JP Morgan reiterates its 'Overweight' stance on Sintex Industries

Sintex Industries

RESEARCH: J P MORGAN

RATING:OVERWEIGHT

CMP: Rs 422

J P Morgan maintains their Overweight rating on Sintex Industries and increase their price target to Rs 475. Sintex management addressed concerns about the balance sheet and reiterated FY11E guidance of 30% revenue growth and 18-19% EBITDA margins.

Balance sheet related concerns partially addressed:

1) Management stated that Sintex will reduce its stake to a minority investor in the oil & gas subsidiary and its cumulative investments over next 4-5 years would be capped at Rs 1B.

2) Cash balance in the escrow account for M&A has declined to Rs 3.5-4B in Sep-10 from Rs 5.29B in Mar-10, which we expect will be utilized for a potential acquisition in the monolithic segment expected in 2HFY11.

3) Working capital would continue to increase on account of rising contribution from the monolithic business. J P Morgan raise their FY11E-FY13EPS estimates by 5%-12%, factoring in higher growth and margins for textiles and custom molding segments. The stock is currently trading at 10.7x FY12E P/E, an 11% discount to its historical average.

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