ENAM DIRECT

EQUITY RESEARCH

Sintex Industries Ltd

No longer a water tank company Far beyond a plastic company!!!
Sintex Ind. is a leading diversified company marking presence across wide array of plastic & allied products (water tanks to telecom shelters, custom molding for elect. & auto ind., monolithic const. & pre-fabricated structure for dom. mass housing & infra. mkt.) and textiles (prem. margin structured & corduroy fabrics). Co. is poised to capture global opportunities, through acquisition of Nief, Bright Autoplast, Wasaukee, Zeppelin & Digvijay comm.

For private circulation only

BUY
CMP (Rs) Target price (Rs) 174 216

Govt. impetus on Infra & Mass housing spending: Sintex has pioneered 24% Potential upside monolithic construction in India by introducing entirely new housing solution for mass & low cost needs. Co. benefits from govt. spend in top 3 priority areas - education, health and low cost housing where over Rs 1 lac cr is allocated for FY12 in the budget+other initiates by govt. provides huge Stock data opportunities for Sintex, which derives ~ 40% of its rev. from govt. orders. No. of shares (cr) 27.29 Strategic shift to new/high growth businesses: Sintex has always ventured 1 to move up the value chain and reduce its dependence on commodity FV (Rs) business & has taken a big leap from being a water tank & textile co. (5% & Market cap (Rs cr) 4,750 10% of rev. only) to a major custom molding and low cost 52 Wk Hi/low (Rs) 237.1/131.0 structures/housing & infra Co. (each > 40% of revenue), which are growing Avg. daily vol.* (Shrs) 1,587,290 at robust pace. High entry barrier put any new entrants at bay: Company has a BSE Code 502742 leadership position in monolithic & pre-fabricated (prefab) structures and SINTEX is a well established player in custom molding and other business with NSE Code high entry barriers regulatory approvals, technology, client relationships Bloomberg code SINT IN and most important - timely execution capabilities. SNTX.BO FCCB sheltered though future FCF: We expect co. to generate FCF of over Reuters Code Rs 500 cr which could be utilized to repay FCCB in FY13 - in case of non * 6 monthly average conversion (current cash+bank > Rs 1,000 cr) Subsidiaries showing traction: Nief has turnaround & performed well; Shareholding (%) Bright Autoplast to benefit from strong domestic auto sales + expansion; Mar-11 QoQ Chg Wausaukees business is stabilizing. Co has ventured into high growth verticals such as defence, aerospace and wind power through its Promoter 34.96 0.37 subsidiaries. 33.31 1.30 Robust order book provides growth visibility: As on Feb 2011, Sintex has FIIs a strong order backlog of over Rs 3,400 cr (monolithic & prefab only 2.7x MFs / UTI 6.24 2.97 FY10 segmental sales) executable over 20-22 months and has tendered bids 2.58 0.12 Banks / Fis to various housing projects housing boards, slum rehabs etc.

COMPANY REPORT

Valuations

Others

22.91

3.78

Considering the track record and enormous potential to deliver future growth derived from capex on various sectors & from increasing plastics penetration Price performance in India, we believe the company is on a high growth trajectory where 25000 250 profitability is expected to grow over 22% CAGR (FY10-12). Looking at the 20000 200 future growth prospects & no major capex going forward, we have valued 15000 Sintex on Price/earning multiple parameter. Observing the performance of its 150 10000 overseas subsidiaries, we strongly believe that Sintex deserves a better 5000 100 earning multiple than its 1 yrs forward avg. P/E of 13.3x. However, valuing Apr-10 Jun-10 Aug-10 Oct-10 Dec-10 Feb-11 Apr-11 the company @ 12x its FY12E EPS (10% discount to its 1 yr fwd multiple), BSE_SENSEX Sintex Industries we still arrive at a target price of Rs 216 per share. We recommend a buy on Sintex Industries with a potential upside of 24% over a period of 12-15 Source: Cline, ENAM Direct Research months.

Financial summary (Consolidated)

Y/E Mar 2010 2011E 2012E Sales (Rs Cr) 3,282 3,973 4,854 PAT (Rs Cr) 330 381 492 Consensus (EPS - Rs) 16.4 18.9 EPS (Rs) 12.4 13.9 18.0 Change (YoY %) 2.5 12.5 29.2 P/E (x) 14.0 12.5 9.7 RoE (%) 18.4 17.9 19.3 RoCE (%) 10.0 12.5 14.2 EV/EBITDA (x) 12.0 9.1 7.0 DPS (Rs) 0.6 0.6 0.6

Source: Company, ENAM Direct Research

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Sintex Industries Ltd

COMPANY OVERVIEW
Incorporated in 1931, Sintex is a leading plastic & low cost housing & infra construction major. The company commenced its operations in textile sector with a textile mill at Kalol, Gujarat in 1931, diversified into water storage tanks in 1975. Since then, the company has moved on to providing technology intensive products and business solutions based on plastics. The unprecedented success of its brand Sintex through water tanks had made it a generic name.

Sintex - A Journey So Far (From Textiles Plastics - Housing & Infra construction)
1995: Name changed to Sintex Industries Ltd. Commenced manufacturing of SMC molded products, pultruded products, resin transfer molded products and injection-molded products Alliance with European design houses and a UK based textile marketing company Commenced production of prefabricated structures for classrooms, booths, kiosks and office rooms Entered the housing sector with monolithic construction Acquisition of 74% stake in Zeppelin Mobile Systems Ltd

1931: Incorporated as The Bharat Vijay Mills Limited in June

Commenced plastic molded polyethylene liquid storage tanks manufacturing

1931-74

1975-90

1991-2000

2000 YTD

Established a composite mill in Kalol, Gujarat

Introduced new plastic products like doors, windows, frames and pallets Introduced quality corduroy fabrics in India

Modernization and expansion of the textile unit Commenced structured yarn dyed business

First international acquisition by acquiring 81% stake in Wasaukee Composites Inc., USA. Wasaukee acquired 100% stake of its competitor, Nero Plastic Inc., USA Acquired 100% stake in Nief Plastic SA, a French company Acquired automotive business division of Bright Brothers Limited Zeppelin acquired Digvijay a Telecom TSP company.

Source: Company, ENAM Direct Research

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BUSINESS OVERVIEW
Building Products 43% Custom Moldings 47% Textile 10%

Pre-fabricated structures Monolithic construction Storage tanks & containers Doors, Windows & Profiles
8 manufacturing plants spread across the country 12 manufacturing processes under one roof One of the market leader in rotational molding products Pioneered prefabs & monolithic construction in India Catering to diverse market segments in Consumer as well as Institutional Building & Construction, Industrial and Government, Telecom and Infrastructure.

Products molded and Fabricated to OEM s specs across market segments. Highly Engineered Thermosets and Thermoplastic Molding and System Fabrication Large Capacity for Compression, Injection, RTM, RIM, VARTM, Thermoforming etc. Fortune 500 customer base. Global foot print. Catering to Automotive, Wind Energy, Mass Transit, Medical, Defense, Electrical & Power, Aerospace, Industrial Trucks and Tractors.

High end mens structured shirting fabrics Yarn-dyed corduroy and ultima cotton yarn based corduroy Niche market positioning: Focus on high end structured dyed yarn fabrics Fiber to Fabric facilities: Equipped to deliver designs with variety of weaving Dobby, Jacquard and double beam etc Alliances with various European design houses and a UK based textile marketing company Supplies to high end brands like Armani, Hugo Boss, Diesel, Burberry, Zara, Arrow, etc.

Building Products
Prefabs Water Tanks Monolithic

Custom Moldings
Standalone

Textile
Collection Business

Sandwich Panel & Ware Housing

Subsidiaries

Domestic Fabic Business

Utilities

Subsidiary

Zeppelin

Wausaukee Inc

Bright AutoPlast

Nief Plastics

Sources: Company, ENAM Direct Research

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Revenue mix: (FY 10)

10% 43%

EBITDA mix: (FY 10)

14% 47%

47%

39%

Building product

Custom Moulding

Textile

Building product

Custom Moulding

Textile

Geographical Revenue Mix: (FY 10)

4% 25%

71% India Europe US

Source: Company, ENAM Direct Research

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BUSINESS MODEL
I: Building Products
This segment comprised businesses of high-value & volume and can be divided into three divisions i.e. pre-fabricated structures, monolithic construction and storage tanks & containers. For 9MFY11, this segment posted a turnover of ~Rs 1,380 cr ( 54% YoY) and EBITDA margin of 17%.

Revenue Growth
1600 1400 1200 1000 800 600 400 200 0 FY 07 FY 08 FY 09 FY 10
608 1029 1262

EBITDA Growth
250 200
1405

CAGR - 32%

CAGR - 30%

Rs Cr

(Rs cr)

150 100 50 0 FY 07 FY 08 FY 09 FY 10 108 220 175 235

Source: Company, ENAM Direct Research

Pre-fabricated structures (Pre-fab): Pre-fabricated structures are building structures fabricated in the factory & installed at location. The use of pre-fab structure is on the rise globally as these arrangements have a variety of applications globally including temporary and permanent residential, industrial and commercial structures. In US alone, pre-fab housing market is estimated at USD 8bn., growing at 8%-10% p.a. Building concrete structures is time-consuming, which becomes a big problem especially if the requirement is immediate, however, since last four-five years, India has been introduced to a solution to this problem in the form of pre-fab structures. Most of such arrangements entails low cost structure and are built for short to medium term usage eg. schools, sanitation blocks, healthcare centres, etc.

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We remain bullish on this model because of high entry barriers Scale and Efficiency: Pre-fab competition is very difficult to catch up as scale plays a critical role. Eg. Setting up 1500 classrooms across 350 or 450 villages is huge task in a timeframe of 9 to 10 months which Sintex has mastered as a technique through better kit designing, speed of execution and logistics management. Small / regional competitors find it a tough task to match similar scale and efficiency. Workforce training: A standard pre-fab structure of 600 sq ft requires at least six persons to install, including an electrician, a plumber and a mason. These workers have to be trained before they can be sent to the site. Training and sustaining the workforce is a key challenge. Proximity to the Site: Proximity to site is very important as logistics including labour contributes ~33% of the total cost. Company has 5 strategically located manufacturing plants which covers a radius of 1200-1500 kms. Regulatory approval: Companies has to meet strict qualification criteria before obtaining orders for these structures & getting approvals are time-consuming. Moreover, pre-fab structures are required to be earthquake and cyclone-proof, maintenance free, durable and safe. Pre-fab business is a proxy to welfare spends by govt. on education, healthcare and sanitation. Companys business volumes in the segment surpass its nearest competitor by over 10 times. Also, its facilities are approved by 16 state govt. for single storey pre-fab structures. For 9MFY11, this segment posted a turnover of ~Rs 460cr ( 7% YoY) with EBITDA margins of over 17 %. Mgmt. has indicated that some of its recently launched products (cold-chain storage, agri sheds etc) have started seeing good traction & exp. to contribute ~ 30% to total pre-fab revenue.
Demand driver: Government contracts to build social Infrastructure, healthcare etc

Pre-fabricated Structures
BT shelters Bunk houses /Modular houses Prefabricated Schools / Shelters

Acquired 100% stake in Zeppelin Mobile Systems Leading BT shelter manufacturer in India Customers include leading mobile service providers in India Exports the BT shelters to Algeria, Afghanistan and the Middle East Untapped potential in cold chain infrastructure: warehouses & cold chain management

Introduced prefabricated bunk houses in India in 2005 Prefabricated bunk houses are fully furnished and equipped with modern facilities Application in high growth sectors: Public healthcare centers, schools, public administration buildings Project offices, site offices and residential units for long-gestation projects Portable Toilets

Introduced prefabricated School Building and Shelters for defense etc. Products targeted primarily towards low cost homes, schools, primary health centers, Orphanages, workers shelters and relief shelters Expected significant incremental demand potential from the new construction activity in India

Source: Company, ENAM Direct Research

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Monolithic: These structures are made using pre-fab plastic profiles, which are filled with concrete at the site. Sintex has pioneered monolithic business in India by introducing entirely new housing solution for mass & low cost needs. This business is expected to show a strong demand surge with enquiries coming in from several state governments for low-cost housing solutions and slum development. Sintex is best placed to benefit from over Rs 12,000 cr of approved government projects over the next 2-3 years in the states where it operates. It has existing orders of Rs 3,000 cr from various govt. and bid and has tendered bids to various housing projects housing boards, slum rehabs etc. Other prominent players being L&T, B.E Billimoria etc. For 9MFY11, this segment posted a turnover of ~Rs 770 cr ( 126% YoY) and EBITDA margins of ~18.5 %. Sintex acquired 30% stake in Durha Constructions for Rs 42 cr, a privately held civil and mechanical sub-contractor. Sintex also has the option to increase its stake to 51%, based on Durha's FY11 performance. This gives Sintex a firm foothold in areas where Durha have a strong execution track record (Uttar Pradesh, Haryana and Delhi). Durha has been executing civil and structural works for its major clients, including BHEL & L&T, across North India for over 30 years. It has a current order book of Rs 750 cr, of which over 60% comes from civil construction and the balance from power plants, etc. Demand driver Government contracts to address housing shortage in India - over Rs 2,000 cr of MoUs has been signed at the recently concluded Vibrant Gujarat for monolithic construction where the company is having a strong foothold. We believe that other states are also following such initiates. Sintex currently is approved by 13 states for monolithic construction and positive to get others. Housing schemes under JNNURM for Rajiv Awaas Yojana are getting popular among states. This goes towards decongesting of states land parcels to be used for Mass Rapid Transport/ Metro Rail corridors. Funds from JNNURM are pooled to clear the land parcels and create infrastructure. Eg. Gujarat has cleared slums on the embankments of Sabarmati river and offered free housing under JNNURM to slum dwellers. This gives a trade off to the state to utilise the river embankment to create commercial space and recreational facilities. Housing boards are a state-wise subject in India. Each state housing board builds houses for middle income and lower income group are a big potential going forward as monolithic construction is replacing conventional construction.

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Key features of Monolithic Construction Speed: Monolithic construction takes six months to complete against a typical housing project which takes two years Strength: Provides robust structural resistance to vertical and horizontal forces Dead load: Estimated at almost 50% of the conventionally constructed multistoried structures Labour: Requires low-skilled worker intensity; facilitates time-bound mass construction with limited resources Smoothness: Proper formwork materials eliminate smooth plastering on walls and ceilings Eco-friendliness: Permits the use of fly ash in the mix Cost-effectiveness: Zero maintenance cost
Source: Company, ENAM Direct Research

Huge growth opportunities Increased government focus on slum rehabilitation and decongestion of cities Limited threat of competition from new players due to high upfront investment requirements Lack of proper substitutes: most of the substitutes are priced at a premium

Storage Tanks: Sintexs storage tank business, companys flagship brand contributes ~ 5% to the total revenues and we expect the share of this business to shrink further as other businesses grow on robust outlook. For 9MFY11, this segment posted a turnover of Rs 150 cr ( 15% YoY) and EBITDA margins of 9%.

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II: Custom Molding

This segment comprised products specially created around customer specifications for niche applications. Sintexs products for electrical and transformer enclosures are acknowledged for their quality & designs and find applications in auto, electrical & industrial sectors. Company focuses on developing products for electrical accessories and automotive parts segment. Electrical accessories Products include cross arms, trippers, polymeric insulators, cable trays, loop in loop out boxes High voltage and low voltage accessoriescaters to large power projects State electricity boards, private power manufacturers among existing customers Automotive segment Manufactures customized plastic products for OEM companies like Cummins, GE, New Holland Tractors and French Railways etc. Acquisitions of Bright Brothers auto division and Nief Plastics to boost contribution from the segment Sintex, through its subsidiaries Nief plastics, Bright Autoplast & Wausaukee have a major presence in custom molding globally. Bright Autoplast with assistance of Nief has set up a plant to supply electrical accessories to Schneider which is expected to show strong growth going forward. For 9MFY11, custom molding division posted a turnover of ~Rs 1,324 cr ( 25% YoY) and EBITDA margins of ~14 %.

Growth strategy
Acquire new clients and enter new markets through organic and inorganic growth Seek synergies with Nief and Wausaukee Increase electrical accessories production capacity Demand driver Nief: Higher capex spend in power sector, Exposure to high growth composite market in Aerospace and Defense, Electricals, Automotive; Bright Autoplast: Growth in domestic passenger car industry; Wasaukee: Growth in global wind energy & medical imaging sector; Overall margins to improve going forward as more production shifts to India from overseas.

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III: Textiles
Sintex manufactures high end mens structured shirting & corduroy fabrics for niche segment and equipped to deliver variety designs. Sintex, through its association with European firms (for eg: Canclini) has access to the latest designs. Company has a 75% stake in the design studio, Tintofilo, which enhance its design capabilities. Major suppliers includes high end brands like Armani, Hugo Boss, Diesel, Burberry, DKNY, Zara, Van Heusen, Arrow, Mexx, Banana Republic etc. Textile business is growing at a steady rate with positive cash flows with high margins due to companys presence in niche segments. We expect the capacity utilization to improve further from 75% levels to 90% over the next 2 years which will increase the profits for the division. Although a sizable investment has done towards this segment, Sintex is unlikely to allocate additional capital for this business, rather may look at exiting this business in future due to focus on other high growth businesses. For 9MFY11, textile division has shown revenue of Rs 307 cr ( 29% YoY) and EBITDA margins of ~27%.
Acquisition background
Companies/ Currency Zeppelin Mobile Systems (INR) Digvijay Comm. (INR) Buss. Profile Leading telecom shelter manuf. in India with 25% market share Telecom Infra, Networking& servicing Manf. Composite plastic and fibreglass components Composite plastic Leading Nief Plastics (EURO) European co. in high quality insertion molding plastics Bright Autoplast (INR) One of the largest Indian plastic auto ancillary Dec-07 1490 100 1270 177.8 14% 8.4 Oct-07 43 100 120 11 9% 3.9 Dec-07 4.8 100 17 1 6% 4.8 Jun-07 20.5 100 24 3.9 16% 5.3 May-08 540 100 300 84 28% 6.4 May-06 180 100 220 32 15% 5.6 Acquisition Date Amt. Hol. (%) Rev. EBITDA Margin EV/ EBITDA

(Figures in mn)
Customer/ Segment

BT shelters, mobile hospitals, refrigerated vehicles etc. Major domestic telecom operators Cons. Ind. - auto electrical, Corrosion resistant prod., wind energy, Med. Imaging etc Heavy equipment, mass transit. CAT, Kenworth truck etc. EU & Indian clients, Aerospace composite segments, defence & mass transit system etc. - GM, Renault etc. Auto OEM's Maruti, M&M, Tata Motors

Wasaukee Composites (USD) Nero Plastics (USD)

Source: Company, ENAM Direct Research

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Sintex Industries Ltd

Performance of Subsidiaries
Performance - 9 M FY 2011 Companies/ Currency Zeppelin Mobile Systems (INR) Digvijay Comm. (INR) Wasaukee Composites (USD) Nero Plastics (USD) 31 Revenue 810 EBITDA 72.9 Part of Zeppelin 3.3 Merged with Wasaukee 11% Margin 9% Comments

(Figures in mn)

We expect operational improvements going forward with more focus towards non telecom business

Improvements expected specifically in the wind energy business which recently has shown traction

Performed well. Operating margins expected to Nief Plastics (EURO) 117 14.6 13% improve over 200 bps - gradual shift of incremental manufacturing towards Indian operations We expect the business to grow over 30% CAGR Bright Autoplast (INR) 1930 308.8 16% (FY10-13) backed by Nief's clientele. Operating margins to get stabilize at current levels.

Note: Performance of Zeppelin and Wasaukee came down primarily due to underperformance of their core sector. Nief and Bright performed well post acquisition. Zeppelin + Wasaukee contributed 7% & 4% whereas Nief and Bright contributed 30% and 24% respectively at Revenue and EBITDA levels in 9MFY11.

Operational Matrix
Product Textile Looms Fabric Total Plastic Pre-Fabricated structures Thermoplastic Powder Molding Extruded Thermo-Plastic Sections BT Shelters SMC/Thermoforming and Blow Molding/Injection molding
Source: Company, ENAM Direct Research

Units

Capacity

Nos. Mn. Mtr Nos

592 29 592

mn Sqft./day mn kg mn kg Nos mn kg

0.12 0.47 0.39 60,000 1.66

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Sintex Industries Ltd

INVESTMENT RATIONALE
Government impetus on Infra & Mass housing spending: Sintex has pioneered monolithic construction in India by introducing entirely new housing solution for mass & low cost needs. Company benefits from govt. spend in top 3 priority areas education, health and low cost housing where over Rs 1 lac cr is set aside for FY12 in which allotment of over Rs 21,000 cr alone is towards 'Sarva Shiksha Abhiyan ( 24% YoY) in the budget. All these and other initiates by govt. provide huge opportunities for Sintex, which derives ~ 40% of its sales from govt. related projects. This eventually provides an opportunity for Sintex in terms of building monolithic & prefab structures (low cost houses, classrooms etc.) in the rural areas. On the other side Monolithic structures are expected to show a strong demand surge with enquiries coming in from several state governments for low-cost housing solutions and slum development. Strategic shift to new/high growth businesses: Promoters are known for their track record for innovations in plastic, creating new markets/areas in the process, and generating return accretive growth. The business growth is driven by some of the most vibrant parts of the infrastructure-build up and corporate/government capex happening in India. Subsidiaries showing good traction: Nief has turnaround & performed well, EBITDA margin expanded to 12.5% vs 6% in FY08 and we expect further expansion in margin by 150-200 bps backed by strong performance from high margin segments (aerospace and defence) and through outsourcing the labour intensive processes to India. Bright Autoplast continues to benefit from strong domestic auto sales + expansion and from Niefs strong relationships with large clients like Schneider. Zeppelin is now focussing on other lucrative areas like refrigerated vans, mobile hospitals etc. Wausaukee expected to perform well going forward as traction is seen in wind energy segment. High entry barrier put any new entrants at bay: Sintex has a leadership position in monolithic, pre-fab structures, custom molding and other businesses with high entry barriers regulatory approvals, technology, client relationships and most important timely execution capabilities. A new player will take a long time in order to get expertise in above sectors as approval from state govt. is required in the area of monolithic construction as they are critical in nature and based on concrete instead of bricks and do not rely on pillars.

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Sintex Industries Ltd

Working capital pressure to ease going ahead: Sintex acquired Zeppelin & Digvijay communication to capture the growth from Base Telecom shelter (BT shelter) & telecom infra. space but the cellular phone operators saw a severe demand slowdown due to slower rollout by telecom companies and increased sharing of towers & shelters which dragged the performance of this segment - impacting the revenues and increasing the inventory and debtors days. Company is now focussing on other lucrative areas like refrigerated vans, mobile hospitals etc. Also, company was relatively new in the area of monolithic construction which relatively is high working capital intensive business. We believe that now sintex has expertise in these areas which would surely aid the company in effective working capital mgmt. Strategically placed facilities lowers logistics cost: Proximity to site is very important as logistics including labour contributes ~33% of the total cost. Company has 5 strategically located manufacturing plants which covers a radius of 1200-1500 kms. Strong & sustainable business model: Revenues & EBITDA exp. to grow over 21% and 25% CAGR while PAT exp. to grow at 22% CAGR (FY10-12). Sintex is the leader players in low cost housing of monolithic construction followed by L&T, B.E Billimoria (Industry growing > 45% CAGR). Foray into newer ventures; investments in future growth drivers: Companys new focus areas are underground fuel tanks, rain-water harvesting solutions, bio-gas plants and moulded polyethylene boxes for defence ammunition storage which are high growth streams. Entry into such newer areas will aid in reducing product dependence; open up newer revenue and profitability opportunities and enhance business scalability for Sintex in the long run. Robust order book provides future growth visibility: Strong order backlog of over Rs 3,400 cr (monolithic & pre-fab only 2.7x FY10 segmental sales); executable over next 20-22 months provides revenue visibility in the medium term. Moreover, Sintex has tendered bids to various housing projects housing boards, slum rehabs etc. Any orders won going forward will further propel its already strong order book going forward. Strong dividend history: Sintex firmly believes to reward the shareholders by sharing its profits consecutively through dividends over the past 79 years.

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RISKS & CONCERNS

Oil price risk: Plastics being a petroleum derivative based product, is open to the volatility linked with oil prices. In past, the company had managed to maintain the margins through operating leverage and price escalation. Slowdown in govt. spending: Sintex realize ~40% of its revenue through govt. order and any slowdown/delay in infra/mass housing projects could dampen the growth. Competition can step up in monolithic construction: We believe, given the market potential of low cost housing, competition in monolithic can increase going ahead and impact margins. Execution risk: Sintexs high growth business segments - monolithic & pre-fab structures has a high service and labour component. Hence, the companys ability to execute end-to-end projects is critical. Acquisition/diversification in unrelated areas: diversification has been attempted in unrelated areas by the company in oil and gas exploration, now been clarified by the management mentioning that it will move completely out of this subsidiary over a period of 15 months. Any dry acquisition abroad to utilize the FCCB money could also impede future performance. High working capital requirement: Companys majority of the incremental growth is expected from monolithic business which is high working capital intensive area.

Apprehension over FCCB: Sheltered through Free Cash Flows

Sintex issued a 5 year Zero Coupon FCCBs at Rs 246.50 per share (adjusted to stock split & re set of conversion price - earlier Rs. 290 per share) aggregating US$225 mn in FY2008 due in March 2013, to meet foreign currency expenditure in connection with expansion plans of each of its business. Due to conversion price reset and stock split, on full conversion of FCCBs, company will have to issue ~3.7 cr equity shares of 1 each on conversion price (dilution of 13.6% on existing equity). At CMP of Rs 174 per share the FCCB is trading out of the money. We think that at conversion price of Rs 246.50 also, the company would be trading conservatively at 13x FY13E EPS where we would be discounting FY15 financials. We believe that Sintex is available at very attractive valuations with fair probability of these FCCBs to get converted into equity shares. From the total amount of USD 225 mn. of FCCB issuance, only USD 60 mn. is utilized for acquisition, remaining USD 165 mn. is lying in the escrow account which is reflected in the cash and bank balance. Company is expected to generate FCF of over 500 cr till FY13; also in case of non conversion of FCCBs also, Sintex would be in a comfortable position to repay the bondholders along with the interest component of 29% of total amount.

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SINTEX GLOBAL FOOTPRINT

Presence Across Major Markets
Presence in auto, electrical segments Strong Presence in Electrical, Automotive, Aerospace & Defense sectors Leader in domestic passenger automotive plastic components segment

Wausaukee Nero Composites Plastics

Presence in auto, electrical, medical imaging

Nief Plastics
12 manufacturing facilities

Bright Auto

5 manufacturing facilities

SINTEX
8 manufacturing facilities

6 manufacturing facilities

Zeppelin & Digvijay

Sintex Industries Limited, India

Presence in BT shelters for telecom, infrastructure & networking

100%

100%

Zeppelin Mobile Systems India Limited, India

100%

Sintex Holdings BV, Netherlands

Digvijay Communication Network

100% 100% 100% 100%

Sintex Holding USA, Inc.

100%

Bright AutoPlast Pvt. Ltd., India

Sintex Holdings BV, Netherlands

Sintex France S.A.

100%

Wausaukee Composites, Inc.USA

100%

Nief Plastic S.A., France

Nero Plastics Inc.

Sources: Company, ENAM Direct Research

Major Clients

Sources: Company, ENAM Direct Research

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VALUATIONS
We expect Sintexs revenues & profitability to grow over 21% and 22% CAGR (FY10-FY12) respectively primarily driven by various govt. projects and adding new OEMs. Company remains on high growth trajectory backed by government impetus on low-cost housing, rural education and increasing acceptance of composites.

Key Assumptions
Revenue FY 10 Plastic Business (I+II) I Building Product Pre-fabs Monolithic Water Tanks II Custom Molding Textiles Business Total Revenue 2,938 1,405 534 719 152 1,533 344 3,282 FY 11E 3,595 1,896 609 1,114 173 1,698 378 3,973 FY 12E 4,449 2,501 694 1,616 191 1,948 405 4,854 FY 13E 5,531 3,264 792 2,262 210 2,266 433 5,964 FY 10 9% 11% -20% 59% 8% 7% -7% 7% Growth FY 11 22% 35% 14% 55% 14% 11% 10% 21% FY 12 24% 32% 14% 45% 10% 15% 7% 22% FY 13 24% 31% 14% 40% 10% 16% 7% 23% CAGR (FY10-13) 23% 32% 14% 47% 11% 14% 8% 22% CAGR FY 13 16% 17% 19% 17% 9% 14% 25% 16.6% (FY10-13) 27% 34% 20% 43% 10% 17% 16% 25%

EBITDA FY 10 Plastic Business (I+II) I Building Product Pre-fabs Monolithic Water Tanks II Custom Molding Textiles Business OP. Profit (Ex. other op. Inc.) 433 235 85 136 14 198 69 501 FY 11E 576 336 113 207 16 240 95 670 FY 12E 727 445 129 299 17 282 101 828 FY 13E 882 561 148 394 19 321 108 990 FY 10 15% 17% 16% 19% 9% 13% 20% 15%

EBITDA Margin FY 11 16% 18% 19% 19% 9% 14% 25% 16.9% FY 12 16% 18% 19% 19% 9% 14% 25% 17.1%

Source: Company, ENAM Direct Research

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Segmental Contribution
Revenue FY 08 I Building Product Prefab Monolithic Water tanks II Custom Moulding Standalone Wasaukee Nief plastics Bright brothers III Textiles Total 45% 29% 9% 7% 40% 18% 4% 15% 2% 15% 100% FY 09 41% 22% 15% 5% 47% 13% 7% 23% 4% 12% 100% FY 10 43% 16% 22% 5% 47% 10% 4% 26% 6% 10% 100% EBITDA FY 08 I Building Product Prefab Monolithic Water tanks II Custom Moulding Standalone Wasaukee Nief plastics Bright brothers III Textiles Total FY 09 FY 10 FY 11E FY 12E FY 13E FY 11E 48% 15% 28% 4% 43% 8% 4% 25% 6% 10% 100% FY 12E 52% 14% 33% 4% 40% 7% 4% 23% 7% 8% 100% FY 13E 55% 13% 38% 4% 38% 6% 3% 21% 7% 7% 100%

43% 30% 10% 3% 26% 26% 1% 0% 0% 31% 100%

42% 23% 16% 3% 38% 18% 3% 15% 4% 20% 100%

47% 17% 27% 3% 39% 14% 2% 18% 5% 14% 100%

50% 17% 31% 2% 36% 10% 3% 18% 6% 14% 100%

54% 16% 36% 2% 34% 8% 2% 17% 6% 12% 100%

57% 15% 40% 2% 32% 7% 2% 16% 7% 11% 100%

Source: Company, ENAM Direct Research

Business Valuation
Sintex is a well managed company with focus mainly on improving accretive profitability by providing quality solutions through its innovative & value added products. Considering the track record and enormous potential to deliver future growth derived from capex on various sectors & from increasing plastics penetration in India, we consider the company is on a high growth trajectory where profitability is expected to grow over 22% CAGR (FY10-12). Looking at the future growth prospects & no major capex going forward, we have valued Sintex on Price/earning multiple parameter. Observing the performance of its overseas subsidiaries, we strongly believe that Sintex deserves a better earning multiple than its 1 yrs forward avg. P/E of 13.3x. However, valuing the company @ 12x its FY12E EPS (10% discount to its 1 yr fwd multiple), we still arrive at a target price of Rs 216 per share. We recommend a buy on Sintex Industries with a potential upside of 24% over a period of 12-15 months.

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FINANCIALS (CONSOLIDATED)
Profit & Loss Statement
Y/E Mar FY10 3,282 3,315 2,651 19 102 535 92 626 144 73 409 77 332 0 2 330 FY11E 3,973 3,983 3,146 21 124 680 70 750 156 113 481 96 385 0 4 381

(Rs Cr)
FY12E 4,854 4,874 3,834 21 151 848 59 908 175 111 621 124 497 0 5 492

Net sales Total income Cost of goods sold Contribution (%) Advt/Sales/Distrn O/H Operating profit Other income EBITDA Depreciation Interest Pre-tax profit Tax provision Profit after tax E/o income (exp.) Minority Interest Adj. PAT

Balance sheet
Y/E Mar Total assets Gross block Net fixed assets CWIP Investments Goodwill on consolidation Wkg. cap. (excl cash) Cash / Bank balance Misc. assets FY10
4,764 2,558 1,783 172 247 266.5 1,367 930 -1

(Rs Cr)
FY11E
5,167 2,980 2,049 0 247 266.5 1,416 1,189 0

FY12E
5,639 3,230 2,123 0 247 266.5 1,641 1,361 0

Capital employed Equity capital Reserves Borrowings Net Deferred Tax Liability
Source: Company, ENAM Direct Research

4,764 27 1,919 2,649 169

5,167 27 2,280 2,653 206

5,639 27 2,753 2,604 254

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Sintex Industries Ltd

Key ratios
Y/E Mar Sales growth

(%)
FY10
7.1%

FY11E
21.1%

FY12E
22.2%

OPM Operating profit growth COGS / Net sales Depreciation / G. block Effective interest rate Net sales / Gross block

16.3% 3.1% 81% 6% 3% 1.28

17.1% 27.2% 79% 5% 4% 1.33

17.5% 24.7% 79% 5% 4% 1.50

RoCE Debt / equity (x) Effective tax rate RoE Payout ratio (Div/NP)

10.0 1.4 0.2 18.4 4.8

12.5 1.1 0.2 17.9 4.3

14.2 0.9 0.2 19.3 3.3

EPS (Rs) EPS Growth (%) CEPS (Rs) DPS (Rs)

12.4 2.5 17.8 0.6

13.9 12.5 19.8 0.6

18.0 29.2 24.6 0.6

Cash flow
Y/E Mar Sources Cash profit (-) Dividends Retained earnings Issue of equity Borrowings

(Rs Cr)
FY10
712.9 268.9 20.9 248.0 0.0 465.0

FY11E
522.2 541.1 19.1 522.0 0.2 0.0

FY12E
599.5 672.3 19.1 653.2 0.0 -53.8

Applications Capital expenditure Investments Net current assets Other E/o Items Change in cash Source: Company, ENAM Direct Research

712.9 139.1 52.1 736.1 0.0 -214.5

522.2 421.6 0.0 48.7 0.0 51.8

599.5 250.0 0.0 224.8 0.0 124.7

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Sintex Industries Ltd

CONFLICT OF INTEREST DISCLOSURE We, at ENAM, are committed to providing the most honest and transparent advice to our clients. However, given the nature of the capital markets, from time to time we are faced with situations that could give rise to potential conflict of interest. In order to provide complete transparency to our clients, before we make any recommendations, we are committed to making a disclosure of our interest and any potential conflict IN ADVANCE so that the interests of our clients are safe- guarded at all times. In light of this policy, we have instituted what we believe to be the most comprehensive disclosure policy among leading investment Banks/brokerages in the world so that our clients may make an informed judgment about our recommendations. The following disclosures are intended to keep you informed before you make any decision- in addition, we will be happy to provide information in response to specific queries that our clients may seek from us. Disclosure of interest statement (As of 1st April, 2011) 1. Analyst ownership of the stock No 2. Firm ownership of the stock No 3. Directors ownership of the stock No 4. MBD Relationship No 5. Broking relationship No We are committed to providing completely independent and transparent recommendations to help our clients reach a better decision.

This document has been prepared by Enam Securities Direct Private Limited Privileged Client Group. Affiliates of Enam Securities Direct Private Limited focused on Institutional Equities may have issued other reports that are inconsistent with and reach different conclusion from the information presented in this report. The views and opinions expressed in this document may or may not match or may be contrary with the views, estimates, rating and target price of the Affiliates research report. The report and information contained herein is strictly confidential and meant solely for the selected recipient and may not be altered in any way, transmitted to, copied or distributed, in part or in whole, to any other person or to the media or reproduced in any form, without prior written consent. 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