Accumulate Sintex Industries Target 200-240

th

16 April, 2009

Sintex Industries

India

CMP:

Sovid Gupta

+911243024840 Equity Analyst: Fairwealth Securities Private. Ltd.

Hunny Tarika

+911243024810 Technical Analyst: Fairwealth Securities Private. Ltd.

Rs. 137

Target:

Rs. 240

Sintex Industries, with strong balance sheet and and huge cash balance is well Equipped to manage current challenging business Equipment. We estimates Sintex Industries to post net sales of 3300 crores and 4200 crores for for FY09 and FY10 respectively, posting compounded growth rate of 40% for 4 years. At current market price market price of 137 stock is trading at 6.2x and 5x its FY09 and FY10 estimated earnings. We initiate an accumulate rating on Sintex with a target price of 200 and 240 with an upward bias. We recommend investors to buy on dips.

Priced on April 16th , 2009 ±% potential Target set on

40%+ th

16 April

Market Data Beta 12M hi/lo Market cap, INR Crores Shares in issue (mn.) Reuters Bloomberg

Our valuation is based on expected EV/EBITDA of 5 for FY09. Proft margins for for FY09 are expected to be lower at around 9.5% its FY09 sales on account of Higher Raw material prices.

.977 519/83 1856 136

Q4 Earnings Estimates: We expect company’s topline to remain flat with no growth.While profits are expected to rise by 18%, to reach 105 crores from Q4 FY08 earnings of 89 crores.

BVML SNTX.BO

Rise in profiits can be attributes to lower raw material costs. Flat growth in sales point to tough economic conditions lowering the overall growth. Going forward sales are expected to face tough head winds from new areas however strong orderbook in legacy businesses like prefab and monolithic structures will ensure strong revenues growing forward.

Share Holding Pattern (%) Promoters FII Domestic Inst. & Corp Bod. Public & Others

Fairwealth Securities

30% 41% 23% 6%

Page 1

Buy-Sintex Industries

Quarterly Result Round up: Q3 FY09

Q3 FY08

505.8

387.9

30%

438.9

15%

28.5

6.7

323%

24.7

15%

534.3

394.7

35%

463.6

15%

123.3

95.1

30%

119.7

0.2

0.2

(-100bps)

0.3

21.5

17.3

25%

15.0

43%

101.7

77.8

31%

104.7

-3%

15.5

13.0

20%

15.4

1%

86.2

64.8

33%

89.3

-3%

23.1

9.5

145%

21.1

10%

63.1

55.4

14%

68.2

-8%

Quarterly Standalone Results

Sales Textile Plastics Others TOTAL

94.5

93.0

1.66

414.3

296.0

39.96

0.0

0.0

0.00

508.8 389.0 PBIT

30.80

Other Income Operating Total Income Operating Profit OPM Margin(%)

Textile

19.6

20.3

-3.31

Plastics

63.6

59.1

7.58

Others

0.0

0.0

0.00

83.2 79.3 PBIT Margin(%)

4.80

TOTAL

Net Sales

Interest PBDT Depreciation PBT

Textile

20.7

21.8

110bps

Tax

Plastics

15.3

20.0

470bps

PAT

Others

0.0

0.0

0.0

TOTAL

16.3

20.4

400bps

Source: Capital Line

Extra-Ordinary PAT EPS

Y-o-Y Growth( %)

Q2 FY09

QoQ(%)

3% (-250bps)

0.0

0.0

63.1

55.4

14%

68.2

0.0 -8%

4.7

4.6

2%

5.0

-8%

Source: Company Data, Capital Line

Result Analysis: Margins for Q3 fell sharply by 400 bps. Margins depreciated on account of inventory write downs. We have treated this as a recurring expenses and company will take benefit of the same in Q4 Earnings which we expect to post higher margins. Sales om Stand alone basis increased by 31% while margins expanded by 7.6% on standalone basis. Interests costs increased by 25% on Y-o-Y basis to 25 crores. Topline growth was primarily driven by strong growth in Plastics segment. Other Income of Rs. 25 crores in creased from Rs. 6 crores on account of Interests on deposits. Subsidiaries performance was satisfatctory during the quarter with the sale of Zepplin Mobile increased by 117% on a sequential basis. Interest’s costs increased by 25% to 21 crores on account of higher borrowing costs and increased loans for working capital.

Fairwealth Securities

Page 2

Buy-Sintex Industries

Company Description Sintex is the largest manufacturer of range of plastic applications. With a well diversified portfolio and a very little competition in palce it stands a market leader in Indian plastic proecessing industry.manufactures a wide range of products and manufactures a range of products including custom moldings for various industries, pre-fabricated and monolithic structures for temporary and permanent housing solutions, automotive components for vehicles, trains, aircrafts and marine applications.Plastic division contributes to around 85% of company’s revenues Sintex has 9 manufacturing plants across India with 70% market share in storage tanks and 60% in prefabricated structures.

Outlook and Valuation We expect Plastic segment of the company to continue to show robust growth with increased contribution from Prefab and monolithic structures for housing and storage tank division to contribute maximum in future growth which have an order book of more than 1500 crore to be executed till FY10E.. We expect a healthy topline growth of 35% CAGR over FY08-FY10E. business segment is likely to slowdown. Also high textile segment grwoth is expected to slowdown we expect a growth of low single digits. We expect company to trade between 8-10 P/E ratio and EV/EBITDA levels of around 8 during FY10E.

Valuation Ratios FY07 Total Income EBITDA EBIT EBIT PAT Pat Margin(%) AEPS EV/EBITDA P/E

FY08

FY09E

FY10E

1180 209.9 167.9 14.2% 93.8

2335 421.3 344.8 14.8% 210.7

3200 590 470 15% 272

3900 780 560 14% 347.1

7.9%

9.0%

8.50%

8.90%

11.8 10 11.2

16.8 5.5 8

21.7 4.6 6.1

27.7 4.4 5.1

Source: Company Reports, Fairwealth Research

Fairwealth Securities

Page 3

Buy-Sintex Industries

Investment Rational Strong Balance sheet Sintex has strong balance sheet with cash in hand of about Rs1600 crore and net debt to equity of 0.2. Sintex is expected to generate free cash of Rs 160 crore in FY10E. With strong cashflow and surplus cash in balance sheet. 900 crores of FCCB raised last year are convertible in 2013 Company planned to raise cash for expaning operations in US, these plans have been put on hold citing tough global conditions giving company ample opportunities to use cash elsewhere. At CMP of Rs137, the stock is trading at an attractive valuation of 5.3x FY10E earnings and 0.8x FY10E book value. Revenue Visibility Strong revenue visisbility in terms of housing requirement in rural and slum dwellings along with massive demand in Construction in slum dwellings would be a key growth are for the company. Company order book size of over 1500 crores is 7x times its FY08 revenues of 210 crores. With 9 manufacturing plants company will be able to cater to local demand at reduced logistics cost in its pre fabricated structure business. Foray into evolving busines: With market leadership in value added products comp[any has huge plans to enter new business where it can offer value added products in moulded plastics.With growing presence in US and EU company will aslso be able to tap grwoth opportunities globally.

TECHNICAL OUTLOOK: Sintex Industries

Source:Meta Stock

SINTEX INDUSTRIES has given a breakout above 106 levels .A look at the stock,s RSI shows that it is trading in an overbought zone. So we recommend to buy the stock on dips at around 125 & then 112, for a price Target of 160 and then 200.

Fairwealth Securities

Page 4

Buy-Sintex Industries

Key Risks: Greiger Technik Sintex announced the acquisition of Geiger Technik (Germany based auto custom molding company) in Aug.08 at an EV of 35.6mn Euros. At the time of acquisition EUR 120 million turnover company had EBITDA margins of 7.5%. Auto Industry slump in European markets has pushed the company into red, following which Geiger has filed for preliminary bankruptcy recently. Sintex has already paid USD 10 million In case company winds off Sintex will have to write down the same.. Raw Material: Raw Material Costs around 55% of total sales and 65% of total Expenditures. High volatility in Commodity prices will make it diffcult for Sintex to manage costs. Global Scenario Continuous expansion has led to substantial revenue from Global operations. Current economic scenario is putting alot of pressure on bottomlines of these once profitable companies. Also currency volatility will put pressure in terms of managing/ hedging these risks. FCCB st

Company has a total debt of 1900 crores as on 31 march FY08. Out of this 900 crores was raised through convertible bonds at USD - INR of 40.5 convertible at Rs. 580 per Equity share. With share price at 137 conversion seems unlikely and redemption at 30% above issue price (Interests plus priciple at current exchange rate of 50).

Sintex Industries stock price fell by over 85% th upto 9 March’09, while during the same time Nifty fell by less than 50%. Fundamentally there is no reason for such deep correction in the stcok price. As a result of such sharp correction stock has th risen by 90% till 16 April. Stock still trades at 75% discount from its january high of Rs. 575. th

Stock closed at CMP of Rs.137 on 16 April.

Source: Capital Line

Fairwealth Securities

Page 5

Buy-Sintex Industries Annexure: Fund Flow Statement:

1. Income Statement: 2008(12) INCOME Net Sales Other Income Total Income EXPENDITURE : Raw Materials Employee Cost Selling and Admin. Expenses

2275.5 60.1 2335.5 1300.0 203.3

1163.1 26.9 1190.0 690.0 45.0

79.8

44.2

Other Manufacturing Expenses

133.0

76.0

Power and Fuel Cost

72.4

46.8

1914.3 421.3

Total Expenditure Operating Profit Interest

Minority Interest

20.3

4.1

Secured Loans

938.2

516.9

Unsecured Loans

988.1

172.3

Total Debt

1926.3

689.1

Total Liabilities

3438.0

1346.1

APPLICATION OF FUNDS 1387.2

649.5

Net Block

325.2

188.6

302.2

150.6

Sundry Debtors

793.8

233.4

Cash and Bank

42.0

280.4

126.4

69.8

Net Profit EO Items & Min. Interest Adj Net profit

1371.3

390.1

Loans and Advances

161.5

67.1

32.7

Total Current Assets

2628.7

841.1

210.7 12.2

93.8 2.0

198.5

91.8

Less : Current Liabilities and Provisions Current Liabilities

656.3

265.8

16.8

11.8

Provisions

396.1

37.3

58.9

Total Current Liabilities

1052.4

303.1

Net Current Assets

1576.3

538.1

Net Deferred Tax

-106.9

-72.4

Total Assets

3438.0

1346.1

62.6

29.0

110.1

Source: Company Report, Capital Line

Contingent Liabilities

2. Cash Flow Statement:

Source: Company Report, Capital Line 200803

Net Cash Used in Financing Activities Net Inc/(Dec) in Cash and Cash Equivalent Cash and Cash Equivalents at End of the year

653.0

Current Assets, Loans & Advances Inventories

76.5

Net Cash Used in Investing Activities

1491.4

Investments

Depreciation

Net Cash from Operating Activities

Total Shareholders Funds

209.9 41.5

Cash and Cash Equivalents at Beginning of the year

630.8

980.1

168.4

Book Value

1464.3

40.3

64.3

EPS after Min. Int

22.2

Reserves Total

Share Capital

255.0

356.9

Tax

200703

SOURCES OF FUNDS : 27.1

Capital Work in Progress

Gross Profit Profit Before Tax

200803

2007(12)

200703

578.71 514.06 58.61 140.39 -971.14 -229.66 2048.23 153.92 1135.7

64.65

1714.41

578.71

Source: Company Report, Capital Line

Fairwealth Securities

Page 6

Buy-Sintex Industries Coverage:

Our Stock coverage and Returns. Stock

Target

Set Date Educomp

22-Jan-09

Havells

30-Jan-09

Jaiprakash Associates

12-Feb-09

Lupin

3-Feb-09

Tata Steel

6-Mar-09

M&M

12-Mar-09

Unitech

25-Mar-09

Punj Lloyd

30-Mar-09

Price as on Call date

Target Price 2750 280 110 780 250 440 51 120/145

Stock

Sensex

Price on 2nd April

Stock

1715 115

8814 8325

2219.3

73 630 152 345 34 85

9466 8607 8325 8344 9667 9549

112.85

163.9

696.35 269.1 454.5 43.2 120.95

% return absolute

Stock

% return Relative to Sensex

Sensex

29.4% 42.5%

24.2% 31.5%

5.2% 11.0%

54.6% 10.5% 77.0% 31.7% 27.1% 42.3%

15.6% 27.2% 31.5% 31.2% 13.2% 14.6%

38.9% -16.7% 45.5% 0.5% 13.8% 27.7%

Note: Based on 16th April Sensex closing of 10947 Note: All calls are initial/ first time calls Note: All reports can be accesed on our website under http://www.fairwealth.in/Research.aspx

Note: Fundamental and Technical reports are independently given and investors are advised to take their decision based on their investment profile and holding periods.

Disclaimer This publication has been prepared solely for information purpose and does not constitute a solicitation to any person to buy or sell a security. While the information contained therein has been obtained from sources believed to be reliable; investors are advised to satisfy themselves before making any investments. Fairwealth Securities Pvt Ltd does not bear any responsibility for the authentication of the information contained in the reports and consequently, is not liable for any decisions taken based on the same. Further, Fairwealth Research Reports only provide information updates and analysis. All opinion for buying and selling are available to investors when they are registered clients of Fairwealth Investment Advisory Services. As a matter of practice, Fairwealth refrains from publishing any individual names with its reports. As per SEBI requirements it is stated that, Fairwealth Sec Pvt Ltd., and/or individuals thereof may have positions in securities referred herein and may make purchases or sale while this report is in circulation.

Fairwealth Securities

Page 7