldings Building materials Custom mouldings Textiles Textiles Note: Inner donut refers to FY12 segmental revenue (Rs Crores), outer donut refers to FY11 segmental revenue (Rs Crores) Source: Company and CARE Equity Research Rise in raw materials cost leads to decline in EBITDA margins Sintex s reported an EBITDA of Rs.204.3 crores in Q2FY12, resulting in EBITDA margins of 17.7 per cent as against EBITDA margins of 18.6 per cent. The drop in the EBITDA was on account of higher raw materials cost in the current quarter. Order book stays healthy The monolithic business addresses the low cost housing segment in urban and semi urban areas. The company has witnessed good traction in the monolithic business, both in order and execution. The monolithic construction order book stood maintained at Rs. 3000 crores at the end of Q2FY12, providing a revenue visibility of around 22-24 months. 3 www.careratings.com
SINTEX INDUSTRIES LIMITED Sintex: Monolithic Order Book 35 30 25 Rs Billion 22 23 26 26 29 30 30 20 15 15 10 5 0 Q3 FY10 Q4FY10 Q1FY11 Q2FY11 Q3FY11 Q4FY11 Q1FY12 Q2FY12 Source: Company and CARE Equity Research Rupee depreciation results in drop in net profit, interest costs too play spoilsport The company reported a forex loss in the current quarter of around Rs. 59.6 crores as against a forex gain of Rs. 20.3 crores in Q2FY11. The loss was on account of the rupee depreciation from Rs. 44.5/ USD to Rs. 49.5/USD (drop of around 11 per cent) over July September 2011, resulting in a MTM loss on the outstanding unhedged exposure of USD 100 million on the company s FCCB borrowings. Sintex had raised USD 225 million via FCCBs in FY08. The interest cost too witnessed a rise on account of higher cost of borrowings. The company thereby reported a net profit of Rs. 38.4 crores in the Q2FY12 as against Rs. 100 crores in Q2FY11. Spreading reach in distribution, commencement of new facility in custom mouldings Post execution of monolithic construction work in UP last year, the company operationalised it distribution center in UP in the current quarter. The company also commenced its custom mouldings unit in Chennai in the current quarter. www.careratings.com 4
24-Sep-10 24-Oct-10 24-Nov-10 24-Dec-10 24-Jan-11 24-Feb-11 24-Mar-11 24-Apr-11 24-May-11 24-Jun-11 24-Jul-11 24-Aug-11 24-Sep-11 24-Oct-11 24-Nov-11 24-Dec-11 SINTEX INDUSTRIES LIMITED Sintex s stock price are down by 65.3 per cent since last update from CARE Equity Research Sintex s shares traded at Rs. 179 at the time of last update by CARE Equity Research on 1st July 2011. The price of Sintex s stock exhibited a significant drop since the last update. As on the date of this report the stock price traded at Rs. 62 per share - down by around 65.3 per cent since the last update. The benchmark (Sensex) lost around 17.2 per cent - during the same period. Sintex: Stock performance since initiation 150 130 110 90 70 50 30 Price Movement (rebased to 100) Sensex Sintex CIV Source: BSE and CARE Equity Research 5 www.careratings.com
SINTEX INDUSTRIES LIMITED ANALYSIS OF INTERIM RESULTS Consolidated Income Statement (Rs Crores) Q2FY12 Q2FY11 Q1FY12 Growth (y-o-y) Growth (q-o-q) Total Operating Income 1157.0 923.1 1112.0 25.3% 4.0% Net Sales 1153.6 920.6 1109.5 25.3% 4.0% EBITDA 204.3 171.6 189.2 19.1% 8.0% Depreciation and amortisation 43.7 35.7 43.9 22.3% -0.6% EBIT 160.7 135.9 145.3 18.3% 10.6% Interest 41.6 26.6 35.0 56.4% 18.6% PBT 66.2 136.5 127.1-51.5% -48.0% PAT 38.6 100.2 93.3-61.5% -58.6% EBITDA Margin 17.66% 18.59% 17.02% Net Margin 3.34% 10.85% 8.39% Source: Company and CARE Equity Research Consolidated Income Statement (Rs. Crores) H1FY12 H1FY11 Growth (y-o-y) Total Operating Income 2269.0 1833.7 23.7% Net Sales 2263.1 1828.6 23.8% EBITDA 394.5 326.6 20.8% Depreciation and amortisation 87.6 72.0 21.6% EBIT 307.0 254.6 20.6% Interest 76.6 51.4 49.0% PBT 193.2 232.9-17.0% PAT 131.9 179.2-26.4% EBITDA Margin 17.39% 17.81% Net Margin 5.81% 9.77% Source: Company and CARE Equity Research www.careratings.com 6
SINTEX INDUSTRIES LIMITED FINANCIAL STATISTICS Income Statement (Rs Crore) FY09 FY10 FY11 FY12 P Operating Income 3,135.0 3,319.0 4,483.7 5,270.9 EBITDA 521.7 538.0 815.5 1,026.6 Depreciation and amortisation 114.4 144.4 149.1 216.0 EBIT 407.3 393.6 666.4 810.6 Interest 82.0 73.1 108.9 86.7 PBT 407.9 408.3 609.2 753.9 PAT (After minority interest) 325.1 329.0 460.0 557.9 Fully Diluted Earnings Per Share* (Rs.) 12.0 12.1 16.9 20.4 Dividend 17.7 19.1 20.6 27.6 * Calculated on Current Face Value of Rs. 1/- per share Balance Sheet (Rs Crore) FY09 FY10 FY11 FY12 P Net worth (incl. Minority Interest) 1,511 1,699 2,183 2,713 Debt 2,296 2,630 2,774 1,937 Deferred Tax Liability / (Asset) 142 169 206 206 Capital Employed 3,950 4,499 5,162 4,856 Net Fixed Assets 1,980 1,955 2,548 2,610 Investments & Others 182 247 378 300 Cash and Cash Equivalents 1,169 930 986 758 Current Assets, Loans and Advances 1,554 2,169 2,315 2,395 Less: Current Liabilities and Provisions 935 801 1,064 1,207 Total Assets 3,950 4,499 5,162 4,856 Ratios FY09 FY10 FY11 FY12 P Growth in Operating Income 36.7% 5.9% 35.1% 17.6% Growth in EBITDA 29.4% 3.1% 51.6% 25.9% Growth in PAT 41.2% 1.2% 39.8% 21.3% Growth in EPS 22.8% 1.2% 38.8% 21.3% EBITDA Margin 16.6% 16.2% 18.2% 19.5% PAT Margin 10.4% 9.9% 10.3% 10.6% RoCE 11.1% 9.3% 13.8% 16.2% RoE 22.5% 20.5% 23.7% 22.8% Net Debt-Equity (times) 0.7 1.0 0.8 0.4 Interest Coverage (times) 7.4 8.6 8.0 12.2 Current Ratio (times) 0.7 0.6 0.9 0.6 Price / Earnings (P/E) Ratio 3.7 3.0 Price / Book Value(P/BV) Ratio 0.8 0.6 Enterprise Value (EV)/EBITDA 4.2 3.3 Source: Company, CARE Equity Research 7 www.careratings.com
SINTEX INDUSTRIES LIMITED EXPLANATION OF GRADES CARE Equigrade Grid (CEG) Through CEG, CARE Equity Research addresses two critical factors considered by an investor while investing in a particular company s equity shares: 1. Fundamentals: Whether the company is fundamentally sound with respect to its business, its financial position, its management and its prospects. 2. Valuation: What is the Current Intrinsic Value (CIV) of the stock and how it compares vis-a-vis its Current Market Price (CMP) These factors are answered assigning quantitative grades to both these parameters. CEG is the snapshot of Fundamental Grade and Valuation Grade assigned by CARE Equity Research. Fundamental Grade This grade represents how sound the company is fundamentally, vis-à-vis other listed companies in India. This grade captures: 1. Business Fundamentals and Prospects 2. Financial Soundness 3. Management Quality 4. Corporate Governance Practices The grade is assigned on a five-point scale as under: CARE Fundamental Grade Evaluation 5/5 Strong Fundamentals 4/5 Very Good Fundamentals 3/5 Good Fundamentals 2/5 Modest Fundamentals 1/5 Weak Fundamentals Valuation Grade This grade represents the potential value in the company s equity share for the investor over a 1 year period. The Current Intrinsic Value (CIV) or the price arrived by CARE Equity Research on fundamental basis is compared with the current market price (CMP) of the stock and the grade is assigned based on the gap between CIV and CMP of the stock. The grade is assigned on a five-point scale as under: CARE Valuation Grade Evaluation 5/5 Considerable Upside Potential (>25% upside from CMP) 4/5 Moderate Upside Potential (10-25% upside from CMP) 3/5 Fairly Priced (+/- 10% from CMP) 2/5 Moderate Downside Potential (10-25% downside from CMP) 1/5 Considerable Downside Potential (>25% downside from CMP) www.careratings.com 8
SINTEX INDUSTRIES LIMITED Grading determination is a matter of experienced and holistic judgment, based on relevant quantitative and qualitative factors of the company in relation to other listed companies. DISCLOSURES Each member of the team involved in the preparation of this grading report, hereby affirms that there exists no conflict of interest that can bias the grading recommendation of the company. This report has been sponsored by the company. DISLCLAIMER This report is prepared by CARE Research, a division of Credit Analysis & REsearch Limited [CARE]. CARE Research has taken utmost care to ensure accuracy and objectivity while developing this report based on information available in public domain or from sources considered reliable. However, neither the accuracy nor completeness of information contained in this report is guaranteed. CARE Research operates independently of ratings division and this report does not contain any confidential information obtained by ratings division, which they may have obtained in the regular course of operations. Opinions expressed herein are our current opinions as on the date of this report. CARE s valuation of the security is mainly based on company specific fundamental factors. Equity prices are affected by both fundamental factors as well as market factors such as liquidity, sentiment, broad market direction etc. The impact of market factors can distort the price of the security thereby deviating from the intrinsic value for extended period of time. This report should not be construed as recommendation to buy, sell or hold a security or any advice or any solicitation, whatsoever. It is also not a comment on the suitability of the investment to the reader. The subscriber / user assumes the entire risk of any use made of this report or data herein. CARE specifically states that it or any of its divisions or employees have no financial liabilities whatsoever to the subscribers / users of this report. This report is for personal information only of the authorised recipient in India only. This report or part of it should not be reproduced or redistributed or communicated directly or indirectly in any form to any other person, especially outside India or published or copied for any purpose. Credit Analysis and Research Limited proposes, subject to receipt of requisite approvals, market conditions and other considerations, to make an initial public offer of its equity shares and has filed a draft red herring prospectus ( DRHP ) with the Securities and Exchange Board of India (the SEBI ). The DRHP is available on the website of SEBI at www.sebi.gov.in as well as on the websites of the Book Running Lead Managers at www.investmentbank.kotak.com, www.dspml.com, www.edelcap.com, www.icicisecurities.com, www.idbicapital.com, and www.sbicaps.com. Investors should note that investment in equity shares involves a high degree of risk and for details relating to the same, see the section titled Risk Factors of the DRHP. [ This press release is not for publication or distribution to persons in the United States, and is not an offer for sale within the United States of any equity shares or any other security of Credit Analysis and Research Limited. Securities of Credit Analysis and Research Limited, including its equity shares, may not be offered or sold in the United States absent registration under U.S. securities laws or unless exempt from registration under such laws. ] Published by Credit Analysis & REsearch Ltd., 4th Floor Godrej Coliseum, Off Eastern Express Highway, Somaiya Hospital Road, Sion East, Mumbai 400 022. CARE Research is not responsible for any errors or omissions in analysis/inferences/views or for results obtained from the use of information contained in this report and especially states that CARE (including all divisions) has no financial liability whatsoever to the user of this product. This report is for the information of the intended recipients only and no part of this report may be published or reproduced in any form or manner without prior written permission of CARE Research. 9 www.careratings.com
SINTEX INDUSTRIES LIMITED z ABOUT CARE Credit Analysis & REsearch Ltd. (CARE) is a full-service rating company that offers a wide range of rating and grading services across sectors. CARE has an unparallel depth of expertise. CARE Ratings methodologies are in line with the best international practices. CARE Research CARE Research is an independent research division of CARE Ratings, a full-service rating company. CARE Research is involved in preparing detailed industry research reports with 5-year demand and 2-year profitability outlook on the industry besides providing comprehensive trend analysis and the current state of the industry. CARE Research currently offers reports on more than 26 industries which are updated on a monthly/quarterly basis. Subscribers can access CARE Research reports online. CARE Research also offers research that is customized to client requirements. Customized Research involves business analysis and position in the market, financial analysis and market sizing etc. CREDIT ANALYSIS & RESEARCH LTD HEAD OFFICE Mr. Anil Varghese Cell: +91-9322123311 Tel: +91-22-6754 3673 E-mail: anil.varghese@careratings.com 4th Floor, Godrej Coliseum, Somaiya Hospital Road, Off Eastern Express Highway, Sion (East), Mumbai - 400 022 Tel: +91-022- 6754 3456 E-mail: care@careratings.com Fax: +91-022- 6754 3457 KOLKATA Mr. Sukanta Nag Cell: +91-98311 70075 Tel: +91-33- 4018 1600/ 1602 E- mail: sukanta.nag@careratings.com 3rd Flr., Prasad Chambers (Shagun Mall Bldg), 10A, Shakespeare Sarani, Kolkata -700 071 CHENNAI Mr. V Pradeep Kumar Cell: +91 9840754521 Tel: +91-44-2849 7812/2849 0811 Fax: +91-44-2849 0876 Email: pradeep.kumar@careratings.com Unit No. O-509/C, Spencer Plaza, 5th Floor, No. 769, Anna Salai, Chennai - 600 002 AHMEDABAD Mr. Mehul Pandya Cell: +91-98242 56265 Tel: +91-79-40265656 Fax: +91-79-40265657 E-mail:mehul.pandya@careratings.com 32, Titanium, Prahaladnagar Corporate Road, Satellite, Ahmedabad - 380 015. NEW DELHI Ms. Swati Agrawal Cell: +91-98117 45677 Tel: +91-11- 2331 8701/ 2371 6199 E-mail: swati.agrawal@careratings.com 3 rd Floor, B -47, Inner Circle, Near Plaza Cinema, Connaught Place, New Delhi - 110 001. BENGALURU Mr. Dinesh Sharma Cell: +91 9900041975 Tel: +91-80-22117140 E-mail: dinesh.sharma@careratings.com Unit No. 8, I floor, Commander's Place, No. 6, Raja Ram Mohan Roy Road, (Opp. P F Office), Richmond Circle, Bangalore - 560 025. HYDERABAD Mr. Ashwini Kumar Jani Cell: +91-91766 47599 Tel: +91-40-40102030 E-mail: ashwini.jani@careratings.com 401, Ashoka Scintilla 3-6-520, Himayat Nagar Hyderabad - 500 029. www.careratings.com 10