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Govt’s infra, social focus a buoy for Sintex

Monday, 3 January 2011 - 4:56am IST | Place: Mumbai | Agency: dna

Sintex Industries Ltd, a dominant player in the plastic and textile business in India stands to benefit from rising infrastructure spend and government focus on social initiatives.

Sintex Industries Ltd, a dominant player in the plastic and textile business in India stands to benefit from rising infrastructure spend and government focus on social initiatives.

Incorporated in 1931, primarily as a textiles company, Sintex diversified into the plastics business in 1974, manufacturing water tanks. Later on, it also started manufacturing plastic products such as doors, custom moldings and building material, taking the inorganic route to scale up operations.

Today, Sintex has 36 manufacturing plants with a presence in 9 countries across 4 continents. The company’s core business can be broadly classified into two segments — plastics and textiles.

Plastics: This segment contributes around 90% to the company’s sales revenue and has become its main growth driver in recent times. The company has transformed from a products manufacturer to a provider of infrastructure solutions.

The segment can be sub-divided into building materials (monolithic construction, prefabricated structures, storage tanks and containers, doors, windows and profiles) and custom moldings.

i. Monolithic construction: This segment, which caters to mass housing projects, is the fastest growing segment for Sintex and contributes around 23% to overall revenues.

ii. Prefabricated structures: Prefabs contribute around 17% to its consolidated revenues. Sintex is the largest player in domestic prefabs market with 5 plants in India and executing projects across 16 states. The demand mainly comes from government focus on developing primary school buildings, healthcare centres and sanitation blocks. The company has also launched new products like godowns, work shelters, cold chains, agri sheds and industrial sites, which are seeing higher growth driven by private investment.

iii. Custom molding: This business encompasses manufacturing of customised plastic composites across several applications and sectors like aerospace, defence, electrical, automotive, mass transit, medical imaging etc. The company has over the last 2 years acquired companies like Bright Autoplast (India), US-based Wausaukee Composites & Nero Plastics, Europe-based Nief Plastics and Geiger Technik (Germany), which has enabled it to establish a strong international footprint across 4 continents and 10 countries. This segment, which contributes around 40% to overall revenues, offers high business potential as high-strength plastics are fast replacing metals across sectors.

Textiles: This segment now contributes barely 10% to sales revenues and overall operating profit. The company manufactures of high-end structured dyed-yarn fabrics for men’s shirting and ladies wear, and for industrial applications.

Investment rationale
The company’s strong order book in the monolithic segment and diversified presence across states provide decent revenue visibility over the next two years. The considerable increase in investment by the government on rural infrastructure, healthcare and education provide excellent scope for business growth in plastics segment. Monolithic construction is also seeing preference in low-cost mass-housing projects, which puts Sintex in a favourable position.

Moreover, the company is looking to establish itself as a real estate developer to offer low-cost housing solutions under its own brand name. Recently, it has acquired 30% stake in Durha Constructions Private Ltd, a north-based construction player, to strengthen its monolithic business and help in building presence in infrastructure sector. This would help improve its revenues as the acquired company has an order book of close to Rs750 crore.

Increased cost of raw materials like cotton, polymers and naphtha in its textiles business may impact the margins, but Sintex would be able to pass on the hike to end customers.

Plastics being a low-entry barrier business, there is competition from regional players, but the company should be able to tackle the same due to its established relationships and developed product profile. On the financials side, though, it has high working capital and faces FCCB conversion pressure, leading to earnings dilution.

Driven by steady growth and strong order book in its monolithic and prefab segments, Sintex’s revenues are expected to grow at a CAGR of 23% and net profits at a CAGR of 26% over FY10-FY12E. At the current market price of Rs182.25, the stock trades at 11.73 and 9.41 times its expected FY11E & FY12E earnings, respectively. In view of its diversified portfolio, wide presence, strong order book position and reasonable fundamentals, Sintex can be considered at current levels from a medium-to-long term perspective.

Disclaimer: The writer does not hold any shares in the company

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