Sintex Industries’ foray into related areas and overseas markets should help it sustain high growth rates in the next two-three years.
Sintex Industries is today much more than just a producer of water storage tanks and textiles. Its extended line of plastic products such as custom mouldings and, prefabricated and monolithic structures find wide applications in different industries and construction of temporary and permanent housing.
The change in revenue mix was partly accomplished on the back of several acquisitions in the past. The acquisitions have not only helped the company to introduce newer technologies, but also extended its global presence.
The benefits of integration of these subsidiaries, growing demand for new product lines, expansion of capacities and geographical diversification will be felt from FY09 onwards. All these put together will help the company grow at about 45 per cent annually over the next two to three years.
Adding synergies
Sintex generates majority of its revenue (about 40 per cent) from sale of custom moulded products, for users in the electrical, auto and other ancillary segments. In these segments, which could propel future growth rates, the company is expanding through the organic and inorganic routes; Sintex plans to invest about Rs 730 crore over the next two to three years.
Over the last 15 months, the company has completed five acquisitions including in overseas markets. With these acquired companies which possess different technologies, Sintex has extended its product portfolio to cater to the needs of sectors like aerospace, wind power, defence and consumer durables.
Additionally, these acquisitions will also help the company to leverage the former’s client base and global foot print in big markets like US, France and Germany.
“We will leverage these subsidiaries in terms of growth in top line, while using existing customers and different markets such as Europe. Importantly, since these are large markets in terms of size, it will make a significant difference in the topline,” Sunil Kanojia, group president, Sintex India.
Meanwhile, these acquisitions have led to pressure on consolidated margins, due to higher employee costs. Notably, even as the company’s raw materials are based on derivatives of oil, the margin pressure on this count has not been significant as Sintex being a leader in many segments has been able to pass on the same.
The company now believes that post the price hike undertaken for various products and the oil prices are coming down, the pressure on the margins could be eased out. The company also expects that integration of these acquired companies will lead to improvement in operating margins by about 150-200 basis points.
Growth booster
Besides the custom moulding business, which is growing at healthy pace, a large part of growth would come from the construction division, which includes monolithic construction (low cost housing). This segment merely accounted for about nine per cent of total income in FY08.
However, on the back of strong order book and better industry outlook, revenues from this segment is expected to grow at 90 per cent over the next two years, and thus, the business’ contribution could reach to about 16-18 per cent by FY10.
Since its start about two years back, this business has been growing fast and has an order book of about Rs 1,400 crore, which is 6.6 times the FY08 revenues of Rs 220 crore from this business.
Sintex being the first entrant and the only player in this segment, has been the major beneficiary of growing demand on the back of different state government's thrust on low cost housing.
Several agencies including the NHB have rated monolithic housing a cost effective and better alternative for low cost housing. The company is already executing an Rs 750 crore project for building 50,000 low cost houses in Gujarat, which could just be a beginning as other states follow suit.
The company is investing about Rs 780 crore in monolithic construction business to enhance its execution capabilities as well as tap new opportunities.
Prefabricated structures
Another emerging and growth driver is the company’s prefabricated structure business, which accounts for about 29 per cent (Rs 661.3 crore) of total revenues.
The company was the first to come out with a plastic-based prefabricated product range in the country. These structures find diverse applications for erecting schools, kiosks, temporary tents, hospitals, police stations, offices and so on. The segment has grown at 42 per cent annually over the last two years.
Also, since these technologies and the solutions are now gaining importance given the faster and cost effective solutions, revenues in this business are expected to grow at about 30 per cent annually over the next two to three years.
In this direction, the company is investing Rs 480 crore to expand its prefab manufacturing capacities. Besides, to grow inorganically in this space, the company acquired 74 per cent stake Zeppelin Mobile Systems India, which is among the leading players in the BT shelter space used in telecom towers.
Valuations
Except the company’s textile business, which grew at just 9.5 per cent in FY08 and accounted for 15 per cent of total revenues, all the other three segments (85 per cent of consolidated revenues) are growing at a fast pace.
| STRONG GROWTH | |||
| Rs crore | FY08 | FY09E | FY10E |
| Sales | 2,274.20 | 3,980.00 | 5,500.00 |
| OPM (%) | 16.80 | 14.50 | 15.00 |
| Net profit | 217.20 | 330.00 | 482.00 |
| EPS (Rs) | 14.20 | 22.50 | 33.80 |
| PE (x) | 19.40 | 12.20 | 8.10 |
| E: Analysts estimates | |||
As other businesses are growing, the contribution of textile business in the total revenue will gradually come down to the estimated seven per cent in FY10, thus will only have a marginal impact on overall growth. Its investments in the fast growing businesses and the benefits of recently acquired companies are promising for the future growth of Sintex Industries.
The stock, which made a 52-week high of Rs 615 in early January 2008, is currently trading at Rs 275. Trading at a PE of 12.5 times and 8.5 times the company’s estimated consolidated earnings for FY09 and FY10, respectively, the stock is capable of delivering over 25 per cent returns in a year’s time.
