Sintex is Nokia of water storage tank business in India. Even if you don’t have one at your home, you can see ‘Sintex’ on every corner of the country.
Sintex industries is a prominent player in textiles and plastic business in India. Over the years it has built a strong brand recognition. It was a textiles company in 1931 and later diversified into plastic business in 1974, with manufacturing of water tanks. Since then company has diversified into various plastic products like prefabs, custom moulding and into construction. Recent years, they acquired many companies to scale up custom molding and prefab segment, within and outside India. Currently, Sintex manufacture their products from 15 plants in India and 20 plants outside India.
Sintex operates in three business segments:
Textiles (structured fabrics)
Plastic (water tanks, custom moldings, prefabricates structures etc.)
Construction (Monolithic Construction)
TEXTILES
Sintex is probably the only Indian textile company which relies heavily on product development. In the textiles business, it primarily manufactures industrial fabrics and fabric for premium retail garmenting. However, it does not have direct marketing presence, rather it is a supplier of international and domestic design houses. They work with some of leading European brands like Lacoste, GAP, Ann Taylor and Marks & Spencer. Also, the company has strong marketing and design tie up with Europe’s leading fashion and design company, Canclini Tessile. Sintex annually adds about 36,000 designs to its fabric collection. The company has now begun marketing of coated fabrics, which are used in sports wear, travel, and military products.
Concerns:
*Since their textiles business is export oriented, the global downturn may affect the sales.
*Fluctuation in USD is also a concern
*Growth in textiles will be relatively lower and that largely led by deepening relationship with global design and fashion marketing companies.
*In textiles, being a high value business, the focus is more on relationship with the vendors who require customized solutions. Thus, sustaining the current relationships and nurturing new relationships would be crucial.
*Since this is a high-end value-driven business, its potential to grow on volumes would be limited.
PLASTIC
The Indian plastic industry is valued at US$ 4 bn (0.4%) compared to the global plastics industry of US$ 1 trillion. The domestic per capita consumption still lags behind at 4 kg, as against the world average of nearly 20 kg. This provides huge opportunity for sustainable growth for plastic products manufacturers in the country.
Sintex is a leader in the manufacturing and sales of plastic products in India. Sintex’s plastic division has been the star performer for the company over the past 4-5 years. Presently plastic segment is the largest revenue contributor to the company. From just water tank business, it has diversified into prefabs and custom moldings.
Tanks:
Water is a scarce commodity in India, and storing them for future usage is inevitable and important.
Sintex is the leader in the plastic overhead tanks. The company started this operation in 1975 and at present has 1,200 agents, 650 dealers, 18 offices, 22 depots and close to 10,000 retailers. The wide distribution network is Sintex’s greatest strength as it is a deterrent to competition. Companies plastic division has been star performer over past 4-5 years. It holds over 60% of market share of water storage tank business in India.
Since this is a matured business, the growth rate for Sintex tank is low. The margins are also very low due to competition from a lot of unorganized players. However, this business allows Sintex to retain its distribution strength and the brand value through which it can push a lot of other plastic-related products.
Custom molding:
This is another fastest growing segment of Sintex. Custom moulded products are made from glass-fiber-reinforced polymers that yield characteristics such as higher strength, corrosion resistance and lower weight compared to conventional materials such as steel. Custom molding substitutes metal components used in auto, wind power, aerospace, defense etc.
The custom molding is likely to emerge as a stable and secure long term growth business for the company. It has made 5 acquisitions recent years to address diverse industries such as aerospace, wind power, aeronautics, defense etc. They manufacture the products for major clients like GE, Cummins, Coca Cola and Pepsi. Its key product in custom molding business includes electrical enclosures, meter boxes, auto components, FRP Tanks, etc.
Auto Accessories: Sintex acquired the auto accessories business of Bright Brothers in FY08. Bright Brothers specializes in injection moulded components, such as bumpers, cockpit system, door panels and radiator fans etc. Its client list includes Maruti, Tata Motors, M&M, Hyundai, Honda etc.
Prefabricated Structures:
Prefabricated structures are the building structure manufactured in the plant and assembled at site. The key facet of prefabs business are manufacturing, assembling and execution. Prefab is a very big business in Western countries, which represents 8-10% of total construction industry, but that is not the case in developing countries like ours, mainly due to lack of awareness. Prefabs are maintenance free, takes 60% less time, and upto 15% cheaper. Sintex is the largest player in the domestic prefabrication market.
Sintex prefabs, which are available in various types and designs, find diverse uses, ranging from temporary to permanent structures. They are ideal for erecting schools, kiosks, huts, tent substitutes, hospitals, police stations, offices, telephone exchanges, post offices and even community halls. Govt is planning for large number of schools, hospitals etc. The market potential is huge.
Concerns:
*Prefab structures, being a service intensive business, could face execution risks.
*Also, relationships with state/centre governments are crucial as these products are generally sold to them.
*Any government regulation curtailing the use of plastics could be detrimental for Sintex.
MONOLITHIC CONSTRUCTION
Monolithic construction involves creating a lightweight plastic-based formwork and then casting walls and slabs together by pouring fluid cement concrete into the formwork. It requires nominal quantity of metallic reinforcement bars that helps in significantly reducing construction costs and time and requires minimal maintenance. Monolithic is a substitute to conventional method of construction, promises immense growth potential to the company. It is cost effective and less time consuming. While prefabs are used to construct only single storey structures, monolithic construction can create structures up to five to six floors.
Low income housing present opportunity for monolithic construction to the tune of Rs. 4L Cr. Currently sintex is the only player in Indian market in this segment.
Sintex entered the monolithic business in the beginning of FY08 and was soon flooded with orders from various state government organizations.
Affordable and quality housing is a key challenge faced by the Indian government. With private builders concentrating on middle and high income groups, the lower income group and poor people are deprived of proper housing facilities. This offers a huge opportunity for Sintex, as its formwork system offers speedy construction of high quality houses at affordable prices. The company already constructed low cost houses for Ahmadabad Urban Development Authority, and they are negotiating with many north Indian cities for similar projects. The current order book for the monolithic construction stands at over Rs. 1800Cr., which is to be executed within 2 years time.
Concern: Since the clients are mainly Govenements (state/centre) delay in getting site clearance or clear title for the land could delay the sales cycle. This would also result in lower margin, as the company would keep on incurring labor cost.
OVERALL CONCERNS
*One of its recent acquisition, Geiger Technik, Sintex has paid around Euro 7 m for a 10% stake so far. Geiger has recently filed for bankruptcy Sintex likely to lose the entire amount that it has invested so far.
*Successful integration of overseas acquisitions and its ability to improve operational efficiency.
FINANCIALS
Sintex maintained a strong growth record over the past few years. It generated average revenues of around US$ 350m over the past three years. Topline and bottomline have grown at average annual rates of 54% and 52% respectively during the past 3 financial years. During the last financial year the sales almost reached at US$700.
Companies average operating margin over past 5 years is 17.5%
SHARE HOLDING PATTERN
Promoters – 30.15% (up from 30.06)
FIIs – 32.38% (down from 34.9%) *
Public – 7.84% (down 8.09)
Private Corporate Bodies - 10.73% (up from 7.82%)
Banks, Fin. Inst., Insurance – 0.08% (up from 0.01%)
*High FII holding is considered as negative after last crash, as FIIs were the main sellers due to global economic crisis. Their action is become unpredictable.
SHARE MOVEMENT
weeks high/low: 70.20/270.60
Average Volume: 2,80,000
HOW IS IT VALUED
Face Value: Rs. 2
Last Closing Price: 252.15
No. of Shares: 136.5m
EPS (FY09): 23.80
PE: 10.59
OPM: 20.15%
GPM: 20.43%
NPM: 13.48%
INTRINSIC VALUE
By evaluating the current business prospects of the company, many of them are at nascent stage in India, the company has potential to grow in big way. Sintex has the advantages of first entrants in many areas. Strong growth drivers are likely to ensure rapid revenue growth in coming years. However, there was dip in sales Q to Q basis in last quarters, mainly due to reduction in prices. We expect a net profit ~Rs.350Cr. (an EPS of ~Rs.25.5/share) for FY10, and the company has the value to pay at least 15 times of FY10 earning (current Sensex PE is 21).
In that perspective, we expect the price of the stock has the potential to reach to Rs. 380 in 1 year time, which is 50% more over current price.
In the meantime, you may watch the last quarter result, which is due to come tomorrow (Oct 12), to decide the entry price. They might subtract Euro 7m as against Geiger bankruptcy this quarter. Any dip in numbers can take the stock 10-15% down, which you may consider as an opportunity to enter.
One may buy the stock with 12 – 18 month perspective. A position even beyond FY12 is advisable for further gains.
We welcome your opinion too, do write us…….
Note: Sintex Ind's Q2 result is out. Net Profit is down to 46.9Cr. as against 68.24 YoY. Click here to read the management clarificaiton
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