Citi downgrades Sintex to ‘sell’ , cuts target price to Rs 52

Citigroup has downgraded the ratings of Sintex Industries to ‘Sell’ . The bank had initiated coverage on Sintex with a ‘Buy’ in November 2011 after a sharp correction in CY11, as the company seemed to be on track with keeping working capital and capex under control.

This has not played out in FY12. With a sharp overshoot in capex in FY12 and deterioration in working capital, Citigroup thesis has been invalidated and, hence, it has downgraded the stock to ‘Sell’ . “We cut our target price to Rs 52 from Rs 104 as we now use 5.3x EV/EBITDA on March 13E to capture the increasing possibility that a large part of FCCBs will have to be funded by interest-bearing debt,” said the Citigroup note.

Citigroup estimates do not yet factor in the replacement of FCCBs with high-cost debt, which may lead to a further downside in numbers. FY12-FY 14E EPS has been cut by 2% to 14% to factor in FY12 results and slowdown in monolithic and custom-molding businesses.