Stock Pick From Diversified Sector

HERE IS WHY

Building material segment to benefit from government and CSR activities

New capacity of spindles would boost 

High growth opportunity on huge mass housing demand

Sintex is one of the leading providers of plastic and textile products in India. With a global footprint, the company evolved from pure plastic play to diversified player and has a presence in businesses like building products, textiles and custom moulding. The company stands to gain from increasing government spending in social welfare schemes providing huge opportunity for the building products segment. The company has built a strong product portfolio in plastic (3,500+ products) over the past 30 years. It derives 44 per cent revenue from custom moulding and 45 per cent from building material including pre‐fabricated plastics, monolithic and storage tanks. Its textile segment 10 per cent of revenue is focused on value‐added products and primarily caters to ready-made garments and high‐end fabric used in suiting and shirting.

Prefab and monolithic construction segment could be hugely benefited from the launch of housing mission by the government like Housing for All (Urban)-Pradhan Mantri Awas Yojana, “Housing for All by 2022” Mission. The company is also a major beneficiary of government spending on healthcare, education, and corporate CSR initiatives. Custom moulding with applications in automobile segment should also be a growth driver as automobiles companies have increased their capex spending.

On financial front, net profit rose 18.84 per cent to Rs 628.44 crore in the year ended March 2016 as against Rs 528.8 crore during the previous year ended March 2015. Sales rose 10.79 per cent to Rs 7794 crore in the year ended March 2016 as against Rs 7035 crore during the previous year ended March 2015. Operating profit reported 12.15 per cent growth at Rs 1357.7 crore along with operating margin expanded by 21 bps at 17.42 per cent. Sintex saw encouraging growth in textiles and prefab of 30 and 25 per cent respectively in FY16. Custom moulding (CM) grew by 11 per cent to Rs 3440 crore bn driven to by domestic business growth of 20 per cent to Rs 1520 crore in FY16 with demand from auto segment. The revenue in overseas CM increased marginally by 4.5 per cent to Rs 1920 crore due to currency translation impact whereas constant currency growth of around 15 per cent.

For FY17, the company expects utilization of new spinning phase I at around 55-60 per cent with total revenue of Rs 9,000 crore. Prefab utilization is at 80 per cent and expects to improve by 10-15 per cent. The company has raised a USD 110 million as convertible debentures which will result in approximately 18 per cent equity dilution from current share paid up capital of Rs 44.5 crore to Rs 52.6 crore. The purpose of raising this FCCB is to invest in CAPEX. Capital expenditure would be around Rs 1,100 crore including Rs 700 crore for spinning in FY17.

On the valuation front, it is available at 5.35 times price to earnings (P/E) ratio at EPS of Rs 14.22 as on March 31, 2016. Therefore, we recommend BUYing this scrip with expectations around 35 per cent from the current market price in next one year.