A strong revival in the auto industry has improved prospects for automotive composites. The domestic auto composites business, which is ~15% of Sintex Industries’ revenues, has already grown by a robust 22.5% y-o-y in the past two months.
In line with such upbeat prospects, Sintex expects a sharp growth in demand for auto composites from Q4FY10 onwards, albeit with some lag effect.
With the current order book of ~15 billion, Sintex’s monolithic business is expected to generate revenues of Rs7 billion in FY10. However, the company’s BT shelter business has been adversely impacted by a slowdown in capex for telecom towers across the industry. For instance, number of new towers for Bharti and Idea (together) have almost halved from ~5,500 in Q1FY09 to ~2,800 in Q1FY10. Poor capacity expansion in rural areas, in the backdrop of lower ARPUs, has pulled down Sintex’s BT business further.
In Q1FY10, Bright Autoplast, Sintex’s domestic subsidiary and amongst the tier-I suppliers to Hyundai Motor India Limited, set up a plant in Chennai to manufacture automotive composites. The plant, with its operations now stable, is likely to supply electrical composites to Nief Plastics, Sintex’s overseas subsidiary, by end 2009 and thereby boost overall revenues.
Amidst lack of clarity on global economic stability, Sintex is not eyeing any major acquisitions in CY09. Nevertheless, we expect the company to augment its composite business in CY10.
The management has maintained its guidance of ~10% revenue growth and 15-20% growth in PAT for FY10. However, Sintex may revise its guidance upwards if government outlay on infrastructure development programmes such as Bharat Nirman and Jawahar Lal Nehru Yojna is increased.
Maintain Buy with a revised target price of Rs 339: Currently, the stock trades at a P/E of 8.1x and EV/EBITDA of 7x its FY11 estimated earnings. With signs of a recovery in the global economy and the European auto industry, we believe that Sintex is well-placed with a strong and diversified domestic and international profile. We roll forward to FY11E and revise our P/E-based target price upwards to Rs 339 (10X FY11E PE) from Rs257 earlier. Maintain BUY.