Sintex Industries - Initiating Coverage - AceAnalyser Meet/102742_20080924.pdf · Emkay Research Sintex Industries Ltd. Conglomerate in the making 24th September, 2008 Paragon Center,

EmkayResearch

Sintex Industries Ltd.

Conglomerate in the making

24th September, 2008

Paragon Center, H -13 -16, 1st Floor, Pandurang Budhkar Marg, Worli, Mumbai – 400 013. India

Init

iati

ng

Co

ve

rag

e

Amit Golchha

[email protected]

+91-22-66242408

BUY

Price TargetRs281 Rs418

Sensex - 13,570

Price Performance

(%) 1M 3M 6M 12M

Absolute (8) (21) (19) (18)

Rel. to Sensex (3) (17) (3) 2

Source: Bloomberg

Stock Details

Sector Diversified

Reuters SNTX.BO

Bloomberg BVML@IN

Equity Capital (Rs mn) 273

Face Value (Rs) 2

No of shares o/s (mn) 136

52 Week H/L (Rs) 615/246

Market Cap (Rs bn/USD mn) 38/831

Daily Avg Vol (No of shares) 310340

Daily Avg Turnover (US$ mn) 2.1

Shareholding Pattern (%)

30/06/08 31/03/08 31/12/07

Promoters 29.2 29.2 30.7

FII/NRI 43.7 42.0 42.2

Institutions 16.3 15.5 14.8

Private Corp 4.4 6.7 4.8

Public 6.4 6.7 7.4

Source:Capitaline

Sintex Industries Ltd., is a conglomerate in the making, with businesses spread

across diverse verticals like textiles, plastics (custom moldings, water tanks, prefabs)

and construction. Strong growth drivers are likely to ensure rapid revenue growth

during the FY08-11E period, led by construction (93% CAGR), custom moldings (50%

CAGR) and prefabs (35% CAGR). Monolithic construction, with a Rs14bn order book, is

likely to be the major growth driver for Sintex. Led by consolidation of its recent

acquisitions in the short-term and successful integration in the long-term, the custom

moldings business lends strong visibility to future operations of the company. We

expect Sintex to report a revenue CAGR of 45% and adjusted PAT CAGR of 43% during

FY08-FY11E. We expect adjusted earnings per share of Rs21.8, Rs31.7 and Rs.41.1

during FY09E, FY10E and FY11E respectively. We initiate coverage on the stock with a

BUY rating and a price target of Rs418, which is based on the weighted average of;

1) DCF (Weight - 50%), 2) SOTP (Weight - 25%) and 3) historical average* 1 yr fwd PER

(Weight - 25%).

Construction, with strong visibility- to be the key growth driver: The overwhelming

response to Sintex's monolithic construction venture has resulted in a Rs.14bn order

book (6.7x FY08 construction revenues). Sintex is planning to invest Rs 7.8bn to augment

its execution capabilities. Led by a strong order book and high capex, we expect a 93%

CAGR in revenues during FY08-FY11E. With Sintex being the first mover in the business

coupled with NHB rating monolithic as the best solution for low income housing, we

expect the company to be a major beneficiary of the huge opportunities ahead.

Custom moldings to be the future of Sintex: Sintex's recent acquisitions have enabled it

to have a rich and diverse client base in multiple geographies. We expect the custom

molding segment to be the future growth driver of Sintex. Huge substitution potential

coupled with successful integration of its acquisitions is likely to make Sintex a global

player in the custom moldings segment. We expect revenues to grow at 50% CAGR

during FY08-FY11E.

Prefabs could prove to be a dark horse: Prefabs, though still at a nascent stage, has

immense potential to grow. We believe that prefabs could prove to be a dark horse for

Sintex. Led by aggressive expansion to the tune of 1.9x FY08 prefab capacities, we expect

revenue CAGR of 35% in the business during FY08-FY11E.

Consolidated ROACE to improve from 10.1% in FY08 to 14.6% by FY11E: Led by (1)

investment of cash in core operations and better deployment of cash & cash equivalents,

(2) higher contribution from construction vertical and (3) improvement in subsidiaries

performance, we expect the ROACE to improve from 10.1% in FY08 to 14.6% in FY11E.

Further, we expect the improvement in ROACE to traverse well beyond FY11E.

Equity dilution unlikely in the near term: Cash balance of Rs.16.9bn and strong internal

accruals in ensuing years puts Sintex in a sweet spot. We believe that, Sintex can fund its

organic as well as inorganic growth (upto Euro 150-200mn) during FY08-FY11E. This

keeps the risk to equity dilution at abeyance.

Net EBITDA AEPS** EV/ Div Yld ROE

YE-Mar Sales (Core) (%) APAT (Rs) EBITDA P/BV (%) (%) P/E

FY08 22742 3826 16.8 2172 14.2 9.5 2.4 0.4 17.7 18.7

FY09E 39513 6030 15.3 3338 21.8 6.0 2.0 0.5 17.0 12.8

FY10E 55754 8590 15.4 4850 31.7 4.2 1.7 0.7 20.7 8.9

FY11E 68637 10783 15.7 6292 41.1 3.4 1.4 1.0 22.0 6.8

Key Financials (Rs.mn)

* 3 year historical average. ** Calculated on fully diluted equity (excluding the warrants outstanding to the extent

money has not been received in to the company)

Pritesh Chheda, CFA

[email protected]

+91 22 6612 1273

24 September, 2008 2Emkay Research

Sintex Industries Ltd. Initiating Coverage

0

8000

16000

24000

FY93 FY98 FY03 FY08

Rs.m

n

0%

33%

66%

99%

Revenues Grow th (%)

Company Background

Sintex Industries Ltd. (Sintex) operates in three business segments - 1) textiles (structured

fabrics), 2) plastics (water tanks, custom moldings and prefabricated structures) and 3)

construction (monolithic construction). It also enjoys market leadership in all the verticals.

Sintex (earlier known as Bharat Vijay Mills (BVM)) was a textiles company in 1931 and later

diversified into the plastics business in 1974, with the manufacturing of water tanks.

Since then, the company has diversified into verticals like plastic products (prefabs, custom

moldings) and recently, into construction. It has adopted the inorganic way to scale up

operations in the custom moldings and prefab segments and has acquired 7 companies,

during the last two years. In the custom moldings segment, it has acquired Nief plastics

in France, WCI & Nero in US, Geiger Technik in Germany and Bright Brothers in India. In

the prefabs segment, it acquired Zeppelin Mobile Systems India and Digvijay

Communication to compliment the products & services provided by Zeppelin. Currently,

Sintex's operations are spread across 35 manufacturing sites, out of which 15 plants are

located in India and 20 outside India i.e. 5 plants in US, 7 plants in France, 3 plants in

Germany, 1 plant in Poland, 1 in Tunisia, 1 in Hungary, 1 in Morocco and 1 in Slovakia.

Sintex is a rare company that has reported consistent growth in revenues and profits over

the last 14 / 15 years. The company has reported a 24% CAGR in revenues and 32%

CAGR in PAT in the FY93-08 period. Further, the EBIDTA margins have risen by 650 bps in

the same time period, due to rising share of value added businesses.

Company Background

Source: Emkay Research, Company

Revenue CAGR of 24% during last 15 years


PAT CAGR of 32% during last 15 years


650 bps improvement in EBITDA margins during FY93-08


Plastics - lead contributor with 76% share in FY08

-600

150

900

1650

2400

FY

93

FY

98

FY

03

FY

08

Rs.m

n

-25%

0%

25%

50%

75%

100%

PAT Grow th (%)

0.0%

8.0%

16.0%

24.0%

FY93 FY98 FY03 FY08

Prefabs

29%

Custom

moldings

40%

Tanks

7%Textiles

15%

Monolithic

construction

9%

Plastics

76%

Sintex is a market leader in all the

verticals


Sintex Industries Ltd. Initiating CoverageInvestment Arguments

Investment Arguments

Monolithic construction business offers strong visibility & emergesas a key growth driver

The monolithic construction business has a Rs14bn order book, which is 6.7x FY08

construction revenues. The monolithic construction business, apart from lending strong

visibility to revenues during FY08-11E period, also promises immense growth potential.

Housing shortage of 25mn units in India coupled with government's thrust on low income

housing, present a lucrative Rs 4,000bn opportunity for Sintex's construction business.

Moreover, with NHB rating monolithic construction as the best solution for low income

housing, we expect this segment to grow in leaps and bounds (Refer annexure). Sintex's

early entry into the business gives it the competitive edge to garner a major chunk of the

opportunities ahead. Currently, Sintex is the only player in the Rs4bn monolithic construction

market in India with revenues of Rs2.1bn and Rs0.9bn during FY08 and Q1FY09

respectively. The Rs14bn order backlog includes a Rs.7.5bn order from GUDA* to construct

50,000 low cost houses across Gujarat. States like Chhattisgarh, Delhi etc. have also

evinced interest in the technology and are likely to follow the footprints of Gujarat. In a bid

to enhance execution capabilities, Sintex is investing close to Rs.7.8bn or 32% of the total

investments (Capex plus working capital) in FY08-FY11E period in the monolithic

construction vertical. Based on the current order book position, we expect the construction

vertical to contribute 32% of the incremental earnings during FY08-11E and emerge as a

key growth driver.

Total investment of Rs.7.8bn - With favorable response to the monolithic construction

venture, the order book has surged to Rs14 bn within two years of operations. The vertical

has witnessed robust order inflow resulting in over acceptance in the medium term.

Sintex has cut down on order intake in the medium term, owing to limited execution

capabilities. Therefore, Sintex plans to invest Rs.7.8bn in the above business during

FY08-FY11E (Rs.2bn as capex and Rs.5.8bn as working capital). The proposed investment

will augment the execution capabilities and enhance the scale of operations.

Fast-track growth in FY08-11E period - We expect revenues to grow at 93% CAGR in

FY08-FY11E, higher than the consolidated growth of 45% CAGR. The business will

contribute 28% to the incremental revenues in FY08-11E period, witnessing higher share

in revenue from 0% in FY07 to 9% in FY08 to 22% in FY11E. We expect EBITDA margins to

sustain at 17%, resulting in a 91% CAGR in EBITDA in FY08-11E period and contributing

23% to FY11E EBITDA. Consequently, PAT is likely to grow at 94% CAGR during FY08-11E

period with estimated earnings of Rs10 in FY11E. We expect the construction business to

contribute ~ 32% of the incremental earnings of FY08-11E and emerge as the key growth

driver.

Strong contributor to incremental ROACE during FY08-FY11E - We expect strong ROACE

in the construction business at 18 - 22%, higher than the consolidated ROACE of 10-15%

in FY08-11E period. The strong ROACE of the construction business is likely to contribute

significantly to the improvement in consolidated ROACE from 10.1% in FY08 to 14.6% in

FY11E. This is largely attributed to (1) revenue growth at 93% CAGR (2) better asset turns

and (3) stable and healthy EBITDA margins. We expect the construction business to

contribute an incremental ROACE of 0.1%, 0.9% & 0.2% during FY09E, FY10E & FY11E

respectively.

Construction contributes 22% to SoTP value: We have valued the monolithic construction

business at 7.0x FY10E EBITDA, in line with the average valuations of mid-cap construction

peers with similar growth triggers. With the FY10E EBITDA at Rs1.7bn, construction

business is valued at Rs12.1bn or Rs.79 per share. This is equivalent to 22% of the SoTP

value.

Sintex has a construction order book

of Rs14bn, which is 6.7x FY08

construction revenues

Expect an EPS of Rs10 from

construction business during FY11E


Sintex Industries Ltd. Initiating CoverageInvestment Arguments

Source: NHB's draft Aam Admi Awas Scheme and Emkay Research

NHB has rated monolithic as the best solution for low income housing

Technology type Cost Space Effective PriorityPer sq. utilization costmeter ratio (Rs. per(Rs) sq meter)

Bamboo and mud technology 1600 0.72 2222

Compressed stabilized earth block 2100 0.72 2917

Hollow block masonry with filler slab 4000 0.76 5263

Brick masonry with RCC slab 4500 0.72 6250

Fly ash brick masonry with RCC slab 4600 0.72 6389

In-situ wall - pre-cast 4750 0.76 6250 3RCC joist and slab

Prefab - RCC frame and wall panels 5000 0.82 6098 5

Prefab - steel frame and wall panels 5150 0.91 5659 4

Monolithic construction - 5250 0.88 5966 1plastic formwork

Monolithic construction - 5450 0.88 6193 2alum. formwork

Source: NHB's draft Aam Admi Awas Scheme and Emkay Research

Increase in housing shortage by 6% during 91-01


Construction revenue CAGR of 93% during FY08-FY11E


To constitute 22% of the consolidated revenues by FY11E


Expect margins to be stable


Construction to contribute 24% of FY11E consol. earnings

16.314.7 15.8

7.08.2 8.9

23.324.7

22.9

0

10

20

30

1981 1991 2001

Household

s (

Mn)

Overall Rural Urban

2100

4000

10000

15000

1721

361 669

2507

0

4000

8000

12000

16000

FY08 FY09E FY10E FY11E

Rs.m

n

Construction revenues Construction EBITDA

9% 10%

18%

22%

0%

10%

20%

30%


Construction as % of consolidated revenues

17.2% 16.7% 17.2% 16.7%

0.0%

10.0%

20.0%

30.0%


Construction EBITDA margins (%)

1.4 2.56.8

10.014.2

21.8

31.7

41.1

12%

22%24%

10%

0

9

18

27

36

45


EP

S (

Rs)

0%

8%

16%

24%

32%

40%

EPS from Construction Consolidated EPS

% of consolidated EPS



10.1%

0.2%0.9%

0.1%

9.4%

10.1%

10.8%

11.5%


Construction's contribution to incremental ROACE

Consolidated ROACE


Construction will attract 32% of total investments


Asset turns are expected to be higher


Construction ROACE to be higher than consolidated ROACE


Expected to contribute 1.2% to the incremental ROACE

Custom moldings: the future of Sintex

We believe that custom molding is likely to emerge as a stable and secure long-term

growth business for Sintex. The company is making large investments and has adopted

a mix of organic and acquisition-led multi-phased growth strategy. Sintex has made 5

acquisitions at a cost of Rs.7.7bn during the last one year, besides investing Rs.2.3bn in

its standalone custom molding operations. While its own custom moldings operations

cater to only automotive and electrical components, its acquisitions have enabled Sintex

to address diverse industries such as aerospace, wind power, aeronautics, defense,

consumer appliances etc. Thus, (1) armed with a rich client base (2) presence in the

global custom molding market and (3) strong substitution potential, we expect this segment

to be the future growth driver for Sintex. We expect Sintex to integrate the product offerings

of its acquired companies and leverage on its strong relationships with a wide client

base. Sintex is investing Rs.7.3bn or 30% of the total investment during FY08-FY11E in

the above business, to expand the scale of operations. The above investment does not

include allocations for further acquisitions. We expect strong performance from the custom

molding vertical, owing to consolidation in the short-term and successful integration in

long-term. We expect revenues to grow at 50% CAGR during FY08-FY11E and contribute

44% to consolidated revenues in FY11E.


1.31.4

1.5

1.6

0.9

1.0

1.3

1.4

0.8

1.1

1.4

1.7


Tim

es

Asset Turn - Construction Asset Turn - Consolidated

21.0%18.0%

22.8%20.0%

10.1% 10.6%

14.6%13.1%

0.0%

10.0%

20.0%

30.0%

40.0%


Construction ROACE Consolidated ROACE

We expect strong contribution to

overall growth from this segment,

owing to consolidation in the short-

term and successful integration in the

long-term

Sintex's Investment during FY08-FY11E

7858

24343

0

5000

10000

15000

20000

25000

30000

Investment in

monolithic

Total Investments

Rs.m

n



Sintex's multi-phased growth strategy: Custom Molding segment is the future of Sintex, rightly demonstrated through the 5

acquisitions concluded in the last 2 years. We have analyzed different phases of the growth strategy deployed in custom molding-

Consolidation and Absorption - FY07 To FY11E

Mandate

1) Provide additional resources to acquired companies, 2)

Nurture existing product lines and extract untapped

potential, 3) Instill proactive and reflexive approach.

Actions

This phase started concurrently with the second phase on

acquisition of companies. The company is absorbing and

consolidating the new companies and chalking out the

growth plan. It is expanding capacities, wherever required

(Capex of Rs.1200mn has been planned for subsidiaries

during FY09E).

Expected Outcome

At the end of 3rd phase- Sintex is likely to attain a critical

size in the global market (Estimated revenues of US $

725mn by FY11E based on current acquisitions).

Mandate

Integrate all acquired businesses and capitalize on

potential synergies

Actions

i) Shift the production base to low cost countries, ii) Cross

sell products, iii) Benefit from acquired technology iv)

Rationalize expenses at high cost locations.

Expected Outcome

Emergence of Sintex as an Indian multinational in custom

molding vertical with; a) Presence in multiple geographies

b) Access to low cost manufacturing operations and iii)

use of cost efficient technologies and processes

Initial Phase - FY98 To FY07 Inorganic Growth - FY07 To FY09E

Mandate

1) Set up a manufacturing base in India (a low cost country)

2) Achieve reasonable size and establish accounts with

some multinational OEMs.

Actions taken

i) Facilities at Kalol and Kutch were created.

ii) FY07 revenues at Rs.2.5bn.

iii) Client accounts include multinational clients like

Cummins.

Outcome

Company ready to enter next phase

Mandate

1) Acquire established companies in Europe, US and India

- to acquire technologies and customers across different

products, sectors and geographies.

2) The pre requisites for acquisitions: a) strong customer

base across varied sectors, b) access to good technology

and processes and c) reasonable valuations.

Actions taken / to be taken

In FY08, Sintex acquired 5 companies (2 in the US, 1 in

France, 1 in Germany and 1 in India). The acquisition spree

is likely to continue.

Expected Outcome

Presence across multiple geographies, sectors and

products. Access to new technology and diverse client

base.

Integration and High Growth - FY10E To FY14E

MultiPhasedGrowthStrategy




Proposed investment of Rs7.3bn in Indian operations and acquired companies - Sintex

has adopted a mix of acquisition-led and organic growth strategy in the custom molding

business. It has done 5 acquisitions: Nief plastics and Geiger Technik in Europe,

Wausaukee Composites Inc. and Nero Plastics in US, and Bright Brothers in India. The

company has invested approximately Rs.9.9bn in its custom molding operations during

the last one year. Sintex has charted an additional investment plan of Rs7.3bn during the

FY08-FY11E period to strengthen its custom molding business. Out of the planned

investment, (1) Rs.1.8bn is for augmenting Indian operations, (2) Rs.2.4bn for concluding

Geiger Technik acquisition and (3) balance Rs.3.1bn to augment capabilities in acquired

companies. Further, Sintex is likely to continue its acquisition-led growth strategy and is

on the look out for a large company.

Acquisitions Month of Stake Price paid Country Products Major customersacquisition (EV) Manufactured

Wausaukee June.07 81% US $ 20.5mn US Custom moldings for Auto, Phillips, Siemens, Hitachi,

Composites Inc. (WCI) Wind Power, Medical Imaging Toshiba, GE, Caterpillar, Alstom,Bobcat, Amtrac, Holland Tractors etc.

Bright Brothers Dec.07 100% Rs1.5bn India Auto custom moldings Maruti, M & M, Hyundai,(Slump Sale) Tata Motors etc.

NIEF Plastics Oct.07 100% Euro 44.0mn France Custom moldings for auto, Bosch, Renault, Valeo,electrical, consumer Faurecia, Delphi, Schneider,appliances, aeronautics, Alstom, ABB, Siemens,defense and building industries Legrand, Snecma, Dassault etc.

Nero Plastic Dec.07 81% US $ 4.7mn US Auto custom moldings Caterpiller (65% of sales),

(Through WCI) Ken worth truck, Motor coachindustries etc.

Geiger Technik July.08 90% Euro 35.6mn Germany Auto custom moldings BMW, Daimler, Audi, PorscheOpel, Bosch, Siemens


Led by consolidation, we expect strong performance in FY08-11E period: Led by benefits

of consolidation of subsidiaries, revenues of the custom molding segment are expected

to grow at 50% CAGR during FY08-11E period. We expect subsidiary companies to lead

growth with 64% CAGR against 30% CAGR in standalone operations in FY08-11E period.

We expect rising importance of custom molding business with 44% contribution to FY11E

revenues. We expect a 140 bps fall in EBITDA margins in FY08-10E period to 12.7%,

mainly due to rising dominance of subsidiary operations. However, FY11E is likely to

witness 80 bps improvements in EBITDA margins, owing to integration benefits causing

50 bps rise in margins of subsidiary operations. Consequently, PAT is expected to grow at

36% CAGR to Rs1.9bn, lower than 50% CAGR in revenues. We expect earnings of Rs12.7

in FY11E from the custom molding vertical, equivalent to 31% of FY11E consolidated

earnings.

Custom molding vertical is expected to report strong ROACE, despite low ROACE of

subsidiaries companies: The standalone operations of custom molding business enjoys

a 25-28% ROACE, highest in the Sintex scheme of things. However, the acquisitions with

low ROACEs of 5-9% are likely to impact the ROACE of custom moldings segment in

FY08-11E period. Despite this, we expect the business to report strong ROACE of 12-16%

in FY08-11E period on a consolidated level.

Customs molding is the lead contributor to SoTP value: On the back of strong visibility in

earnings and attractive return ratios, we have valued standalone operations of custom

molding business at 8x FY10E EBITDA of Rs1.6bn and assigned a value of Rs12.7bn.

The valuations so assigned are highest in the Sintex scheme of things. Further, we have

adopted conservatism in valuing acquired businesses by negating the growth premium

and valuing them at acquisition cost. Consequently, the custom moldings business is

valued at Rs.20.4bn or Rs.134 per share and is the lead contributor with more than 1/3rd

or 37% of SoTP value.


The company has adopted a mix of

organic and acquisition-led growth

strategy in the custom molding

segment

We expect subsidiary companies to

lead growth with 64% CAGR against

30% CAGR in standalone operations

in FY08-11E period.

Expect the business to be ROACE

neutral



78%47% 46% 49%

16%

29% 25% 24%

2%

3% 4% 5%14% 18% 16%

4% 8% 7% 6%

0%

20%

40%

60%

80%

100%


Standalone custom moldings Nief Plastics

WCI & Nero Geiger

Bright brothers

24609031

2104226926 30460

11630

22742

39513

55754

68637

0

20000

40000

60000

80000

FY07 FY08 FY09E FY10E FY11E

Rs.m

n

Custom molding revenues Consolidated revenues


Subsidiaries to contribute hugely to segment performance in FY08-FY11E


Expect subsidiaries' margins to improve by 410bps


Strong ROACE at 12-16%, despite low ROACE of subsidiaries


Revenue CAGR of 50% during FY08-FY11E


Custom moldings to be 44% of the consolidated revenues


40%

53%48%

44%

0%

15%

30%

45%

60%


% o

f consolid

ate

d R

evenues

Custom molding revenues

46%25% 26% 29%

39%

36% 31% 31%

11%

9% 8% 8%

23%30% 27%

4% 6% 5% 5%

0%

20%

40%

60%

80%

100%


% o

f custo

m m

old

ing r

evenuess

Standalone custom moldings Nief Plastics

WCI & Nero Geiger

Bright brothers

% o

f cust

om

mold

ing E

BIT

DA

14.1% 12.7% 12.7% 13.5%

23.9% 23.5% 23.1% 22.7%

9.0% 9.1% 9.7%

17.3%

17.3%

5.8%

0.0%

10.0%

20.0%

30.0%


EB

ITD

A m

arg

ins

Custom modings Standalone custom molding

Subssidiaries - Custom moldings

0%

7%

14%

21%

28%

35%

FY09E FY10E FY11E

RO

AC

E

Custom moldings Standalone custom moldings

Subsidiaries - Custom moldings



Prefabricated structures: Dark horse

Sintex is the largest player in the domestic prefabs market, which is still at a nascent

stage in India. This is quite contrary to international markets like US & Europe, where

prefabs occupy 8-10% share of construction industry and compete against traditional

technologies. Though prefabs as an alternative technology, is still to gain acceptance, we

believe that increased awareness could translate into an attractive opportunity and prove

to be a dark horse for Sintex. During FY08, prefabs business earned Rs6.6 bn and

contributed 29% of consolidated revenues. The company has grown at a CAGR of 42% in

prefabs during the last two years. Further, enhancing its presence in the BT shelters

market (Prefabs used in telecom industry), it acquired 74% stake in Zeppelin Mobile

Systems India, one of the leaders in the BT shelters space. Sintex will continue its growth

strategy - largely organic but is also open to attractive acquisitions. During FY08-11E,

Sintex is likely to invest Rs.4.8bn (Capex & working capital) to expand standalone prefab

manufacturing capacity by 1.9x FY08 capacities. We expect revenue CAGR of 35% during

FY08-11E period with 24% contribution to FY11E consolidated revenues. We expect an

attractive long-term ROACE in the 20 - 28% range.

Aggressive expansion in prefabs business: Sintex is expanding its prefab manufacturing

capacities by 1.9x FY08 capacities of 110000 sq feet per day (Refer annexure). It has

planned an investment of Rs4.8bn or 20% of total investments during FY08-11E (Capex &

Working Capital) in the prefabs business.

Eyeing healthy growth in FY08-11E period: Driven by large capacity expansion, we expect

the prefab revenues to grow at a 35% CAGR, during FY08-FY11E. Prefabs business is

likely to contribute 21% of the incremental revenues during FY08-FY11E and 24% of the

FY11E consolidated revenues. We expect stable EBITDA margins of 17% in FY08-11E

period with an ability to stem competition and arrest cost pressures. Better asset turns

and lower effective tax outgo are likely to ensure high PAT margins of 12% (Refer annexure).

Consequently, the PAT is expected to grow at 38% CAGR during FY08-11E period. We

estimate prefab business to report earnings of Rs12.9 in FY11E and contribute 31% to

FY11E consolidated earnings.

Business to be return accretive in FY08-11E period: With (1) lower working capital cycle,

(2) higher fixed asset turnover and (3) better margins, prefabs business operates on

relatively better return ratios to consolidated entity. We expect the long term ROACE in the

range of 20-28% vs. consolidated ROACE of 10-15% in FY08-FY11E. We expect prefabs

to contribute 0.5% to the incremental ROACE in FY08-FY11E period.

Likely to emerge as the second highest contributor to SoTP value: Led by strong growth

and high ROACE, we have valued standalone prefabs business at 6.5x FY10E EBITDA of

Rs1.9bn and assigned value of Rs12.2bn. However, we have valued ZMISL conservatively,

at 4x FY10E EBITDA of Rs0.2bn and assigned a value of Rs1bn, due to much smaller

scale of operations. The total value assigned to prefabs business is Rs13.2bn or 24% of

the SoTP value.


Prefabs constitutes 8-10% of the

construction industry in US and

Europe

Likely to contribute 0.5% to the

incremental ROACE during FY08 -

FY11E




Revenue CAGR of 35% during FY08-11E period


EBITDA to converge into PAT every year


Capital requirement is relatively lower


Low effective tax rate due to tax exemptions


Consequently, PAT margins are significantly higher


Prefabs expected to be ROACE accretive


4760

6613

8958

12606

1618641%

29%

24%23%23%

0

6000

12000

18000


Rs.m

n

0%

9%

18%

27%

36%

45%

Prefabricated revenues % of consolidated revenues

790

1126

1504

2133

2721

527752

1017

1510

1971

0

1000

2000

3000


Rs.m

n

EBITDA from prefabs PAT from prefabs

7081 81 8183 79

86 90

2.42.2

2.3

2.7

1.92.1

2.31.70

25

50

75

100


Days

1.5

2.0

2.5

3.0

3.5

4.0

Tim

es

Prefabs - w c cycle Consol. - w c cycle

Prefabs - f ixed asset turn Consol. - f ixed asset turn

13.0% 13.1%11.2% 10.6%

22.7%

26.4% 26.3% 26.3%

0.0%

6.0%

12.0%

18.0%

24.0%

30.0%


Effectiv

e tax r

ate

Prefabs Consolidated

11.4% 12.0% 12.2%

9.5%8.4% 8.7% 9.2%

11.4%

0.0%

5.0%

10.0%

15.0%


PA

T m

arg

ins

Prefabs Consolidated

10.1%

0.4%

0.6%

-0.5%

9.1%

9.6%

10.1%

10.6%


Prefab's contribution to the incremental ROACE

Consolidated ROACE



Textiles: Stable growth and cash flow positive business

The textile business is accredited as a stable growth and cash flow positive business.

Sintex manufactures structured fabrics for shirting, which is a niche segment. Revenues

grew at 22% CAGR during FY03-08 period with EBITDA margins in the 23-29% range.

Currently, Sintex has an installed capacity of 24mn meters operating at near 100% capacity

utilization. Sintex is planning to augment its capacity by another 5mn meters in FY09E. We

expect textile revenues to grow at a 13.3% CAGR during FY08-11E, led by capacity

expansion. We view that the textiles business will be largely self funded and is expected

to be a 'Cash Cow' business for the company.

Capacity expansion from 24mn meters to 29mn meters in FY09: Sintex is expanding its

textile capacity by 5mn meters at an expected investment of Rs1.0 bn. This will augment

the capacity from 24mn meters to 29mn meters. Further, Sintex is planning total investment

of Rs2.2bn (Capex and working capital) during FY08-11E period, equivalent to 9.1% of

total investment during the same time period.

Stable growth in FY08-11E period, but to witness sliding contribution to consolidated

performance- Led by capacity expansion, we expect a revenue CAGR of 13.3% during

FY08-11E period. We expect a further decline in the textile business' contribution from

15.3% of consolidated revenues in FY08 to 7.4% of consolidated revenues in FY11E, due

to high growth in other businesses. We expect stable EBITDA margins in the 23-29%

range, owing to presence in niche segments. We expect PAT to grow at a 14.2% CAGR in

FY08-11E period, in line with the CAGR in revenues. We expect textile business to report

earnings of Rs.3.2 in FY11E, contributing 7.7% of FY11E consolidated earnings.

Business is expected to generate positive cash flows: Despite high working capital

requirement at 165 days, we expect the business to generate positive operating cash

flows. This is largely attributed to the high EBITDA margins of 23-29%. We expect positive

operating cash flows of Rs0.6 bn, higher than the proportionate capital expenditure of

Rs0.3bn in FY11E. This indicates the self funding stature of the textile business.

De-merger of textile business is likely to be return accretive: In event of a de-merger of

the textile business, FY11E return ratios will improve considerably from 16.4% to 18.2% in

standalone operations and 14.6% to 15.6% of consolidated operations. This is, despite

sliding contribution of textiles business from 15% of consolidated revenues in FY08 to

7.5% of consolidated revenues in FY11E. Post de-merger, rise in return ratios can be

attributed to (1) textiles contributing 15% of capital employed and (2) textiles operating on

abysmally low return ratios of 7-8%.

Textile business valued at Rs3.0bn or Rs.19 per share: We have valued the textile

business at 2.5x FY10E EBITDA, in line with the mid cap textile companies. With an

expected EBITDA of Rs.1.2bn in FY10E, textile business is valued at Rs3.0bn or Rs.19 per

share. This is equivalent to 5.3% of SoTP value.


Operates in the high margin, niche

segment of structured fabrics

We expect the textile business to be

largely self funded



38284403

5063

3483

9.7%7.9% 7.4%

15.3%

0

1500

3000

4500

6000


Rs.m

n

0.0%

5.0%

10.0%

15.0%

20.0%

Textiles Revenues Textiles as % of overall revenues

28.3%

23.3%

28.6%25.3%

25.8%

27.1%27.4%

28.4%

15.7%15.4%

15.3%

16.8%19.1%

17.0%

17.3%16.9%

0.0%

10.0%

20.0%

30.0%

40.0%

FY

04

FY

05

FY

06

FY

07

FY

08

FY

09E

FY

10E

FY

11E

EB

ITD

A m

arg

ins

Textiles Consolidated


Textile business accredited with stable growth


Operating at near 100% utilization levels


Capacity expansion from 24mn meters to 29mn meters


Revenue CAGR of 13.3% in FY08-11E period


Textile Ebidta margins are higher than consolidated margins


Positive cash flows to support expansion


18

21 2124

14 14

18

22

119162 163 146

0

8

16

24

FY05 FY06 FY07 FY08

Mn m

ete

rs

0

100

200

300

400

Rs. per

mete

r

Installed Capacity Capacity sold

Average realizations

29

24

0

10

20

30

40

FY08 FY9E

mn m

ete

rs

17106 68

-453

211

570 591 642

-600

-400

-200

0

200

400

600

800

FY

04

FY

05

FY

06

FY

07

FY

08

FY

09E

FY

10E

FY

11E

Rs.m

n

Operating cash f low s

1290 1454 1910 2494 3180 3483

29.2% 27.6% 29.0% 29.2% 27.3%

15.3%

0

1000

2000

3000

4000

FY03 FY04 FY05 FY06 FY07 FY08

Rs.m

n

0.0%

15.0%

30.0%

45.0%

60.0%

Textiles Revenues Textiles as % of overall revenues




Textile de-merger will cause 100 and 180 bps expansion in consolidated and standalone ROACE

Sintex loaded with multiple levers: verticals, products &geographies

Over the last 3 decades, Sintex has created multiple levers and layers within it. It has

ventured into multiple verticals (textiles, plastics, and construction), multiple products

within plastics (tanks, prefabs, custom moldings) and multiple geographies through

acquisitions (India, US, Europe). This, we believe, should bode well for the company in

the long-term as its performance would not be dependent on a single product or vertical

or geography.

Creating multiple verticals: The Company has traveled a long distance from being a pure

play textile player until a large part of 70's. Since then, it has diversified into plastics and

now, into construction in a big way. Textiles contributed a meagre 15% of consolidated

revenues in FY08 against 29% in FY03 and 100% in the mid 70's. We expect further slide

in its share to ~ 7% by FY11E. Currently, 76% of consolidated revenues are contributed by

plastics business and a meager 9% of the consolidated revenues are attributed to

construction business. Based on the current order backlog in the construction vertical

(Rs14 bn at the end of Q1FY09), we expect the contribution from construction business to

rise sharply to 22% of consolidated revenues by FY11E. Further, our back-of-envelope

calculations, indicate that diversification will continue in favor of construction business

past FY11E as well.


Construction to contribute 22% of FY11E consol. revenues


Post FY11E- shift to continue in favor of construction


10.6%11.3%

14.1%

15.6%

10.1%10.6%

13.1%

14.6%

8.0%

10.0%

12.0%

14.0%

16.0%


RO

AC

E

Consolidated w ithout textiles Consolidated

12.1% 12.3%

16.8%

18.2%

11.1% 11.2%

14.8%

16.4%

8.0%

11.0%

14.0%

17.0%

20.0%


RO

AC

E

Standalone w ithout textiles Standalone

0%

25%

50%

75%

100%

Mid

70's

FY

03

FY

04

FY

05

FY

06

FY

07

FY

08

FY

09E

FY

10E

FY

11E

% o

f C

onsolid

ate

d R

evenue

Textiles Plastics Construction

25%

24%

22%

23%

20%

22%

24%

26%

FY11E FY12E FY13E FY14E

% O

f C

onsolid

ate

d R

evenues

In the long-term, Sintex’s performance

would not be dependent on a single

product or vertical or geography



Creating multiple products: Currently, plastics vertical is the largest contributor to the

consolidated revenues. Also, the plastics vertical itself has witnessed radical changes in

favor of high value products. From just water tanks business within the plastics vertical

until late 90's, the company has diversified into prefabs and custom moldings. This is

evident from the fact that revenue from water tanks has come down from 25% in FY05 to

9% in FY08 and has shifted in favor of custom moldings and prefabs with 53% and 38%

of FY08 consolidated plastic revenues.


Proportion of custom moldings has risen in past years


To shift in favor of prefabs in the mid-term

Entering multiple geographies: Sintex has extended its scale of operations beyond Indian

boundaries. After stabilizing its operations at Kalol and expanding within India at multiple

locations, Sintex has ventured abroad through a string of acquisitions. Today, Sintex has

35 manufacturing facilities that include 20 international facilities- coming through

acquisitions concluded in the last 12 months. In terms of revenues earned, India dominates

with 80% contribution to FY08 consolidated revenues, whereas balance is contributed by

Europe & US, largely on account of acquisitions. This, we believe, would slide down to

around 70% by FY11E, the balance 30% would be contributed by US and Europe.


US and Europe will contribute 30% of FY11E consol. revenues


35 manufacturing facilities in multiple countries

By virtue of creation of multiple verticals, products and geographies, Sintex is transforming

itself into an Indian multinational, which has large and diversified operations. Thus, by the

very nature of its transforming business, Sintex can be accredited as a conglomerate in

the making.


0%

25%

50%

75%

100%

Late

70's

FY

05

FY

06

FY

07

FY

08

FY

09E

FY

10E

FY

11E

% o

f C

onsolid

ate

d P

lastic

s R

evenue

Tanks Custom moldings Prefabs

39%

33%

30%

35%

37%

25%

29%

33%

37%

41%

FY10E FY11E FY12E FY13E FY14E

% O

f C

onsolid

ate

d p

lastic

s r

evenues

0%

25%

50%

75%

100%

FY

08

FY

09E

FY

10E

FY

11E%

of C

onsolid

ate

d R

evenue

India US Europe

35 1111135

7

15

0

5

10

15

20

25

30

35

40

Total

Indi

a

Franc

eUS

Ger

man

y

Polan

d

Hun

gary

Tunisia

Mor

occo

Slova

kia

No. of pla

nts

From just water tanks, the company

has diversified into prefabs and

custom moldings



Insulated against economic cycles: thanks to proactive steps

Just taking a leaf from the historical performance, Sintex has reported continuous growth

in revenues and PAT during the FY93-FY08 period - A record worth commending. We

attribute this to the proactive and dynamic strategy adopted by the management, instilling

changes from time to time. Most of the products and solutions offered by Sintex are

favorable and globally accepted substitutions to well identified and established needs.

This has enabled Sintex to rapidly sail through product life cycle stages and successfully

scale them up to the high growth stage. We expect the proactive and dynamic approach to

continue - indicated by recent addition of products like low cost housing solutions and

custom moldings in the portfolio. This proactive and dynamic approach and value addition

strategy will result in continued and strong growth in ensuing years. We view that, Sintex

is better placed to avert any economic slowdown.

Consistent profitable growth during last 15 years

FY93 FY94 FY95 FY96 FY97 FY98 FY99 FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08

Revenues 875 946 1213 1380 1468 1497 1780 2020 2850 3710 4418 5278 6577 8550 11630 22742

Growth (%) 8 28 14 6 2 19 14 41 30 19 19 25 30 36 96

EBITDA 90 127 155 184 209 254 274 352 576 623 799 894 1138 1454 2221 3826

Margins (%) 10 13 13 13 14 17 15 17 20 17 18 17 17 17 19 17

PAT 34 42 48 52 60 102 111 132 242 186 237 321 507 809 1313 2172

Growth (%) 25 12 10 15 69 9 19 83 -23 27 35 58 60 62 65


Sintex has 'diversification' against 'focal' and 'conglomerate' against 'single-product'

Products and solutions Substitution Product life cycle phase Growth potential

Custom moldings Substituting metal components Initial growth phase Only 8-9 countries constitute 85%

used in Auto, T & D, Wind Power, of the global custom moldings

Aeronautics, Aerospace, Defense, market

Consumer Appliances etc.

Monolithic construction Substitutes conventional brick by Introductory phase Sintex is the only player at present

brick construction, especially in with estimated revenues of Rs4bn

low income housing during FY09E and opportunity size

of Rs.4000bn during 11th plan

Prefabricated structures Substitutes site built construction Introductory phase Forms 8-10% of the total

construction industry in US and

Europe


ROACE is expected to improve significantly in FY08-11E period

Current consolidated ROACE of the company at 10.1% is low, primarily due to high cash

and cash equivalents (average cash was 43% of average capital employed during FY08)

in the balance sheet. The company has raised funds (Rs16.6bn) through QIP (Rs5.9bn),

FCCB (Rs.9.0bn) and promoter warrants (Rs1.7bn) during the last 8 months to fund (1)

capital expenditure (~ Rs9.6bn), (2) working capital (~ Rs11.8bn) and (3) new acquisitions

during FY08-FY11E. We expect the proportion of cash and cash equivalents to come

down significantly by FY11E (22.3% of average capital employed during FY11E). We expect

the ROACE to improve by 4.5% during FY08-FY11E and to be 14.6% in FY11E. The increase

in ROACE would be contributed by multiple factors like (1) investment of cash into core

operations and better deployment of cash & cash equivalents, (2) increase in the proportion

of high ROACE businesses, (3) improvement in ROACE of subsidiaries, (4) increase in

miscellaneous income etc.


Sintex has reported continuous growth

in revenues and PAT during FY93-

FY08 period

Expect the ROACE to improve from

10.1% during FY08 to 14.6% during

FY11E



43.0% 35.0%23.9% 22.3%

58.2%71.7%

76.1%

51.4%

5.6% 6.9% 4.4% 1.6%

0.0%

25.0%

50.0%

75.0%

100.0%


% o

f consolid

ate

d A

CE

Avg. Cash & cash Equivalents Avg. Core Capital (Without WIP)

Avg. Capital WIP


Consolidated core capital is expected to increase


Mainly due to increase in standalone core capital

Improvement in ROACE traverses well beyond FY11E: We believe that, improvement in

return ratios will continue beyond FY11E. This is largely led by (1) higher growth in Indian

operations compared with international operations and (2) integration benefits of acquired

companies. The growth of Indian operations should be viewed in light of high return ratios

in its key verticals of plastics at 23 - 27% and construction at 18 - 22%. Considering

assumptions of 16.6% CAGR and 7.4% CAGR in revenues of standalone and subsidiary

operations in FY11E-14E period, we expect ROACE to improve from 14.6% in FY11E to

15.8% in FY14E.


Plastics and Construction will report high ROACE

ROACE (%) FY08 FY09E FY10E FY11E

Textiles 8.1 7.1 7.4 8.2

Standalone Plastics 31.0 24.3 26.1 28.5

Monolithic 21.0 18.0 22.8 20.0

Subsidiaries 4.4 8.3 8.1 9.1

Cash & Cash Equivalents 1.9 2.9 2.9 2.9

Consolidated 10.1 10.6 13.1 14.6

Source: Emkay Research, Company *Average capital employed

Subsidiaries will offset benefits of standalone operation

% of consolidated ACE* FY08 FY09E FY10E FY11E

ACE* - Textiles 20.7 15.8 15.4 13.8

ACE* - Plastics 19.6 20.4 23.3 24.3

ACE* - Construction 3.1 5.7 10.8 15.9

ACE* - Subsidiaries 13.6 23.1 26.6 23.6

Avg. Cash & Cash Equivalents 43.0 35.0 23.9 22.3


49.2%

44.9%

31.7% 27.1%

65.2%71.5%

48.8%

44.6%

6.2% 6.3% 3.1% 1.4%

0.0%

20.0%

40.0%

60.0%

80.0%


% o

f sta

ndalo

ne A

CE

Avg. Cash & cash Equivalents Avg. Core Capital (Without WIP)

Avg. Capital WIP


Leading to increase in consolidated ROACE by 4.5% during FY08-FY11E

Due to higher growth of Indian

operations

14.6%13.1%

10.6%10.1%

11.1%11.2%

14.8%16.4%

4.4%

8.3% 8.1%9.1%

0.0%

6.0%

12.0%

18.0%


RO

AC

E

Consolidated Standalone Subsidiaries

4.6%

2.3%

1.2%0.5%

0.4%0.2%

-0.1%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

Incre

ase in

RO

AC

E

Cash &

Mis

c.

Incom

e

Constr

uctio

n

Subsid

iaries

Sta

ndalo

ne

pre

fabs

Textil

es

Sta

ndalo

ne

custo

m

mold

ings

Drivers

of in

cre

menta

l RO

AC

E




Beyond FY11E, standalone growth higher than subsidiaries


Upward trajectory in ROACE to continue beyond FY11E


13.6%

14.0%

14.4%

14.8%

15.2%

15.6%

16.0%


ROACE

13.6%13.6%

18.3%

17.9%

7.3%6.2%

7.5%7.4%

0.0%

5.0%

10.0%

15.0%

20.0%


Revenue G

row

th

Standalone Subsidiaries



Investment Concerns

Equity Dilution: regular phenomenon

Sintex has diluted its equity at 17% CAGR in FY93-08 period (assuming fully diluted

equity). Consequently, the earnings grew lower at 13% CAGR versus higher 32% CAGR

in PAT during the same period. In FY93-08 period, Sintex has expanded ferociously and

added multiple growth avenues, both organic & inorganic. Consequently, the company

has recorded negative cash flows in 15 years of operations and adopted equity financing

at various stages of its growth trajectory. In light of the management's aggressive style, we

believe that, equity dilution will continue to remain a key overhang on the company.

Investment Concerns

* Equity includes proportionate dilution in case of partial inflow of cash

Earnings grew lower than PAT, thanks to equity dilution


Negative cash flows resulted in recourse to equity

Low entry barriers in most of the businesses

We view that businesses like prefabs & water tanks in plastics vertical and monolithic

construction vertical itself, which contribute hugely to incremental growth of Sintex in

ensuing years, are susceptible to competition. This is largely due to low entry barriers in

the above businesses. Thus, in the event of entry of multiple players or alternative

technologies, we believe that both growth & profitability are at risk. This could be a key risk

to future earnings of the company.

Prefabricated structures: a regional business

Prefabs business is regional in nature, thus entailing creation of multiple manufacturing

locations serving 500-1000km in radius. The growth in the prefab business is directly

linked to network of facilities and coverage. This entails higher capital investment in the

business. Any mistake or judgmental error in identification of location could result in

below expected performance of the particular facility and consequently, impact the earnings

from prefabs business. Fixed costs are associated with individual sites and threshold

capacity utilization will result in breakeven. Consequently, this could pose a threat to our

earnings projection and could result in downward revision.

We have taken Q1FY09, miscellaneous other income as recurringincome

Sintex reported other income of Rs.380mn during Q1FY09, which includes non operational

income (except earnings from FCCB funds) on surplus cash in balance sheet alongside

income from rendering services on prefabs and custom moldings. This is contrary to

previous/earlier quarters, where Sintex reported only non operational income like rent,

interest and other non recurring incomes under the head 'other income'. We have

considered the income linked to prefabs and custom moldings (miscellaneous income)

-4400

-3300

-2200

-1100

0

1100

FY94 FY96 FY98 FY00 FY02 FY04 FY06 FY08

Rs.m

n

Free cash f low s

Regular equity dilution during past 15

years

-100%

-50%

0%

50%

100%

150%

200%

250%

FY

94

FY

96

FY

98

FY

00

FY

02

FY

04

FY

06

FY

08

Gro

wth

PAT Equity EPS



as recurring income resulting in higher earnings for FY08-11E period. Any clarification

related to classification of above income could materially impact our earnings estimates

for FY08-FY11E. Our sensitivity analysis indicates a downside of 12.8%, 8.8%, and 6.8%

to our projected earnings for FY09E, FY10E and FY11E respectively if the miscellaneous

income turns out to be fully non-recurring.

Sensitivity of EPS to the nature of Q1FY09 other income FY09E FY10E FY11E

Adjusted PAT - our estimate 3338 4850 6292

Projected miscellaneous income 646 646 646

Adjusted EPS - our estimate 21.8 31.7 41.1

Downward revision of EPS - assuming Q1 FY09 miscelleneous

income as fully non recurring -12.8% -8.8% -6.8%


income as 2/3rd non recurring -8.5% -5.9% -4.5%


income as half non recurring -6.4% -4.4% -3.4%


income as 1/3rd non recurring -4.3% -2.9% -2.3%


Other Income FY05 FY06 FY07 FY08 Q1FY09 FY09E FY10E FY11E

Total other income reported 105 297 267 599 380 1288 1113 1128

Interest received 19 68 106 140 47

Dividend on mutual funds 14 34 100 18 56

Profit on sale of fixed asset 3 8 0

Profit on sale of investment 158 13 125 87

Provision written back 5 0 82 22

Forex gain 15 97 6

Miscellaneous income 72 32 30 129 162

Financial Income 33 102 219 283 191 614 466 482

Recurring misc. income 72 32 30 129 162 646 646 646

Non recurring or EO income 0 163 18 187 28 28 0 0


Integration of Subsidiaries

Sintex has concluded 7 acquisitions in the last two years and spent an aggregate sum of

Rs.8.5bn. Considering the current EV of the company at around Rs36 bn, the value of the

acquisitions constitutes around 23% of the total EV. The positive side of these acquisitions

is that the aggregate EV of subsidiaries at 5.2x FY09E EBITDA is lower than Sintex's

standalone EV of 6.3x FY09E EBITDA, giving adequate cushion.

We believe that, all acquisitions are complimentary to the mainline business of the

company. Consequently, during FY08-FY11E, we have considered a 360bps improvement

in EBITDA margins of subsidiary companies on account of benefits of integration. Thus,

any delay in integration of subsidiaries or any hindrances or obstacles or liabilities thereof,

could result in lower than expected contribution from subsidiaries to the consolidated

earnings. Moreover, we believe that successful integration of multiple acquisitions with

presence in multiple geographies is a challenging task and therefore, will remain a key

risk.

Investment Concerns

Miscellaneous income is assumed

to be income linked to prefabs and

custom moldings



8471

36320

0

10000

20000

30000

40000

EV of Subsidiaries

(Price paid )

EV of the consolidated

entity

Rs.m

n


Cost of acquisitions constitute 23% of EV


Integration to drive sharp increase in margins of subsidiaries

Investment Concerns

6.3%

9.4% 9.4% 9.9%

0.0%

4.0%

8.0%

12.0%


EBITDA margins


Sintex Industries Ltd. Initiating CoverageFinancials

Financials

Consolidated revenues are expected to triple to Rs68.6 bn byFY11E

We expect consolidated revenues to grow at a 45% CAGR in FY08-11E period from

Rs22.7 bn in FY08 to Rs68.6 bn in FY11E. We expect the new business initiatives of

monolithic construction, prefabs and custom molding to drive growth in FY08-FY11E

period. Further, we expect the growth to be triggered by a mix of organic and inorganic

attributes. Our analysis indicates that construction, prefabs and custom moldings will

contribute 28%, 21% and 47% of the incremental growth during FY08-FY11E. We estimate

the organic route to contribute 61% and inorganic to contribute 39% to the consolidated

growth in FY08-FY11E period. The business mix is likely to change in favor of construction

and custom moldings.


Consolidated revenues are expected to triple by FY11E


Significant growth is attributed to new businesses


Custom moldings to contribute 47% to incremental revenues


Construction to rise sharply to 22% of consolidated revenues

68637

44346

24291

55754

39513

2274233549

22151

1655722205

17362

61870

14000

28000

42000

56000

70000


Rs.m

n

Consolidated revenues Standalone revenues

Subsidiaries

61645

6992

17744

34000

49532

50435513 6222

0

14000

28000

42000

56000

70000


Rs.m

n

New busniesses (prefabs, custom molding & monolithic)

Mature businesses (tanks & textiles)

45895

12900

9573

21426 1580 369

0

10000

20000

30000

40000

50000

Incre

menta

l

revenues

constr

uctio

n

Pre

fabs

Custo

m

mold

ings

Textil

es

Tanks

Rs.m

n

FY11E

Plastics

71%

Construction

22%

Textiles

7%Prefabs

24%Tanks

3%

Custom

moldings

44%

We expect the new business initiatives

of monolithic construction, prefabs

and custom molding to drive growth

in FY08-FY11E period



FY08-FY11E

-111

33

40

-6-14

-52

-112

-220

-110

0

Declin

e in

consolid

ate

d

EB

ITD

A

Textil

es

Sta

ndalo

ne

custo

m

mold

ings

Sta

ndalo

ne

Pre

fabs

Constr

uctio

n

subsid

iaries

tanksReasons o

f m

arg

in d

rop (

bps)

Consolidated EBITDA margins are expected to decline by 110 bpsduring FY08-FY11E

We expect the margins to contract by 152 bps during FY09E, attributed to 90 bps decline

in EBITDA margins of standalone operations, mainly on account of changing business

mix. The fall is also attributed to full impact of subsidiaries coming into numbers. We

expect a stable margin regime thereafter, with improvement of 14 bps and 30 bps in

margins during FY10E and FY11E mainly due to (1) improvement in subsidiaries margins

owing to integration and (2) declining share of low margin water tanks. Consequently, we

expect the EBITDA to grow at a 41% CAGR in FY08-11E period from Rs3.8bn in FY08 to

Rs10.8bn in FY11E.


110 bps decline in consolidated EBITDA margins


Subsidiaries margins to improve by 360 bps

Financials

15.7%15.4%15.3%

16.8%

0.0%

5.0%

10.0%

15.0%

20.0%


EB

ITD

A m

arg

ins

Consolidated

18.9%

6.3%

9.4% 9.4% 9.9%

19.4%19.9%20.8%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%


EB

ITD

A m

arg

ins

Standalone Subsidiaries


152 bps fall in consolidated margins during FY09E


14 bps improvement in consolidated margins during FY10E


30 bps improvement in consolidated margins during FY11E


The fall is due to declining share of high margin textiles

-15220-5

-14-38

-40

-75

-220

-110

0

Declin

e in

consolid

ate

d

EB

ITD

A

Textil

es

subsid

iaries

Sta

ndalo

ne

custo

m

mold

ings

Sta

ndalo

ne

Pre

fabs

Constr

uctio

n

tanksReasons o

f m

arg

in d

rop (

bps)

14

189

31-13-21

-50

-40

-30

-20

-10

0

10

20

Declin

e in

consolid

ate

d

EB

ITD

A

Textil

es

Sta

ndalo

ne

custo

m

mold

ings

subsid

iaries

tanks

Constr

uctio

n

Sta

ndalo

ne

Pre

fabsR

easons o

f m

arg

in d

rop (

bps)

304

52

-1-1-9-15

-50

-20

10

40

Declin

e in

consolid

ate

d

EB

ITD

A

Textil

es

Constr

uctio

n

Sta

ndalo

ne

custo

m

mold

ings

Sta

ndalo

ne

Pre

fabs

subsid

iaries

tanksR

easons o

f m

arg

in d

rop (

bps)


Sintex Industries Ltd. Initiating CoverageFinancials

Earnings will follow equity dilution with a lag effect

Sintex has diluted 36% of equity during FY06-08 period with 21% equity dilution undertaken

in the last 8 months. The dilution was undertaken to support its ambitious growth plans -

both organic & inorganic. The company concluded 7 acquisitions and also invested in

expansion of core business in India. However, there are unutilized funds in the balance

sheet to the tune of Rs.16.9bn at the end of FY08. We view that, the dilution has been front

loaded with the contribution to earnings expected in forthcoming years. Our estimates

indicate a higher trajectory of 43% earnings growth during FY08-FY11E after slower growth

of 32% during FY06-FY08 - largely attributed to the lag effect of equity dilution.

* does not include the part of outstanding warrants for which money has not

been received

Equity dilution of 21% during last 8 months

Rs.mn Funds Money Price / Equityreceived conversion dilution /

price potential(Rs/ equity

share) dilution

FCCBs 8998 8998 580 31

Warrants 5915 1706 455 8*

QIP 5899 5899 470 25

Total 16603 64*

Equity outstanding as at the end of Jan.08 243

Fully diluted equity* 3068.2

11.8

41.1

14.2

21.8

31.7

306306

197222

0.0

10.0

20.0

30.0

40.0

50.0

FY06 FY07 FY08 FY09E FY10E FY11E

Rs.m

n

0

100

200

300

400

Rs.m

n

EPS Equity


Earnings to kick start from FY09E, post FY08 dilution

Expect earnings growth of 43% in

FY08-FY11E, higher than 32% growth

in FY06-FY08

Sintex is lowly geared (excluding FCCB) and sitting on huge cashbalance of Rs.16.9bn

In FY08, debt equity ratio (excluding FCCB) for Sintex stood at 0.4X. Sintex is sitting on a

huge cash balance of Rs.16.9bn. During the last 2 years, Sintex has made huge

investments in both organic & inorganic options, the benefits of which, are expected in the

coming years. Consequently, we expect Sintex to generate surplus cash in FY09-11E

period. Sintex is expected to continue its expansion in FY08-11E period and is also

contemplating a large acquisition. We believe that current cash reserves and strong

internal accruals are sufficient enough to support organic growth plans and inorganic

plans- not exceeding Euro 150-200mn. Thus, Sintex is not likely to undertake equity

dilution in the near term.


Cash reserves and internal accruals to support large acquisition

(Rs.mn) FY09E FY10E FY11E

Internal accruals 4971 6914 8645

Funds needed for organic growth 7694 7750 6010

Net funding needed for organic growth 2724 835 -2635

Cash and cash equivalents in thebeginning 16935 11103 9947

Dividends paid during the year 219 320 415

Remaining cash after fundingorganic growth 13993 9947 12167

Sufficient to fund furtheracquisitions (Mn euros) 233 166 203

Acquisitions already made (Mn euros) 48 - -

Remaining funds available foracquisition (Mn euros) 185 166 203


Exponential growth in operating cash flow

-2000

0

2000

4000

6000

8000

10000


Rs.m

n

0

5000

10000

15000

20000

Rs.m

n

Operating cash f low s Cash profits

Cash & cash equivalents

We believe that current cash reserves

and strong internal accruals are

sufficient enough to support organic

growth plans and inorganic plans- not

exceeding Euro 150-200mn.



Redemption of FCCBs after 5 years: sufficient cash flows

Based on our analysis, we expect Sintex to earn huge surplus cash in FY11E and thereafter.

This will result in accumulation of surplus cash on the balance sheet. The FCCB

redemption at ~ 130% (prefixed) of FCCB value would entail cash outflow of ~ Rs11.7 bn

as single payment in FY13E. Considering expansion plans, Sintex will have adequate

cash to redeem the FCCB amount. In line with principle of conservatism, Sintex has

already adjusted premium on redemption of FCCBs against the share premium account.

Our earnings estimates will remain insulated, since ~ 30% premium on redemption of

FCCB amount will not be adjusted in P&L account.

Earnings highly sensitive to EBITDA margins

We checked the sensitivity of earnings to changes in revenues and EBITDA margins. In

the event of a 100 bps higher than expected revenue growth, earnings are likely to be

revised upwards by 1.5%, 1.6% and 1.4% in FY09E, FY10E and FY11E respectively. In the

event of 100 bps jump in EBIDTA margins, earnings are likely to be revised upwards by

11.8% 11.5% and 10.9% in FY09E, FY10E and FY11E respectively. Our sensitivity analysis

reveals very high sensitivity of earnings to EBITDA margins. Any change in EBITDA margins

can have a substantial impact on Sintex's earnings.

Financials

Considering expansion plans, Sintex

will have adequate cash to redeem

the FCCB amount

100 bps jump in EBIDTA margins, to

result in upward revision in earnings

by 11.8% 11.5% and 10.9% in FY09E,

FY10E and FY11E respectively

Sensitivity of consolidated EPS to 1% change in revenue growth

Estimated revenue growth (%) Change in consolidated earnings (%)

FY09E FY10E FY11E FY09E FY10E FY11E

Textiles 9.9 15.0 15.0 0.2 0.2 0.1

Water tanks 8.0 8.0 6.0 0.1 0.1 0.0

Standalone custom moldings 30 29 30 0.2 0.2 0.2

Standalone prefabs 36.8 43.1 28.1 0.4 0.4 0.4

Monolithic construction 90.0 150.0 50.0 0.2 0.4 0.4

Subsidiaries 181.0 28.0 9.0 0.3 0.3 0.3

Consolidated revenues growth 74.0 41.0 23.0 1.5 1.6 1.4

Sensitive to of earnings to 1% change in EBITDA margins

Estimated EBITDA margins (%) Change in consolidated earnings (%)

FY09E FY10E FY11E FY09E FY10E FY11E

Consolidated EBITDA margins 15.3 15.4 15.7 11.8 11.5 10.9




Valuations

While valuing Sintex, we have used multiple valuation tools to arrive at fair value per share.

Adoption of multiple valuation tools is to even out the dependence on a single valuation

method and avoid biased outcome. Also, multiple valuation tools highlight the different

spheres of the business. For instance; 1) DCF captures the long term growth potential 2)

SOTP & PER captures effect of current high growth phase.

DCF value of Rs.419

We have valued Sintex using multi stage DCF with an explicit growth period of 3 years. We

have assumed growth rates for different businesses separately, worked out NOPLAT

business wise and added those figures to arrive at consolidated NOPLAT. Our assumption

on WACC is 12.8% with cost of equity of 14.3% and cost of debt (tax adj.) of 9.0%. Based

on above, DCF value for Sintex is Rs64.2bn or Rs419/Share.

Valuations

DCF calculations FY09E FY10E FY11E FY12E FY13E FY14E FY15E FY16E FY17E FY18E FY19E FY20E FY21E FY22E FY23E Term.Value

NOPLAT (EBIT(1-T)) 3638 5266 6722 7468 8562 9457 10370 11177 12140 13037 14001 15036 15938 16894 17486

Add: Depreciation 1277 1638 1855 2028 2185 2322 2491 2686 2884 3069 3170 3274 3361 3450 3504

Less: Increase in WC 3342 4592 3916 2690 3218 2901 3241 3015 3230 3045 2835 3044 2654 2813 1739

Less: Capex 7242 3158 2094 3930 1855 3148 3078 4049 3215 3674 3000 2500 2000 1500 1250

FCFf -5668 -846 2567 2876 5673 5730 6543 6798 8579 9388 11336 12765 14645 16032 18000 167053

PV of FCFf -5026 -665 1790 1778 3110 2785 2820 2598 2907 2821 3021 3016 3068 2978 2965 27520

Total EV 57489

Net Debt -6693

Equity Value 64181

Per Share Value 419

Interest cost (Tax Adj.) 9.0% Sensitivity analysis

Risk Free rate 9.0% Term / WACC 12.4% 12.6% 12.8% 13.0% 13.2%

Debt to Equity 0.4 1.0% 425 414 404 392 382

Beta 0.75 1.5% 434 422 411 399 388

Risk Premium 7.0% 2.0% 443 430 419 406 395

Terminal growth rate 2.0% 2.5% 453 439 428 414 403

WACC 12.8% 3.0% 463 449 438 423 411


Business Expected Expected FY10 Rationale 1 Yr Forward EVLong term growth - EBITDA EV / EBITDA (Rs.bn)

ROACE FY11E (Rs.bn) (x)

Textiles 9% 15% 1.2 In line with midcap textile peers 2.5 3.0

Tanks 10% 6% 0.1 Return and growth adjusted multiple 3.5 0.5

Monolithic 20% 50% 1.7 In line with midcap construction peers 7.0 12.1

Standalone Prefabs 23% 28% 1.9 Lower than midcap construction peers 6.5 12.2

Standalone custom moldings 25% 30% 1.6 Return and growth adjusted multiple 8.0 12.7

Subsidiaries 10% 9% 2.1 At cost** 4.2 8.8

Total 8.6 5.7* 49.2

Net Debt -6.7

Total Equity 55.9

Per Share Value (Rs.) 365

Source: Emkay Research, Company, *Implied **Zepellin (including Digvijay) is valued at 4x FY10E EBITDA

SOTP value of Rs.365 per share

We have valued standalone operations of all the businesses on 1 yr forward EV/EBITDA.

We have valued subsidiaries separately at cost of acquisition. We have valued standalone

operations of (1) textiles at 2.5x FY10E EBITDA - in line with industry valuations (2) water

tanks at 3.5x and custom molding at 8.0x - based on the growth and return profile of

individual business and in comparison with acquired business (3) prefabs at 6.5x - lower

than mid-cap construction companies and (4) construction at 7.0x EBITDA - in line with

midcap construction companies. The EV is Rs49.2bn, implying multiple of 5.7x 1 yr forward

EBITDA. On SoTP basis, Sintex is valued at Rs55.9bn or Rs365/Share.

SOTP value is Rs363/share



Sintex-1yr Fwd Ev/Ebitda (x)

0.0

5.0

10.0

15.0

20.0

Apr-0

3

Sep-0

3

Feb-0

4

Jul-0

4

Dec

-04

May

-05

Oct-0

5

Mar

-06

Aug-0

6

Jan-

07

Jun-

07

Nov

-07

Apr-0

8

Sep-0

8

Sintex-1yr Fwd PB (x)

0.0

1.0

2.0

3.0

4.0

5.0

6.0

Apr-0

3

Sep-0

3

Feb-0

4

Jul-0

4

Dec

-04

May

-05

Oct-0

5

Mar

-06

Aug-0

6

Jan-

07

Jun-

07

Nov

-07

Apr-0

8

Sep-0

8

Sintex-1yr Fwd PE (x)

0

5

10

15

20

25

30

35

Apr-0

3

Sep-0

3

Feb-0

4

Jul-0

4

Dec

-04

May

-05

Oct-0

5

Mar

-06

Aug-0

6

Jan-

07

Jun-

07

Nov

-07

Apr-0

8

Sep-0

8

Sintex-P/E band

0

200

400

600

800

1000

Apr-0

3

Sep-0

3

Feb-0

4

Jul-0

4

Dec

-04

May

-05

Oct-0

5

Mar

-06

Aug-0

6

Jan-

07

Jun-

07

Nov-0

7

Apr-0

8

Sep-0

8

7xPrice

14x

28x

21x

1 yr fwd PER during last 3 years, gives us a value of Rs.469

We expect earnings of Rs.31.7 during FY10E. Sintex has traded at an average of 14.8x 1 yr

forward earnings during the last 3 years. Based on the historical PE band, Sintex at 14.8X

PER is valued at Rs469/Share or Rs71.8 bn.

We initiate coverage on the stock with a BUY rating and a 12-month price target of

Rs.418, based on the weighted average of the three methods. We have assigned a

weight of 50% to DCF and weights of 25% to SoTP and PER each, to capture the equal

impact of longer and shorter duration multiples in our fair value for Sintex. Our target

price implies an upside of 49% from the current levels.

Valuations


Sintex-1yr Fwd PE (x)


Sintex- P/E band


Sintex-1yr Fwd PB (x)


Sintex- P/B band


Sintex- 1yr Fwd EV/EBITDA (x)


Sintex- EV/EBITDA Band

Sintex-PB Band

0

100

200

300

400

500

600

Apr-0

3

Sep-0

3

Feb-

04

Jul-0

4

Dec-0

4

May

-05

Oct-0

5

Mar

-06

Aug-0

6

Jan-

07

Jun-

07

Nov-07

Apr-0

8

Sep-0

8

2x

3x

1x

4x

Price

Sintex - Ev/Ebitda Band

0

300

600

900

Jan-

04

Jun-

04

Nov-0

4

Apr-0

5

Sep-0

5

Feb-

06

Jul-0

6

Dec-0

6

May

-07

Oct-0

7

Mar-0

8

Aug-0

8

16x

5x

8x

4x

12x

5x



Balance Sheet Rs Mn


Equity Share Capital 273 273 273 273

Reserves 17752 20871 25401 31277

Networth 18025 21144 25674 31550

Long term Loans 8430 8430 8430 8430

Short Term Loans 1843 1843 1843 1843

FCCBs 8989 8989 8989 8989

Loan Funds 19262 19262 19262 19262

Minority Interest 203 254 321 408

Total Liabilities 37490 40660 45256 51220

Gross Block 17212 24039 29241 31631

Less: Depreciation 5185 6462 8100 9955

Net Block 12027 17577 21141 21676

Capital Work in Progress 2550 2965 921 625

Goodwill 1845 1661 1476 1292

Investments 3252 3252 3252 3252

Current Assets 26288 31989 40896 50588

Inventories 3022 5966 8143 9628

Debtors 7938 15702 22441 27411

Cash & Bank 13713 7881 6725 8945

Loans & advances 1615 2440 3586 4604

Current Liabilities & Provisions 7415 15606 21077 24633

Net Current Assets 18873 16383 19819 25955

Miscelleneous Expenditure 11 11 11 11

Deferred Tax -1069 -1189 -1364 -1591

Total Assets 37489 40659 45256 51219

Source: Company, Emkay research

Profit & Loss Account Rs Mn


Consolidated Revenues 22742 39513 55754 68637

Growth 96% 74% 41% 23%

Expenses 18916 33484 47164 57854

% of Sales 101% 77% 41% 23%

Raw materials 13001 21156 30638 38472

% of Sales 57.2% 53.5% 55.0% 56.1%

Employee Cost 2091 5228 6597 7289

% of Sales 9.2% 13.2% 11.8% 10.6%

Other Expenses 3824 7100 9929 12094

% of Sales 16.8% 18.0% 17.8% 17.6%

EBITDA 3826 6030 8590 10783

Growth 72.3% 57.6% 42.5% 25.5%

EBITDA % 16.8% 15.3% 15.4% 15.7%

Other Income 599 1288 1113 1128

Interest 643 1200 1176 1176

Depreciation 765 1277 1638 1855

Goodwill amortization* 0 185 185 185

PBT 3017 4656 6704 8695

Tax 698 1249 1787 2317

Minority Interest 19 51 67 87

PAT before EO Items 2300 3356 4850 6292

EO and Non Recurring Items 129 18 0 0

Adjusted PAT 2172 3338 4850 6292

Key Ratios


Profitability (%)

EBITDA Margin 16.8% 15.3% 15.4% 15.7%

Adj. PAT Margin 9.5% 8.4% 8.7% 9.2%

ROCE 10.1% 10.6% 13.1% 14.6%

ROE 17.7% 17.0% 20.7% 22.0%

Per Share Data (Rs)

Adj. EPS** 14.2 21.8 31.7 41.1

Adj. CEPS 20.1 32.4 45.2 56.5

BVPS 117.8 138.1 167.7 206.1

DVPS 1.0 1.4 2.1 2.7

Valuations (X)

PER 18.7 12.8 8.9 6.8

CPER 14.0 8.7 6.2 5.0

P/BV 2.4 2.0 1.7 1.4

EV / Sales 1.6 0.9 0.7 0.5

EV / EBITDA 9.5 6.0 4.2 3.4

Dividend Yield (%) 0.4% 0.5% 0.7% 1.0%

Turnover Days (x)

Working Capital Cycle 83 79 86 90

Debtors Cycle 127 145 147 146

Inventory Cycle 59 66 64 61

Gearing Ratios

Net Debt / Equity 0.1 0.4 0.4 0.2

Total Debt to Equity 1.1 0.9 0.8 0.6

Source: Company, Emkay research

Cash Flow Statement Rs Mn


PAT 2172 3338 4850 6292

Depreciation & amortization 765 1462 1822 2039

Deferred tax 256 120 175 227

Change in Working Cap 3499 3342 4592 3916

Operating Cash Flow -306 1578 2255 4642

Capex 9712 7242 3158 2094

Free Cash Flow -10018 -5664 -902 2548

Equity Capital 7595 0 0 0

Loans 13935 0 0 0

Dividend 159 219 320 415

Others 178 -28 -48 -68

Net Change in Cash 11175 -5855 -1175 2201

Opening cash & cash equivalent 5760 16935 11103 9947

Closing cash & cash equivalent 16935 11080 9928 12148

Financials

Financials

Source: Company, Emkay research Source: Company, Emkay research

* Amortisation period of 10 years with respect to goodwill of Rs1845mn has been assumed starting from FY09E.

** Full amount of FCCBs and part of warrants for which money is received has been considered for calculating fully diluted equity.


Sintex Industries Ltd. Initiating CoverageAnnexure

Annexure

A - Monolithic construction

NHB rates monolithic as the most appropriate construction solution for low income

housing: Based on the criteria laid down by NHB for selection of construction technology

coupled with effective cost, monolithic is rated as the most suitable construction solution

for low income housing by the National Housing Bank (NHB).

Criteria for selection of construction technology for low income housing: The draft Aam

Aadmi Awas scheme by NHB* outlines the criteria for choice of appropriate construction

technology. The criteria requires; i) simplicity, ii) quality of construction, iii) durability, iv)

economy v) speed of execution, vi) minimum skilled workforce requirements, vii) energy

conservation, viii) eco-friendly, ix) minimum maintenance efforts and cost, x) earthquake

resistant.

Low income housing is an urgent need for developing countries like India: Low income

housing solutions are the need of countries with high population and congestion (India,

China etc.). As per Census 2001, India has a housing shortage of approximately 25mn

units. The shortage increases to 31mn units, if obsolescence and congestion are

considered.

Basics of Monolithic Construction: As opposed to conventional brick by brick construction, monolithic is a constructionmethod using cement concrete, rods and formwork. Under monolithic, the form work is erected on the site and the walls,slabs and roof are constructed by reinforcing steel rods and pouring in concrete in the form work. The form work (made ofeither timber or aluminum or plastics) can be reused several times. Monolithic is mainly suitable for low income masshousing (more than 200-300 houses of similar size and shape).

Comparison between monolithic and conventional construction

Monolithic construction Conventional Construction

Quality I) Superior because of one stone structure I) Normal, II) Comparatively, more prone toII) More tough and resistant to severe collapse during earthquakeearthquake shocks without collapse

Increased Durability Higher Lower compared to Monolithic

Carpet area The walls are thin thus increasing the carpet area. The walls being thicker,thereby reducing theOn an average, the efficiency ratio is 87.5% efficiency ratio to around 83.5%.

Negligible maintenance I) Lesser number of joints, thereby reducing the I) Repairs and maintenance of plaster ofleakages, II) Smooth finish, no projections thereby walls / ceiling etc., II) Painting of outer andeliminating the need for plastering and inner walls and III) Leakages due tofrequent painting plumbing and sanitation installation

Labor The labor requirement is lesser More

Foundation Simplified foundation design, due to consistent The load distribution is concentratedload distribution

Sound transmission The natural density of concrete wall results in Comparatively poorcoefficient better sound transmission coefficient

Faster completion Takes almost 1/3rd the time required for The pace of construction is slow due to stepconventional construction, because in this by step completion of different stages ofsystem, the walls and floors are cast together activity; I) The masonry is required to be laidin one continuous operation in matter of few brick by brick, II) Erection of formwork,hours and in built accelerated curing overnight concreting and deshuttering forms is a two -enables removal and re-use of forms on week cycle and III) The plastering and otherdaily cycle basis finishing activities can commence only

thereafter.

Dead Load 50% of the conventional construction Double of Monolithic Construction



Investment

Required

(Rs.bn)

Dw elling Units

(Mn)

Low income housing

Overall housing10000 45

4000 31

Market addresses the upper / middle segment

Government intervention is required for

investments in this segment


Population grew at 1.96% CAGR during 1991-2001


Households grew at 2.43% CAGR during the same period

Annexure

Source: NHB's draft Aam Admi Awas Scheme * Gujarat Urban Development Authority

Leading to an increase in housing shortage during 91-01 Migration - biggest growth driver for low income housing

Low income housing presents Rs4000bn opportunity for the monolithic construction:

NHB estimates indicate total investment requirements of Rs.10000bn in housing during

the 11th plan, out of which, Rs.4000bn is towards low income housing. Currently, Sintex is

the only player in monolithic construction in India and market size is pegged at Rs.4bn

(Sintex's expected monolithic revenues during FY09E). If 50% of the expected opportunity

fructifies during 11th plan, it translate into a huge opportunity worth Rs.2000bn.

Source: NHB's draft Aam Admi Awas Scheme * Dwelling Unit

40% of the investment in housing during 11th plan is likely to be directed towards low income housing

629743

218285

846

1028

0

600

1200

1991 2001

Popula

tion (

Mn)

Overall Rural Urban

112

138

3954

192

151

0

100

200

1991 2001

Household

s (

Mn)

Overall Rural Urban

16.314.7 15.8

7.0 8.2 8.9

22.924.7

23.3

0

10

20

30

1981 1991 2001

Household

s (

Mn)

Overall Rural Urban

36%

64%

32%28%

30%

68%70%72%

0%

40%

80%

2001 2010E 2015E 2025E

% o

f overa

ll p

opula

tion

Urban population Rural population

Major increasein shortagewitnessed onlyin urban areas



The National common minimum program (NCMP) is largely committed towards low

income housing: The Government believes that housing is the most important tool for

poverty alleviation and has given a major thrust to low income housing in the NCMP. The

two major constraints in development of low income housing till recently were; i)

appropriate method or technology of construction and ii) financing of low cost housing.

We believe above concerns have subsided and states like Gujarat have taken concerted

steps to invest in low income housing.

Basics of prefabricated structures: Prefabricated structures, as the name suggests, is a building structure manufacturedin the plant and assembled at site. These structures can be prefabricated homes, schools, toilets, site offices, policechowkies, security cabins, defense shelters, telephone booths, base translation (BT) shelters for telecom towers, prefabs forcold chain solutions etc.

Characteristics of the business: The key facets of prefabs business are manufacturing, assembling & execution. The key toprofitability in prefabs is skillful workforce & freight economics (30-35% of the total cost is towards logistics). Prefab facilityhas to be located within a radius of 1000Kms of the site of installation & hence, it is a regional business.

B - Prefabs

Sintex's prefab capacity details

SIL's total capacity of prefabs at the end of FY08 was 110,000 sq feet per day (excluding

Zeppelin) from 5 plants located across the country. The company sold 53,700* sq feet per

day of prefabs (excluding Zeppelin) during FY08, realizing on an average Rs.332* per Sq.

feet (excluding Zeppelin).

Capacity Capacity

Plant location Commissioned FY08 FY09E FY10E FY11E Utilization (FY08)

Kalol, West Oct.071 20000+10000 40000 (Dec.08) 40000 50000 (Dec.10) 85%

Nagpur, Centre Feb.07 20000 20000 20000 20000 40%

Baddi, North Aug.06 20000 20000 30000 (Jan.10) 30000 65%

Kolkata, East March.08 20000 20000 20000 20000 0%

Salem, South July.06 20000 30000 (March.09) 40000 (Jan.10) 50000 (Dec.10) 60%

UP, North Planned - 20000 (March.09) 20000 20000 -

New Plant Planned - - 20000 (March.09) 20000 -

Total capacity 110000 150000 190000 210000

1 Expansion, Note: all the planned expansion commissioning is assumed arbitrarily, Note: the capacity is excluding the capacity of its subsidiary Zeppelin Mobile systems,

* these figures have been calculated based on capacity utilizations figures provided by the company

Increased awareness and acceptability to drive Prefab business- Prefabs is a very big

business in western countries and represents 8 to 10% of the total construction industry.

It is not so in the developing part of the world, mainly because of low product awareness

and acceptability. Prefabs are maintenance free, take 60-70% less time as compared to

site built construction and depending upon the logistics, are 10-15% cheaper than site

built construction. Though the product has many advantages as compared to site built

construction, the major disadvantage is the lack of natural feel. Nonetheless, there is a

large untapped potential.



Plant State / Country Company Products Manufactured Country's Cost Structure

Kalol Gujarat / India Sintex Industries Textiles, Water Tanks, Prefabs, Low Cost

Custom Moldings

Kutch Gujarat / India Sintex Industries Custom moldings Low Cost

Bangalore Karnataka / India Sintex Industries Water tanks Low Cost

Nagpur Maharashtra / India Sintex Industries Prefabs, Water tanks Low Cost

Baddi Himachal / India Sintex Industries Prefabs, Water Tanks Low Cost

Salem Karnataka / India Sintex Industries Prefabs, Water tanks Low Cost

Kolkata West Bengal / India Sintex Industries Prefabs, Water tanks Low Cost

Daman UT / India Sintex Industries Water tanks Low Cost

Pune Maharashtra / India Bright Auto Plast1 Auto Custom moldings Low Cost

Sohna North / India Bright Auto Plast1 Auto Custom moldings Low Cost

Chennai TN / India Bright Auto Plast1 Auto Custom moldings Low Cost

Pithampur MP / India Bright Auto Plast1 Auto Custom moldings Low Cost

Nasik Maharashtra / India Bright Auto Plast1 Auto Custom moldings Low Cost

Noida UP / India Zeppelin Mobile2 Prefabs - BT Shelters Low Cost

Indore MP / India Dig Vijay Comm3 Telecom Towers Low Cost

7 Plants France Nief Plastics4 Multiple custom moldings

NP Hungaria Kft Hungary Nief Plastics4 Multiple custom moldings Low Cost

NP Tunisia Tunisia. Nief Plastics4 Multiple custom moldings Low Cost

Segaplast Maroc SARL Morocco Nief Plastics4 Multiple custom moldings Low Cost

NP Slovakia S.R.O Slovakia Nief Plastics4 Multiple custom moldings Low Cost

3 Plants US WCI5 Multiple custom moldings

2 Plants US Nero Plastics6 Multiple custom moldings

3 Plants Germany Geiger Technik7 Auto Custom moldings

1 Plant Poland Geiger Technik7 Auto Custom moldings

1 - 100% Subsidiary of Sintex Industries, 2 - 74% Subsidiary of Sintex Industries, 3 - 100% Subsidiary of Zeppelin Mobile, 4 - 100% Subsidiary of Sintex Industries, 5 -

81% Subsidiary of Sintex Industries, 6 - 100% Subsidiary of WCI, 7 - 90% Subsidiary of Sintex Industries.

D - Effective tax rate to increase after FY11E

The effective tax rate (ETR) of the consolidated entity was around 22.7%, lower than the normal rate because of some of the plants

being located in tax free zones.

Plants Tax status Products Manufactured Tax holiday up to

Kalol Fully Taxable Textiles, Water Tanks, Prefabs, Custom Moldings -

Daman Fully Taxable Water Tanks -

Bangalore Fully Taxable Water Tanks -

Kutch Tax Holidays Electrical Custom Moldings FY11

Baddi Tax Holidays Prefabs FY14

Salem Tax Holidays Prefabs FY12

Nagpur Tax Holidays Prefabs FY13

Kolkata Tax Holidays Prefabs FY14

Due to higher tax rate of subsidiaries at 35% and also because of the changing business mix in favor of fully taxable businesses,

we have assumed an ETR of 26.4% for next three years, which is an increase of 3.7% over FY08 ETR. We believe that because of

some of the plants going out of the tax holiday regime, ETR would increase post FY11E and the PAT growth is expected to be lower

than the revenue growth, assuming other thing remain unchanged.

C - Sintex’s plant details


Sintex Industries Ltd. Initiating CoverageThe team

www.emkayshare.com

BUY Expected total return (%) of stock price appreciation and dividend yield) of over 25% within the next 12-18 months.ACCUMULATE Expected total return (%) of stock price appreciation and dividend yield) of over 10% within the next 12-18 months.REDUCE Expected total return (%) of stock price appreciation and dividend yield) of below 10% within the next 12-18 months.SELL The stock is believed to under perform the broad market indices or its related universe within the next 12-18 months.NEUTRAL Analyst has no investment opinion on the stock under review.

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Emkay Rating Distribution

Institutional Equities Team

Anish Damania Business Head [email protected] 91-22-66121203

Research Team

Ajay Parmar Head Research [email protected] 91-22-66121258Ajit Motwani Cement & Capital Goods [email protected] 91-22-66121255Amit Adesara Logistics, Engines,Real Estate [email protected] 91-22-66121241Amit Golchha Midcaps [email protected] 91-22-66242408Chirag Shah Auto, Auto Ancillaries [email protected] 91-22-66121252Kashyap Jhaveri Banks [email protected] 91-22-66121249Manik Taneja IT [email protected] 91-22-66121253Manoj Garg Pharma [email protected] 91-22-66121257Pritesh Chheda, CFA FMCG, Engineering, Mid -Caps [email protected] 91-22-66121273Pankaj Kumar Midcaps [email protected] 91-22-66121243Rohan Gupta Paper, Fertilisers, Real Estate [email protected] 91-22-66121248Sumit Modi Telecom [email protected] 91-22-66121288Vishal Chandak Metals [email protected] 91-22-66121251Abhishek Gaoshinde Research Associate [email protected] 91-22-66121278Akshat Vyas Research Associate [email protected] 91-22-66121491Chirag Dhaifule Research Associate [email protected] 91-22-66121238Chirag Khasgiwala Research Associate [email protected] 91-22-66121254Pradeep Agrawal Research Associate [email protected] 91-22-66121340Prerna Jhavar Research Associate [email protected] 91-22-66121337Sachin Bobade Research Associate [email protected] 91-22-66242492Sweta Sinha Research Associate [email protected] 91-22-66121282Vani Chandna Research Associate [email protected] 91-22-66121272Vikas Jhabakh Research Associate [email protected] 91-22-66121383Meenal Bhagwat Database Analyst [email protected] 91-22-66121322Mohan Billava Production Analyst [email protected] 91-22-66121271

Sales Team

Meenakshi Pai India / UK Sales Desk [email protected] 91-22-66121235Rajesh Chougule India Sales Desk [email protected] 91-22-66121295Falguni Doshi Institutional Equity Sales [email protected] 91-22-66121236Palak Shah Institutional Equity Sales [email protected] 91-22-66121277Ashok Agarwal Associate Inst.Equity Sales [email protected] 91-22-66121262Roshan Nagpal Associate Inst.Equity Sales [email protected] 91-22-66121234

Dealing Team

Kalpesh Parekh Senior Dealer [email protected] 91-22-66121230Ajit Nerkar Dealer [email protected] 91-22-66121237Dharmesh Mehta Dealer [email protected] 91-22-66121299Ketan Mehta Dealer [email protected] 91-22-66121233

Derivatives Sales Team

Sandeep Singal Co Head Institutions - Derivatives [email protected] 91-22-66121355

Nupur Barve Institutional Trader Derivatives [email protected] 91-22-66121222Manish Somani Sales Trader [email protected] 91-22-66121221Manjiri Muzumdar Sales Trader [email protected] 91-22-66121224Ankur Agarwala Sales Trader [email protected] 91-22-66121213Babita Sharma Sales Trader [email protected] 91-22-66121333

Technicals Research Team

Manas Jaiswal Technical Analyst [email protected] 91-22-66121274Suruchi Kapoor Jr.Technical Analyst [email protected] 91-22-66121275

Derivatives Research Team

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Documents

Sintex Industries - Initiating Coverage - AceAnalyser Meet/102742_20080924.pdf · Emkay Research Sintex Industries Ltd. Conglomerate in the making 24th September, 2008 Paragon Center,