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Friday, 3 December 2010

Sintex - Good Long Term Pick

Sintex is a solid company and has been in business for nearly 80 years. They are primarily known for their rooftop water storage tanks. Today, the tanks business is a small part of the overall company. Sintex has moved to becoming a major player in the infrastructure and plastics segment.

Some points for Sintex:-
* Promoter Holding has increased in the last 2 quarters (from Mar 2010 to Sep 2010) from 30.20% to 33.77%
* Has been paying dividends uninterrupted for 77 years
* Dividend paid is 5.98% of Net profit
* By 2012, India is expected to emerge as the world’s third largest plastic consumer after the US and China, consuming 12.5 mn tonnes annually and attracting US$80 bn fresh investments

Strategic developments, 2009-10
* Invested 137.89 crores in its standalone operations to enhance production and operational efficiency
* Established a new plant in Nalagarh while Nagpur and Namakal plants are under construction
* Nief Plastics acquired two companies named SICMO and SIMOP, increasing the European customer base; these companies are specialised in making and testing metallic moulds for plastic injection and light metal alloys
* Incorporated a wholly-owned subsidiary, Sintex Infra Projects Ltd to capitalise on the growing domestic infrastructural developments
* Acquired Esveegee Steel (Gujarat) Pvt. Ltd (100% equity stake) and renamed it Sintex Oil and Gas Pvt.

Building Materials Division:-
* 65% of sales
* Monolithic Concrete Housing Solutions, Prefabricated Structures, Liquid Management Solutions and Waste Management Systems
* Pioneered the manufacture of a range of panels used as roofing and wall materials. Energy Conservation Building Code (ECBC) 2007 is expected to drive energy-efficiency discipline in future, increasing sandwich-panel demand.

Core custom moulded products:-
* During 2009-10, Sintex initiated a project with Rafael, an Israel-based Company, supplying carrier cases for missile components

Areas of Future Growth:-
* Monolith construction, prefab construction
* The Company anticipates huge opportunities in the feeder pillar box segment owing to the growing popularity of underground cabling.
* Increasing focus on FRP transformer fencing, which is expected to generate enormous returns and volumes (received approvals in Gujarat and is likely to enter Uttar Pradesh)

On a consolidated basis, EPS for FY11 is expected to be around Rs. 30 (Rs 15 on the new FV of Rs 1) with a target of Rs 250-300 in the next six months. I am expecting the company to grow at an average of 20% over the next 3-4 years. With its existing consolidated PE at around 16, I do not expect any major re-rating to happen, so the growth in the stock price will come from the earnings growth.

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