Result Update

Rating matrix
Rating Target Target Period Potential Upside : : : : Hold | 35 12-15 months -10%

Sintex Industries (SININD)

WHATS CHANGED

July 15, 2013

| 39

PRICE TARGET ........................................................................... Changed from | 67 to | 35 EPS (FY14E) ......................................................................... Changed from | 12.3 to | 10.8
FY14E 5499.9 790.9 14.4 333.3 FY15E 6367.1 999.1 15.7 496.1

Key Financials
FY12 Net Sales EBITDA EBITDA Margin (%) Adjusted PAT 4453.5 716.7 16.1 339.6 FY13 5107.6 769.3 15.1 398.6

EPS (FY15E) ......................................................................... Changed from | 16.6 to | 15.9 RATING ....................................................................................... Changed from Buy to Hold

Growth to moderate further

Sintex Industries (SIL) Q1FY14 numbers remained below our estimates at the topline and PAT level. Total revenues grew 4.4% YoY to | 1,123.9 crore (I-direct estimate: | 1,188.6 crore) mainly led by growth from prefab and overseas custom moulding business, which reported revenue growth of ~19.1% and ~22.8% YoY, respectively. Currency weakness also had a positive impact on topline growth as 20% of revenue is contributed by exports. On the other hand, monolithic segment remained a dragger with revenue declining 13.1% YoY as SIL curtailed its business due to low margin and blocking of high working capital in this segment. The domestic moulding textile business also remained sluggish with mere 1.1% YoY growth in revenues due to poor demand from Europe. On the margins front, prefab segment reported healthy margins of over ~23% while margins in custom moulding (overseas) remained subdued at 8.1%. Margins in monolithic segment improved QoQ due to closing down of slow moving sites and low base effect. As a result, total operating margin remained marginally higher at 14.3% (vs. our estimate: 13.8%). However, net profit remained below our estimates led by subdued topline and forex loss of | 3.7 crore for the quarter on FCCB for this quarter. Foraying into new venture to put pressure on return ratios The company plans to set up a spinning unit of the textile division in Gujarat on the back of the new textile policy. The plan is still in the evaluation stage. The proposed project, if implemented, would create a de-merger possibility of the textile division from existing operations. However, we believe, this is certainly going to put pressure on the debt burden, thereby impacting return ratios during its implementation phase. Expect growth to moderate further; downgrade our rating to HOLD With downsizing of the monolithic business and slowdown in domestic custom moulding business, we expect revenue growth to moderate further to 7.7% (vs. our previous estimate of 14.3%) in FY14E. Given the slowdown in the domestic business (except prefab), the proposed spinning business (plan outlay of | 1,800 crore), if implemented, would also likely put further pressure on return ratios over the next 12-18 months. Hence, we remain cautious and downgrade our rating to HOLD from BUY with a revised target price of | 35 (valuing on SOTP basis).
Exhibit 1: Financial Summary
(| Crore) Total Operating Income EBITDA EBITDA Margin (%) Depreciation Interest Other Income PAT EPS (|) Q1FY14 1123.9 160.9 14.3 56.4 43.4 8.7 46.6 1.5 Q1FY14E 1188.6 163.7 13.8 45.5 45.8 13.0 61.5 2.0 Q1FY13 1076.4 177.6 16.5 48.3 35.4 4.2 46.8 1.7 Q4FY13 1396.7 189.0 13.5 54.6 43.6 45.6 151.0 4.9 QoQ (Chg %) -19.5 -14.9 78 bps 3.2 -0.4 -81.0 -69.1 -69.1 YoY (Chg %) 4.4 -9.4 -218 bps 16.7 22.8 107.6 -0.4 -13.3

Valuation summary
FY12 Adjusted EPS (|) PE (x) Target PE (x) EV to EBITDA (x) Price to book (x) RoNW (%) RoCE (%) 12.5 3.4 2.8 4.7 0.4 11.6 9.8 FY13 12.8 3.7 2.7 4.6 0.4 10.4 9.1 FY14E 10.8 3.6 3.2 4.6 0.4 10.0 8.9 FY15E 15.9 2.4 2.2 3.4 0.3 13.0 11.4

Stock data
Mcap Debt (FY13) Cash & Invest(FY13) EV 52 week H/L Equity cap Face value MF Holding(%) FII Holding(%) | 1213 crore | 3054 crore | 799 crore | 3598 crore | 75 / 42 | 31.1 crore |1 12.0 22.9

Price movement
6,500 6,000 5,500 5,000 4,500 4,000 Jul-12 Oct-12 Jan-13 Apr-13 Nifty (L.H.S) Price (R.H.S) 100 90 80 70 60 50 40 30 20 Jul-13

Analysts name
Rashesh Shah rashes.shah@icicisecurities.com Ricky Gupta ricky.gupta@icicisecurities.com

Source: Company, ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research

Strong performance in prefab, custom moulding overseas leads growth Revenues grew over ~4% YoY to | 1,124 crore led by strong sales growth from the prefab and custom moulding overseas business. Performance of the prefab segment continued to remain robust with the company ramping up its execution in Maharashtra and MP from where Sintex got new orders. The company expects to get new orders from Bihar. Order inflow from UP, Rajasthan, Gujarat and Delhi is also strong. The custom moulding overseas business clocked growth of 22.8%. However, on the domestic front, the custom moulding business remained a dragger due to low demand from the automotive sector. Sintex is committed to reducing the contribution of the monolithic segment in revenue, which declined 13.1% YoY. The textile business reported muted growth of 1.1% YoY while storage tanks reported growth of 18% YoY to | 76 crore due to a low base. The company is significantly cutting costs with two units already being closed in Gujarat and Bangalore. One more unit in Daman will be closed in the coming months. All these plants served as water storage tank facilities and are no longer needed. Sintex plans to sell the plants, which may help it mop up ~| 80-100 crore.
Exhibit 2: Segmental revenue (| crore)
Q1FY14
Growth in the prefab and moulding business remains robust while monolithic and domestic custom moulding business remained draggers in this quarter

Q1FY13 451 215 172 64 516 224 292 110 1077

YoY (%) 3.6 -13.1 19.1 18.0 5.7 -16.6 22.8 1.1 4.4

Q4FY13 612 233 294 85 674 328 346 110 1397

QoQ (%) -23.7 -19.8 -30.4 -11.2 -19.0 -43.0 3.7 0.4 -19.6

A. Building Products Segment Monolithic Construction Prefabs Storage Tanks B. Custom Molding Segment Domestic business Overseaes C. Textiles Segment Total Net Sales (A+B+C)

467 187 205 76 546 187 359 111 1124

Source: Company, ICICIdirect.com Research

Expect growth to moderate further in FY14E, normalise in FY15E Sintex, in line with its strategy, has reported de-growth in the monolithic construction segment and performed better in prefab & custom moulding overseas business. Going forward, the monolithic segment would continue to post de-growth. Prefab will be driving the sales growth coupled with custom mouldings domestic, demand for which is expected to normalise in the next year with revival in the automotive sector. We expect revenue to grow at a CAGR of 11.7% during FY14-15E.
Exhibit 3: Segmental revenue (annually)
| Crore
Due to scaling down of operations in the monolithic segment and slowdown in domestic custom moulding business, we expect sales growth to moderate further to 7.7% in FY14E and normalise from FY15E onwards once macro improves

FY10 720.0 59.3 564.5 -17.4 161.4 14.5 544.6 15.4 946.1 0.2 345.0 -7.0 3281.6

FY11 1338.3 85.9 647.1 14.6 198.5 23.0 677.9 24.5 1176.4 24.3 436.9 26.6 4475.1

FY12 1086.9 -18.8 722.0 11.6 223.0 12.3 822.0 21.3 1115.0 -5.2 468.0 7.1 4436.9

FY13 1002.4 -7.8 975.0 35.0 271.0 21.5 1061.0 29.1 1298.0 16.4 472.3 0.9 5079.7

FY14E 748.0 -25.4 1243.0 27.5 328.1 21.1 1158.4 9.2 1515.2 16.7 489.3 3.6 5482.0

FY15E 710.0 -5.1 1541.3 24.0 360.9 10.0 1448.0 25.0 1742.5 15.0 533.4 9.0 6336.0

CAGR (FY13-15E) -15.8 25.7 15.4 16.8 15.9 6.3 11.7

Monolithic consn YoY Growth (%) Prefabs* YoY Growth (%) Storage tanks YoY Growth (%) CM - Domestic** YoY Growth (%) CM - Overseas*** YoY Growth (%) Textiles YoY Growth (%) Total

Source: Company, ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research

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Margins to remain under pressure led by change in business mix The company is scaling down its operations in the monolithic segment due to high working capital requirement and expansion of its global footprint in custom moulding through acquisitions in Germany and Poland, which are low cost destinations. Due to this change in business mix and slowdown in the domestic automotive segment, we expect margins to remain under pressure in FY14E. We expect an EBITDA margin of 14.4% in FY14E. However, the same is likely to improve to 15.7% in FY15E led by synergy benefits from new acquisitions and easing of working capital by clearing slow moving sites in the monolithic business segment.
Exhibit 4: Segmental margins (Annually)
| Crore Monolithic consn EBITDA Margin (%) Prefabs EBITDA Margin (%) Storage tanks EBITDA Margin (%) CM - Consol* EBITDA Margin (%) Textiles EBITDA Margin (%) Total YoY Growth (%) EBITDA Margin (%) FY10 136.8 19.0 93.6 16.6 16.1 10.0 218.5 14.7 69.0 20.0 534.1 1.6 16.2 FY11 283.9 21.2 128.4 19.8 19.1 9.6 270.4 14.6 113.0 25.9 814.8 52.6 18.2 FY12 162.6 15.0 147.1 20.4 22.7 10.2 291.9 15.1 105.7 22.6 716.0 -12.1 16.1 FY13 158.1 15.8 174.6 17.9 27.4 10.1 311.7 13.2 87.6 18.5 754.5 5.4 15.1 FY14E 104.7 14.0 273.8 22.0 31.9 9.7 276.5 10.3 101.8 20.8 788.7 4.5 13.7 FY15E 99.4 14.0 311.1 20.2 37.9 10.5 433.3 13.6 117.3 22.0 999.1 26.7 15.8 15.1 15.7 17.9 17.7 33.5 CAGR (FY13 15E) -20.7

Source: Company, ICICIdirect.com Research

* (Domestic and overseas combined)

Plan to expand capacity in textile division The company plans to set up a spinning unit of the textile division in Gujarat on the back of the new textile policy of the state government wherein substantial subsidies in tax and interest costs are being provided. The proposed 3,00,000 spindle spinning project will entail a capex of ~| 1,800 crore (thumb rule of | 600 crore per 1,00,000 spindles) and take 24 months to complete. The company is expecting an RoIC of ~18-20% from the project. The plan is still in the evaluation stage and the management would give a clear picture on the proceedings in the next quarter after a detailed study of expected returns from the proposed project. If implemented, the company may hive off the textile division from existing operations. However, this is certainly going to put pressure on the return ratios in the implementation phase.

ICICI Securities Ltd | Retail Equity Research

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Valuations
At the CMP of | 39, the stock is trading at 4.9x FY14E EPS and 3.3x FY15E EPS. On an EV/EBITDA basis, the stock is trading at 5.1x FY14E EBITDA and 3.8x FY15E EBITDA. With downsizing of the monolithic business along with slowdown in domestic custom moulding business, we expect revenue growth to moderate further to 7.7% (vs. our previous estimate of 14.3%) in FY14E. Given the slowdown in the domestic business (except prefab), the proposed spinning business (plan outlay of | 1,800 crore), if implemented, would also likely put further pressure on return ratios over the next 12-18 months. Hence, we remain cautious and downgrade our rating to HOLD from BUY with a revised target price of | 35/share (valuing it on an SOTP basis).
Exhibit 5: SOTP valuation
Target EV/EBITDA Building Material Monolithic Construction Prefabs (Standalone) Tanks Total Custom Molding Textiles Total Net Debt Target Market Capital No. of Shares Target Price | Crores | Crores Crores | per share 3.5 2.5 433 117 2.0 4.5 3.0 99 311 38 199 1400 114 1713 1517 293 3523 2435 1087 31 35 EBITDA (FY15E) Target EV

Source: Company, ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research

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Financial summary
Profit and loss statement
(| Crore) (Year-end March) Total operating Income Growth (%)
Raw material cost Pur. of traded goods Employee cost Others cost

Cash flow statement

(| Crore) (Year-end March) Profit after Tax Add: Depreciation (Inc)/dec in Current Assets Inc/(dec) in CL and Provisions CF from operating activities (Inc)/dec in Investments (Inc)/dec in Fixed Assets Others CF from investing activities Issue/(Buy back) of Equity Inc/(dec) in loan funds Dividend paid & dividend tax Inc/(dec) in Sec. premium Others CF from financing activities Net Cash flow Opening Cash Closing Cash FY12 306.6 167.8 -700.0 66.4 -159.1 235.2 -511.8 49.1 -227.5 0.0 180.9 0.0 0.0 -59.9 120.9 -265.7 986.3 720.6 FY13 323.8 205.4 -513.3 -71.6 -55.7 12.0 -446.0 186.3 -247.7 32.3 99.4 -25.6 0.0 146.2 252.3 -51.0 720.6 669.5 FY14E 333.3 223.6 -156.3 -4.6 396.1 0.0 -350.0 -44.0 -394.0 0.0 0.0 -25.6 0.0 -87.0 -112.6 -110.6 669.5 559.0 FY15E 496.1 231.0 -411.0 166.9 483.1 0.0 -180.0 -23.2 -203.2 0.0 -100.0 -36.6 0.0 0.0 -136.6 143.2 559.0 702.2
FY12 4,453.5 -0.7 2397.9 186.3 512.0 640.7 3,736.8 716.7 -12.1 167.8 135.8 50.5 45.6 417.9 116.0 306.6 339.6 -23.6 12.5 FY13 5,107.6 14.7 2863.6 157.4 590.2 727.1 4,338.4 769.3 7.3 205.4 146.2 59.8 90.3 387.2 66.9 323.8 398.6 17.4 12.8 FY14E 5,499.9 7.7 2986.0 172.9 749.3 800.8 4,709.0 790.9 2.8 223.6 173.8 34.7 3.7 424.5 91.8 333.3 333.3 -16.4 10.8 FY15E 6,367.1 15.8 3476.9 200.2 867.5 823.4 5,368.0 999.1 26.3 231.0 177.2 53.5 0.0 644.3 148.2 496.1 496.1 48.8 15.9

Total Operating Exp. EBITDA Growth (%) Depreciation Interest Other Income Exceptional items PBT
Total Tax

Reported PAT Adjusted PAT Growth (%) Adjusted EPS (|)

Source: Company, ICICIdirect.com Research

Source: Company, ICICIdirect.com Research

Balance sheet
(| Crore) (Year-end March) Liabilities Equity Capital Reserve and Surplus Total Shareholders funds Total Debt Deferred Tax Liability Minority Interest / Others Total Liabilities Assets Gross Block Less: Acc Depreciation Net Block Capital WIP Total Fixed Assets Goodwill Investments Inventory Debtors Loans and Advances Cash Total Current Assets Creditors Provisions Total Current Liabilities Net Current Assets Application of Funds 3,696.8 1,083.4 2,613.4 280.0 2,893.4 217.9 142.3 395.5 1,653.5 965.4 720.6 3,735.0 771.4 359.4 1,130.8 2,604.1 5,857.7 4,144.9 1,288.8 2,856.1 280.0 3,136.1 215.7 130.3 453.1 1,780.6 1,294.0 669.5 4,197.2 930.9 128.4 1,059.2 3,138.0 6,620.2 4,624.9 1,512.4 3,112.5 150.0 3,262.5 215.7 130.3 476.1 1,903.4 1,304.4 559.0 4,243.0 929.2 125.4 1,054.7 3,188.3 6,796.8 4,804.9 1,743.4 3,061.5 150.0 3,211.5 215.7 130.3 600.1 2,169.9 1,325.0 702.2 4,797.2 1,076.3 145.3 1,221.6 3,575.6 7,133.2 27.1 2,621.1 2,648.3 2,954.7 -41.0 295.8 5,857.7 59.4 3,065.6 3,125.0 3,054.1 -45.9 486.9 6,620.2 59.4 3,286.2 3,345.7 3,054.1 -49.9 446.9 6,796.8 59.4 3,745.8 3,805.2 2,954.1 -53.1 426.9 7,133.2 FY12 FY13 FY14E FY15E

Key ratios
(Year-end March) Per share data (|) Adjusted EPS Cash EPS BV DPS Cash Per Share Operating Ratios (%) EBITDA Margin PAT Margin Inventory days Debtor days Creditor days Return Ratios (%) RoE RoCE RoIC Valuation Ratios (x) P/E EV / EBITDA EV / Net Sales Market Cap / Sales Price to Book Value Solvency Ratios Debt/EBITDA Debt / Equity Current Ratio Quick Ratio 4.1 1.1 3.3 2.7 4.0 1.0 4.0 3.3 3.9 0.9 4.0 3.5 3.0 0.8 3.9 3.4 3.4 4.7 0.8 0.3 0.4 3.7 4.6 0.7 0.2 0.4 3.6 4.6 0.7 0.2 0.4 2.4 3.4 0.5 0.2 0.3 11.6 9.8 8.1 10.4 9.1 8.1 10.0 8.9 7.4 13.0 11.4 9.5 16.1 7.6 31.8 136.0 63.5 15.1 7.8 30.5 128.0 66.9 14.4 6.1 31.0 127.0 62.0 15.7 7.8 31.0 125.0 62.0 12.5 17.5 97.7 0.0 26.6 12.8 17.0 100.4 0.7 21.5 10.8 17.9 107.5 0.7 18.0 15.9 23.4 122.3 1.0 22.6 FY12 FY13 FY14E FY15E

Source: Company, ICICIdirect.com Research

Source: Company, ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research

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Company Description
Sintex Industries operates in two business segments: plastics and textiles. The textile segment is engaged in the manufacture of fabric and yarn. The companys plastics segment is engaged in the manufacture of water tanks, doors, windows, prefabricated structures, sections, BT shelters and custom moulding. SIL has an installed capacity to produce 4.99 crore kg of thermoplastic powder moulding and 3.88 crore kg of extruded thermo-plastic sections.
Exhibit 6: Recommendation History
120 100 80 60 40 20 0 Jul-12 Sep-12 Oct-12 Dec-12 Price Jan-13 Mar-13 Apr-13 Jun-13 Jul-13

Target Price

Source: Company, ICICIdirect.com Research

Exhibit 7: Recent Releases

Date 5-Jul-12 16-Jul-12 8-Oct-12 12-Oct-12 11-Jan-13 9-May-13 Event Q1FY13 Result Preview Q1FY13 Result update Q2FY13 Result Preview Q2FY13 Result update Q3FY13 Result update Q4FY13 Result Update CMP 67 66 71 74 71 52 Target Price 68 71 71 71 80 67 Rating HOLD HOLD HOLD HOLD BUY BUY

Source: Company, ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research

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RATING RATIONALE

ICICIdirect.com endeavours to provide objective opinions and recommendations. ICICIdirect.com assigns ratings to its stocks according to their notional target price vs. current market price and then categorises them as Strong Buy, Buy, Hold and Sell. The performance horizon is two years unless specified and the notional target price is defined as the analysts' valuation for a stock. Strong Buy: >15%/20% for large caps/midcaps, respectively, with high conviction; Buy: >10%/15% for large caps/midcaps, respectively; Hold: Up to +/-10%; Sell: -10% or more;

Pankaj Pandey

Head Research ICICIdirect.com Research Desk, ICICI Securities Limited, 1st Floor, Akruti Trade Centre, Road No. 7, MIDC, Andheri (East) Mumbai 400 093 research@icicidirect.com

pankaj.pandey@icicisecurities.com

ANALYST CERTIFICATION
We /I Rashesh Shah CA, Ricky Gupta MBA, research analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our personal views about any and all of the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report. Analysts aren't registered as research analysts by FINRA and might not be an associated person of the ICICI Securities Inc.

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