Multibagger: Sintex Industries

BUY

Sintex Industries
Cluster: Apple Green
Recommendation: Buy
Price target: Rs400
Current market price: 259

Sintex back on the buying list

Key points

* Monolithic business to drive revenue growth: Sintex Industries (Sintex), known for its water tanks, has pioneered the concept of monolithic construction in India and is the market leader in this segment. The business of monolithic structures, used in low-cost housing, is expected to drive Sintex’ revenue growth in future, on the back of the rising need for affordable and mass housing in India. This business division currently has orders of close to Rs1,400 crore and its revenues are estimated to grow at a CAGR of 98% over FY2008-10E.

* Acquisitions strengthen portfolio of plastic products: Sintex has acquired five companies since May 2006, spread across geographies and catering to niche markets. These acquisitions have been timely and would help Sintex to absorb latest technologies as well as expand its reach and customer base in the composite plastic business. The integration of all these companies can lead to substantial benefits in terms of leveraging of the acquired assets and expansion of the client base.

* Prefabs, another feather in the cap: Sintex’ pre-fabricated products are gaining fast acceptance in the country. There is a huge demand for these products which are increasingly finding use in primary school buildings, toilets and telecom tower shelters. Logistics remain a key to success here. Sintex is also increasing its prefabs capacity to 100,000 sq ft per day. The business is expected to grow at a CAGR of 45% over FY2008-10E.

* We re-initiate a Buy: We are re-initiating coverage on Sintex because at the current market price the stock is attractive, given that the company’s earnings per share (EPS) are estimated to grow at a CAGR of 34.7% over FY2008-10. Our price target of Rs400 for the stock is based on the average of our DCF and SOTP valuations. At our target price the stock would discount its fully diluted FY2010 EPS by 12.9x and quote at an EV/EBIDTA of 6.9x.