Sintex Industries Limited
Current Price: Rs. 180, Target Price: Rs. 290
Why Sintex?While investing in mid-tier companies, the key is to identify those that have certain core competencies, industry leadership, and a long-term track record of outperforming their sector. We believe Sintex is one of them.
We believe that Sintex is a play on India's housing and infrastructure sector in the long-term. India is a country where water is a scarce commodity in large number of areas and, therefore, there is an ardent need to store the same, safely, and for a longer period of time. And this is unlikely to change in the future. This is one fundamental growth driver for the company. Sintex, through its prefab business, also caters to the need of other focused sectors of the government, like education and affordable housing for the common man. Also, with increased demand for lightweight plastic components from the automobile industry, and protective shelters from telecom and power companies (as these are more cost effective and less time consuming in terms of installation and construction), Sintex's plastics business is on for a superior growth going forward.
As far as the company's textiles business is concerned, we believe that Sintex has differentiated itself from others by focusing on noncommoditised textile space, which is what we are enthused about. For starters, in the textile business, Sintex does not have a direct market presence. Rather, it has positioned itself as supplier to international and domestic design houses of repute. Despite significant increase in competition over the last decade, Sintex has been able to move into newer segments, thereby consolidating its market share. On an overall basis, Sintex's story is that of innovation in the usual
(plastics) and extension and differentiation in the niche (structured fabric). We, thus, believe that the stock should be a part of portfolios of long-term investors.
Background: Sintex Industries Limited is a dominant player in the plastic and textile business segments. The Company
manufactures a range of plastic products at its 8 plants across India. These broadly fall under the categories of water storage tanks (19% of plastic revenues), pre-fabricated structures (49%) and industrial custom molding (26%). In the textile business, the company is focused on niche offerings, possessing specialisation in men's structured shirting in the premium fashion category wherein it enjoys leadership position in India. The company has a long-lasting relationship with international design majors like Canclini (35% of textile revenues) and Indian companies like ITC Wills and Pantaloons, and has benefited from the same in the past. It is also Asia's largest manufacturer of corduroy fabrics (9% of textile revenues). During the period between FY03 and FY06, Sintex has grown its topline and bottomline at compounded rates of 25% and 57% respectively.
Valuation:At the current price of Rs 180, the stock is trading at a price to earnings multiple of 9.5 times our estimated FY09 earnings. This looks attractive, considering the strong visibility in company's topline and bottomline growth over the next few years. As a matter of conservatism, we have diluted the company's share capital to the fullest, by assuming full conversion of the warrants and FCCBs in FY07. We recommend a 'BUY' on the stock with a target price of Rs 290 from an FY09 perspective. Over the current stock price, this indicates a compounded annual return of 20%. We shall reiterate that Sintex shall be a part of long-term investors' portfolio considering its niche focus in textiles and leadership position in plastics. The company also has high innovative content and deep domestic and global relationships working in its favour in both these divisions, which act as entry barriers for new players and provides the company with competitive advantages against the existing ones.
