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This is a documentation is about company analysis of sintex industries.
COMPANY ALLOTED FOR ANALYSIS – SINTEX INDUSTRIES LTD. INDUSTRY SECTOR – PLASTIC INDUSTRY
PLASTIC INDUSTRY ANALYSIS
GLOBAL PERSPECTIVELast few years have been tumultuous for plastics and petrochemical sector due to steep rise in oil prices, which has adversely affected the global economies. However, considering the feed stock advantage and abundance of oil reserves newer petrochemical complexes are being established in Middle-east countries. i.e. Oman, Saudi Arabia, UAE, etc. It is projected that by the end of 2010, Ethylene capacity in Middle-East would reach to about 35 million tons per annum and Polypropylene (PP) capacity to touch about 7 million tonnes per annum. The US Petrochemical sector may lose Export competitiveness as most of the Ethylene capacities in USA are Ethane based, which are not cost competitive and are capable to produce only Polyethylene (PE). Similarly, the revamping of European Petrochemical Complexes would be imperative as they are based on old and expensive technology and are not cost competitive with the Middle-East companies having the biggest advantage of raw material at their door-step. China, Middle-East and India would be the major global players, where expansion and augmentation of existing petrochemical capacity would take place in the next 5 years.
Worldwide Plastics Industry witnessed a steady growth in the year 2007 which is reflected in the increased consumption figures of all types of Plastics materials. Asia has been world’s largest plastics consumer for several years, accounting for about 30% of the global consumption excluding Japan, which has share of about 6.5%. Next to Asia is North America with 26% share, then Western Europe with 23% share in the global market.
The key growth segment remains “Packaging” which accounted for over 35% of the global consumption. Amongst the individual Plastics Materials, Polyolefin accounted for 53% of the total consumption, (PE with 33.5%, PP with 19.5%) followed by PVC – 16.5%, PS8.5%, PET & PU - 5.5%, Styrene copolymers (ABS, SAN, etc) – 3.5% other engineering & high performance & speciality plastics, blends, alloys, thermosetting plastics – 13%.
In recent years, significant aspect of plastics material growth globally has been the innovation of newer application areas for plastics such as increasing plastics applications in automotive field, rail, transport, defence & aerospace, medical and healthcare, electrical & electronics, telecommunication, building & infrastructure, furniture, etc. Plastics have become the key drivers of innovations & application development. PolymerElectronics is one such area which has opened up new avenues for plastics; from organic light emitting diodes to electro-optical and bio-electrical complements, from low-cost
plastic chips to flexible solar cells. New plastics can conduct electricity and emit light. While polymers will not replace silicon as semiconductors, they do offer completely new opportunities for low-priced mass-manufactured products. Radio-frequency identification (RFID) tags in smartcards for identification and access control, payment and ticket systems, price labels, product tracking systems in the logistics chain or packaging that monitors product quality – many things are in offing. Growth-trend of plastics has proved that there has been a quiet “Plastics – revolution” taking place in the material – sector.
Global Per capita consumption of Plastics is ( in Kgs)
World Average North America West Europe East Europe China India South East Asia L. America
26 90 65 10 12 5.0 10 18
INDIAN PERSPECTIVEOver the years, India has made significant progress in the industrial world with healthy economic growth. On purchase power parity basis, it is one of the top five global economics and is expected to be the third largest by the turn of this decade. Plastics, one of the fastest growing industries in India, have a vital role to play. Indian Plastics Industry is expanding at a phenomenal pace. Major international companies from various sectors such as automobiles, electronics, telecommunications, food processing, packing, healthcare etc. have set-up large manufacturing bases in India. So, demand for plastics is rapidly increasing and soon India will emerge as one of the fastest growing markets in the world.
The next two decades are expected to offer unprecedented opportunities for the plastic industry in India. This would necessitate industry initiatives to foster investments, grow the market, upgrade quality standards, enhance global participation, encourage Indian industry, to adopt and adapt to world class technology and manufacturing practices
Despite instability in International prices of polymer materials in 2006 - 07, plastics industry in the country has consolidated its performance by consuming about 5.0 million tonnes of polymers, as compared to Chinese consumption of about 30 million tonnes in 2007. Indian plastics industries are enthusiastic about the acceleration of the growth engine in the next 3 to 5 years due to capacity expansion of existing petrochemical complexes and setting up of new crackers in the country currently. Reliance Industries Ltd., (RIL) has about 75% share of Indian Petrochemical Cracker capacity, followed by medium sized capacity of Gas Authority of India Ltd. (GAIL) and Haldia Petrochemicals Ltd., (HPL). I Indian Oil Corporation (IOC) has also planned an 800 K tonnes naphtha cracker at Panipat at an investment of Rs.6300 crores to produce 800 KT of PE and PP each at Panipat. IOC would also be setting up a production capacity 150 KT PP at Chennai by year 2009 as well as styrene, which is not being produced in India. TABLE Current Indian Petrochemicals Capacities (in KT) Producer & Location RIL, Hazira RIL, Jamnagar RIL Patalganga IPCL, Nagothane IPCL, Vadodara IPCL, Gandhar GAIL, Auriya HPL, Haldia BRPL, Bongaigaon Finolex, Pisranpar LG Poly, Vizag Supreme, Mumbai Chem Plast, Metturdam DCW, Sahupuram DCM, Shriram, Kota RPRL, Abu BASF Styrenics, Bharuch Mitsubishi, Haldia TOTAL Grand Total PP 350 600 60 60 75 210 1355 HDPE 160 100 200 460 LDPE 80 80 160 HD/LL 400 220 160 260 1040 5665 PTA 800 300 400 1500 PS 80 240 16 60 360 PVC 300 55 150 130 60 60 35 790
Typical Polymer consumption pattern of different polymers Polymer LDPE/EVA LLDPE HDPE PP PVC PS PET Film Bottle SAN/ABS Polyamide Polycarbonate Polyacetal PET/PBT Others Thermoset Total 4820 35 72 8 7 3 100 125 135 100 235 90 275 550 920 1300 1000 225 1745 KT
The top 100 players account for just 20% of the industry turnover. The total number of players in the sector is more than 25,000. However, the degree of fragmentation, worldwide, is a large and despite the small size of operations of the players, they are able to operate profitably. Further, the high growth in demand ensures that the market is able to absorb the excess capacity in quick time. Overall, the degree of competition can be considered high in the Indian plastic processing industry.
The sector has a significant presence of the unorganised sector, which accounts for more than 70% of the industry turnover. More than 95% of the firms in the industry are partnership, proprietorship or private limited companies. Further, these small companies get significant advantages in taxes. These firms thus provide significant level of competition to the organised sector companies, which combined together are making losses. The organised sector companies thus need to build up significant brand image to survive against the competition from the unorganised sector. The key organised sector players include Nilkamal Plastics Limited and Supreme Industries Limited.
Statistics of Plastics Industries in India : Current Status Major Raw Material Producers Processing Units Turnover (Processing Industry) Capital Asset (Polymer Industry) Raw Material Produced approx Raw Material Consumed approx Employed Direct/Indirect Export Value approx. Revenue to Government approx. By 2011 – 12 Demand Potential Additional Employment Investment Potential 12.5 MMT 4.0 Million Rs.84,000 Crores 15 Nos. 25,000 Nos. Rs.85,000 Crores Rs.55,000 Crores 5.3 MMT 5.1 MMT 3.3 Million US $ 1.90 Billion Rs.7300 Crores
VISION 2015 – Indian Plastics Industry : Consumption of Polymers @ 15% CARG Turnover of plastics Industries Additional Employment Generation Requirement of Additional Plastics Processing Machines Additional Capital Investment In Machines (2004-2015) 18.9 Million tonnes Rs.1,33,245 crores 7 Million 68113 Nos Rs.45,000 crores
RECENT HAPPENINGS IN PLASTIC INDUSTRY:1)Indian Plastic Industry in the next 5 yearsThe plastic industry in India has made significant achievements since its modest but promising beginning by commencing production of polystyrene in 1957. Plastic industry in India symbolizes a promising industry and at the same time helps in creating new employment opportunities for the people of India. The Indian plastic processing industry is highly fragmented and comprises 30,000 firms. Barring 10- 15% of the firms, which can be classified as medium scale operations, all the units operate on a small-scale basis. Trends in the Industry:- Plasticulture- A win-win situation! - Emergence of flexible packaging - Plastics in Medicare - Increasing usage of PVC A large investment in telecom, ports, roads, power, and railways, has ensured that this sector continues to grow at more than 10% p.a., for several years to come. The focus on plasticulture in the agricultural sector – envisaged coverage of 17 mn hectares under micro-irrigation schemes, will further boost the prospects of the plastics industry.
The plastics processing industry is a source of great potential for global businesses. There is tremendous scope for innovative technological up gradations and thus rapid growth of the sector. Overall turnover of the plastic processing industry – which currently stands at USD 17.5 Billion, is expected to touch USD 20.3 Billion in 2012 and further USD 27 Billion by 2015. The Indian packaging industry is expected to become the fourth-largest packaging market in the world, with revenues of US$43.7 billion in 2016. Flexible plastic packaging was the fastest-growing packaging category in India, achieving a CAGR of 16.6% during the review period. During the review period, the packaging industry benefitted from strong growth in the Indian retail market. Other end-user markets from packaging, including pharmaceutical and processed food, have been growing rapidly over the review period, both domestically and internationally. This demand from enduser markets is expected to remain high during the forecast period.
Key Highlights - India’s retail growth and increased consumption of consumer products is driving the demand for packaging in the country - India is the sixth-largest packaging market in the world, with sales of US$24.6 billion in 2011 - The packaging industry is expected to grow at a CAGR of 12.3% during the forecast period, to become the fourth-largest global market, with sales of US$43.7 billion in 2016 - The Indian food processing market is one of the largest in the world in terms of production, consumption and growth prospects - India’s per capita annual packaging expenditure was US$20 in 2011, which is significantly lower than the top 20 market average of US$347.6. The low per capita expenditure offers a huge business
opportunity for packaging companies - Despite the Indian packaging industry undergoing some consolidation, it is still fragmented, especially following the introduction of new companies in the country 2)Indian plastics industry set to clock strong growth in 2012 The Indian plastics industry is expanding at a phenomenal speed and also among the fastest growing sectors in the country. It is expected that this industry's turnover may rise to Rs 1,000 billion (Rs 100,000 crore) in 2012, according to Plastindia Foundation. Plastindia Foundation, an apex forum of India's plastics industry, also estimated that the demand potential will jump to 12.5-million metric tonnes. It is noteworthy that India's plastics processing sector is set to grow from 69,000 machines to 150,000 machines by 2020. India's demand for plastics in irrigation alone is projected to surpass 2.5 million tonnes by 2015. It is also likely that this industry will employ nearly 4 million people in 2012 and 7 million people by the year 2015. 3)India wants to offer support to GCC nations for plastic industry India is keen to offer support to Gulf Cooperation Council (GCC) nations in their focus on value addition, from oil economy to polymers and plastic products. Moreover, the booming Indian plastics industry has got the highest number of exhibitors – almost half of the overall participation - while the remaining are from China, France, Germany, Hong Kong, Iran, Japan, South Korea, Saudi Arabia, Pakistan, Portugal, Qatar, Russia, South Africa, Spain, Switzerland, Taiwan, Turkey, the UAE and the UK. The packaging sector, which is a key driver of the plastics industry, in the UAE was worth $1.84 billion during 2011, posting growth at a CAGR of 4.27%. It is likely to grow at a CAGR of 4.68% to reach $2.3 billion in 2016.
COMPETITOR ANALYSIS
ricing- The commodity plastics market is characterised by a short term volatility in prices, but their steady rise over the longer term. Bulk polymers have always been subject to the cyclical effects of supply and demand that characterise all Commodities, and current price rises for these commodity materials are predominantly in response to growing demand in countries such as China and India. Short term shocks can also be caused by the oil price. The biggest competitor of Sintex Industries in the plastic sector is Grasim. The comparison between the two is as follows Name Sintex Share Price 63.15 Market Cap (Rs. Cr) 1,723.94 Sales Turnover (Rs. Cr) 2,568.22 Net Profit (Rs. Cr) 229.69 Total Assets (Rs. Cr) 4,668.40
Grasim 2,634.80 24,166.82 4,969.72 1,177.00 9,729.73
SWOT ANALYSIS OF INDIAN PLASTIC INDUSTRY:STRENGTHS1. Indian polymer advantage 2. Availability of Low cost labour 3. Strong Supporting Industries 4. Widespread Usage 5. Produces huge quantity of recycled plastic. WEAKNESSES1. Poor industry image 2. Health Hazards 3. High cost of finished plastic products 4. Suffers from low productivity of workers 5. Outdated machinery and equipments 6. Lack of focus on exports OPPORTUNITIES1. Plasticulture still at a nascent stage in India 2. Booming Automotive sector 3. Rising water management 4. Food packaging – Riding High! 5. Changing Consumer behaviour 6. Entering high priced processed plastic exports segment 7. Demand generated by industries like Retail etc. THREATS1. Government bans 2. Fluctuating prices of raw material, especially crude oil 3. Competition & Replacement threat from substitutes. 4. Shortfall of skilled labour 5. Import threat from Middle east
COMPANY ANALYSIS
Company Profile – Businesses Divisions:? ? ? Sintex Industries Ltd is one of the leading providers of plastics and niche textile-related products in India. The Sintex group is one of the leading providers of plastics and niche textile-related products in India Established in India in 1931, Sintex has a proven track record of pio neering innovative concepts in plastics and textile sectors in India and an uninterrupted 77 years of dividend payment to its shareholders. The company is organized into two business segments namely, textile and plastics. In the textile division, the company manufactures high-value, yarn-dyed structured fabrics, corduroy and items relating to home textiles. In the plastic division , the company manufactures the following: storage solutions for water, oil and fuel; prefabricated structures, monolithic structures, industrial custom moulded products, consumer custom moulded products and interiors products.
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Location of headquarters & manufacturing facilities:? ? ? The company is headquartered in Kalol in Gujarat with 13 branch offices across India. The company is having eight manufacturing facilities located at Kalol, Kolkata, Daman, Bangalore, Nagpur, Baddi, Salem and Bhachau in India. They are having a strong presence in the European, American, African, and Asian markets including countries like France, Germany and USA.
Establishment & Journey so far:1931-74 • Incorporated as The Bharat Vijay Mills Limited in June 1931 • Established composite textile mill in Kalol, Gujrat 1975-90 • Commenced manufacturing of plastic moulded polyethylene liquid storage tanks water tanks. • Introduced new plastic products like doors, window frames and pallets • Plastic Sections for Conversion into Partitions, False Ceilings, Wall panelling, Cabins, Cabinets, Furniture etc. 1995 • Renamed to Sintex industries limited • Commenced manufacturing of SMC moulded products, pultruded products, resin transfer moulded products and injection moulded products • Modernization and expansion of the textile unit • Commenced structured yarn dyed business
including
2000-Till date • Alliance with European design houses and a UK based textile marketing company • Commenced production of pre-fabricated structures for classrooms, booths kiosks and office rooms • Acquisition of 74% stake in Indian subsidiary of Zeppelin Mobile systems Ltd.,Germany • Entered the housing sector with monolithic construction • First international acquisition by acquiring 81% stake in Wasaukee Composites Inc., USA. • Acquired 100% stake in Nief Plastic SA, a French company • Acquired automotive business division of Bright Brothers Limited • Wausaukee acquired 100% stake of its competitor, Nero Plastics Inc., USA • Zeppelin acquired Digvijay Communications and Network Pvt. Ltd., Indore and became the total solution provider for telecom sector
Share Holding Pattern :? ? ? ? BSE: 502742 NSE: SINTEXEQ ISIN code: INE429C01035 CURRENT STOCK PRIZE: 63.15 INR Holder's Name Promoters Foreign Institutions General Public Other Companies Banks &Mutual Funds Financial Institutions Others Foreign NRI No of Shares 99608765 80152616 33500556 29921222 13704582 8548373 5776257 1778495 % Share Holding 36.49% 29.36% 12.27% 10.96% 5.02% 3.13% 2.12% 0.65%
Top Management - Board Of Directors:Chairman Vice Chairman Directors Dinesh B Patel Arun P Patel Ramnikbhai Ambani Ashwin Lalbhai Shah RooshiKumar Pandya Indira J Parikh Rajesh B Parikh Lavkumar Kantilal Rahul A Patel Amit D Patel S B Dangayach L M Rathod Hitesh T Mehta
Managing Director Company Secretary Deputy Company Secretary
Financial performance of Sintex Industries The consolidated revenue and EBITDA of the Company has grown at a CAGR of 43.9% and 45.3% over the last four years. All business segments of Sintex Industries have registered consistent growth in both top and bottom lines over the past four years. The plastics division, which remains the mainstay of the company’s business, accounted for 80.36% of the total revenues with growth of 63.69% in FY11. Prefabricated structures, part of the plastics division was the main driver of growth. This growth was driven by the demand for prefabricated structures such as monolithic construction and BT shelters particularly to major telecom providers such as Bharti Airtel and Reliance. The textiles division’s revenues grew 9.51% during FY11 largely on account of a 49% rise in exports to Euro-denominated nations like Italy and Spain - a natural hedge against a weakening US dollar. The Company strengthened its business through alliance renewals with leading EU and UK design houses. Sintex Industries Q1-2012 PAT drops to Rs.46.79 crore Sintex Industries Ltd announced its Financial Results for the period ended June 30, 2012. The company has posted net profit of Rs.467.936 million for the quarter ended June 30, 2012 as compared to Rs.945.762 million for the quarter ended June 30, 2011, representing a decrease of 50.52%. Total income was at Rs.10805.600 million for the quarter ended June 30, 2012 where as the same was at Rs.11119.956 million for the quarter ended June 30, 2011, representing a decrease of 2.83%. The company has reported an EPS of Rs.1.72 for the quarter ended June 30, 2012 as compared to Rs.3.49 for the quarter ended June 30, 2011. Shares of Sintex Industries Ltd was trading in BSE at Rs.66.60, up by Rs.2.10 or 3.26%. The stock hit an intraday high of Rs.67.20 and low of Rs.61.90. The total traded quantity was 35.58 lakhs compared to 2 week average of 9.06 lakhs.
SWOT ANALYSIS of SINTEX INDUSTRIES :STRENGTHS? ? ? ? India’s prefabricated leader, leveraging a rich government/private sector customer mix. Limited competition in growth segment such prefabricated buildings due to high entry barriers Marketing concept as a base. The decision making and creation of the product is based on our customer's wants and needs
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Quality of the material . Very knowledgeable employees and a very good communication.
WEAKNESSES? ? ? Liquidity risk The company is still struggling to make a decent profit. The lack of monetary income hinders the ability to purchase the materials needed to make the product.
OPPORTUNITIES? ? Surging demand in downstream industries like packaging, automobile and retail. The Indian automotive sector is averaging an annual growth of more than 10%; the retail sector reflects a strong growth potential across the foreseeable future; the FMCG segment accelerated at 14.5% a year driving demand in the packaging sector India is expected to be the third largest plastic consumer after the US and China with an expected consumption of 12.5 MMT as against 38.9 MMT for the US and 31.3 MMT for China. The investment surge in India’s power sector strengthening the demand for electrical accessories. The Indian textile industry is projected to grow at 16% in value terms to reach USD 115 billion by 2012, with exports growing at 22%.
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THREATS? ? ? ? ? Execution delays in prefabricated building expansion plan Delay in integration of acquired assets. Declining economy. Freight pricing is another concern, due to escalating gas prices Mass amounts of competition.
BUSINESS STRATEGIES OF SINTEX :Objectives and Goals? ? ? Profit - Increase profit 20% over the next calendar year. Exposure - Create a bigger brand image for the company creating a bigger awareness throughout the US by 50% over the next calendar year. Volume - Increase volume shipped out to distributors by 25% over the next year, and start selling to dealers and increase the volume with dealers by 30%.
Acquisitions to drive growthSintex is well known for its water tanks has in India, has now made its entry into customized plastic manufacturing business post its new acquisitions. Through these acquisitions it has entered into new
and very fast growing business. It would now with the aid of new techniques and setups, focus on different ancillary products that can be used by the automobile, aerospace and power sectors. 1) The acquisition of 100% stake in France based Nief Plastic will enable the company to establish itself in the international plastic component and composite markets. This will provide ready access to reputed automobile manufacturers such as Renault, Peugot, Alstom, Schneider, Faurecia etc. and also deeper penetration into the EU markets with precision plastic auto-component products 2) The acquisition of 81% stake in Wisconsin based Wausaukee Composites will help it in spreading its composite component footprint across the US. The company will automatically cater to Nero’s reputed client base comprising Phillips, Siemens, Hitachi, Toshiba, GE, Caterpillar, New Holland Tractors, Agco, Bobcat, Alstom and Amtrac among others. 3) The acquisition of the automotive plastic division of Bright Brothers has enabled the company to assume control of five strategically located manufacturing plants in Pune, Sohna, Chennai, Pithampur and Nasik, specialising in the manufacture of injection-moulded plastic components for the automotive industry. Bright Brothers has leading automotive companies like Maruti Suzuki, Tata Motors, Honda, Mahindra & Mahindra and Hyundai as its clients.
Alliances to increase reachWith a view to strengthen our position, we at Sintex aim to offer ourselves as a global solutions provider to our clients both in India and abroad. To achieve this we have adopted an aggressive strategy of inorganic growth. Under this strategy we have acquired companies that are specialists in their respective areas. 1) Wausaukee Composites Inc. - USA • Front end marketing in US for Sintex products, manufactured across diversified processes • Access to OEM Fortune 500 customer base • Access to superior technology • Sinetx LCC advantage to leverage volume business for Wausaukee
2) Nief Plastic SAS • Access to Nief’s strong customer base • A route to enter the European plastic components market with competitive pricing and technical qualifications • Potential synergies with Bright Autoplast – to create a strong presence in automotive composite and electrical market 3) Bright AutoPlast Pvt.Ltd. , India
4) Zep Infratech Limited, India
PRODUCT INNOVATIONSWith its state of art technology, it has witnessed an enormous growth in its two segments viz. 'Prefabricated Structure' and 'Monolithic Construction'. These divisions will be the major growth drivers over the next few years. Sintex is present in the textile business, producing high quality fabrics under the brand BVM for its prestige clients Armani, Versace, Tommy Hilfiger and more. It has formed an alliance with the UK based textile entity to further improve in the areas of design, structure and finishes and to adapt some new innovations. 1)Prefab Structures and BT Shelters: Sintex has manufacturing plants spread across all five regions of India to cater to the respective regions. Prefabs are ideal for schools, kiosks, huts, tent substitutes, hospitals, police station, site offices etc. Strong demand is expected from municipal corporation, defense bodies, hospitals, telecom industries, government school bodies and various other sections within India. It also exports its prefabricated structures products to Africa and some parts of Asia for housing, schools, medical centers, kiosk and among others. 2)Monolithic Construction: After establishing its name in Indian plastic industry it will realize its name in monolithic construction business too. Sintex has made an entry into low cost housing projects in nine states of India. It uses new and innovative techniques that reduce construction time and cost. This has helped to grab huge orders from different government and municipal bodies. The demand for low cost housing in India is expected to maintain for many years given the immense shortage. Sintex currently has an order backlog of Rs22bn, which we believe will grow over time.
EXPANSION STRATEGIES/ INVESTMENT RATIONALE :Sintex is known as a plastic water tank manufacturer in India, over the years the name has become synonyms with water storage tanks. However since then it has come a long way and has diversified itself into various other businesses, albeit in the same product, plastics. It now has the ability to use its plastics in various forms in various industries. They have entered the construction and housing space, automobile ancillaries, and power ancillaries to name a few. In addition the products of Sintex have been accepted by the markets and these divisions have been growing rapidly and have been the growth drivers. 1)Prefabricated Structures and BT shelters has smoothen the road ahead One of the major changes in construction technology has been prefabricated structures. In a country like India that has a massive dearth of infrastructure, prefabricated structures (better known as prefabs) have a huge positive implication. Prefabs have a sprawling market in India in areas ranging from large industrial and commercial construction to mass housing. Over the past few years the construction techniques in India have seen a major improvisation thanks to the adoption of global practices. In the context of prefabs, the main application areas have so far been industrial buildings, workshops, etc. Mass housing, as a demand driver, is yet to be tapped. In rural areas in particular, though housing projects are sponsored by the government, there is very little supervision that results in poor quality of construction. The biggest advantage of prefab structures is that there is no room for error in terms of the basic structures. These structures have been tested and are known to be able to stand firm even in high winds and strong rains. These prefab structures have a life expectancy of 30 years and it usually takes a significantly shorter time to construct.
Prefab business has not only contributed to the revenue growth, but also further strengthens the operating margins. Prefabs have managed to generate an EBIDTA margin of 18% for the FY10. We believe margins could sustain at these levels going forward given the mass orders expected from government. Sintex uses honeycomb concrete between plastic channels, which makes prefab structures lighter and easier to transport. As the name suggests, these structures are pre-made at the factory and minimum work is done on the actual site. This reduces the cost by 25-40% and the time for erection by 85-90% as compared to conventional structures. 2)Monolithic construction key growth driver Sintex's entry into real estate business has accelerated its growth levels significantly. Monolithic contributes 22-25% to its revenues and is expected to rise going forward. This segment caters to the low cost housing segment, where a major chunk of its sales comes from the government and state municipal bodies. Currently it operates in 7 states of India and has an order book of Rs 22bn. on hand. It has chalked out plans to expand its construction business to all parts of India over the next few years. This division has been growing at a CAGR of 80% since FY08. Given the acute shortage of housing and the ever increasing demand of low cost housing in India we expect the order flow to remain robust. This will ensure this division post a growth of 30% over the next few years. The monolithic division generates an operating margin of 15% at the present moment. We believe going forward as project sizes and number of projects increase the operating margins of the company could increase marginally. 3)Composite plastic division The uses of plastic as a substitute for metals has grown significantly with its application in various manufacturing industry like automobile, medical, packaging, aerospace etc. With its unique properties like injection moulded, vacuum moulded and various other features plastic can be made in any form as per the requirements and its end use application. The demand for plastic went through the roof, driven largely by its use in automobile industries, which are replacing metal for plastic in the production of car and other vehicles. Sintex is one of the dominant player in Indian plastic industry has realized the opportunity and potential in the automobile industry and acquired one company in India, Bright Auto Plast Pvt. Ltd and two companies internationally, Nief Plastics SA of France and Wausaukee Composite Inc in the USA. Through its alliance with these companies, Sintex has laid a strong foundation for its custom moulding division, with a reach in all geographies along with India. Sintex manufactures various products like fuel tanks, cable trays, bus seats, satellite dish, meter boxes, polymeric insulators and other accessories catering to auto and rural and urban electrification industries. Besides this it manufactures plastic products used in aerospace and wind mills.
ValuationsWith higher growth expectation from Monolithic, Prefab and its Custom Moulding divisions, we expect revenue to grow 25 to 30% over next couple of years. At the current price the stock is trading at a P/E of 10.8x and 8.2x and an EV/EBIDTA of 10.9x and 8.9x for FY11E and FY12E respectively. Experts prefer the P/E multiple of 13x for FY11E & arrive at a price target of Rs.432 and thus recommend a BUY on Sintex Industries with an upside potential of 20%.
Risks in the BusinessDelays in orders execution Sintex major growth would be coming from its monolithic construction business which comprises an order book of Rs23bn. These orders need to be executed within next 21 to 22 months. Given these are government projects there is a strong possibility in delay of projects. Delay from the government end due to time lag between allotment of land and actual construction, delay due to modification of plans, delay due to inability of workforce. These risks would remain, we would consistently keep an eye on execution of these projects and update our numbers when required. Rise in level of working capital requirements Sintex's working capital requirements have moved up drastically since its entry into monolithic construction business. Debtor days have increased to 120 days from 95 days, while creditor days have declined to 50 from 35days. This increase in working capital cycle has led to negative operating cash flow. If they are unable to control their working capital this would add pressure on the balance sheet and profitability of the company. Prices of raw materials Raw material costs around 52 to 55 percent of total sales and around 60 percent of total expenditures. High volatility in commodity prices can affect the company's margins and bottom line growth. Raw material used in plastic are made from the petroleum products, where there prices are largely depends on the prices of crude. However given the pragmatic shift and increase in the use of plastic we feel most of the price rises would be passed on to the end user. Low entry barrier Sintex may have the market cornered with its respective products and business segments, but their success may inspire others to enter the business and challenge their position. There are large numbers of unorganised players in the prefabricated structure industry which we assume can lead to tough competition in future. However with good economies of scale and its synergy with its overseas subsidiaries Sintex outperforms in its all business divisions.
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This is a documentation is about company analysis of sintex industries.
COMPANY ALLOTED FOR ANALYSIS – SINTEX INDUSTRIES LTD. INDUSTRY SECTOR – PLASTIC INDUSTRY
PLASTIC INDUSTRY ANALYSIS
GLOBAL PERSPECTIVELast few years have been tumultuous for plastics and petrochemical sector due to steep rise in oil prices, which has adversely affected the global economies. However, considering the feed stock advantage and abundance of oil reserves newer petrochemical complexes are being established in Middle-east countries. i.e. Oman, Saudi Arabia, UAE, etc. It is projected that by the end of 2010, Ethylene capacity in Middle-East would reach to about 35 million tons per annum and Polypropylene (PP) capacity to touch about 7 million tonnes per annum. The US Petrochemical sector may lose Export competitiveness as most of the Ethylene capacities in USA are Ethane based, which are not cost competitive and are capable to produce only Polyethylene (PE). Similarly, the revamping of European Petrochemical Complexes would be imperative as they are based on old and expensive technology and are not cost competitive with the Middle-East companies having the biggest advantage of raw material at their door-step. China, Middle-East and India would be the major global players, where expansion and augmentation of existing petrochemical capacity would take place in the next 5 years.
Worldwide Plastics Industry witnessed a steady growth in the year 2007 which is reflected in the increased consumption figures of all types of Plastics materials. Asia has been world’s largest plastics consumer for several years, accounting for about 30% of the global consumption excluding Japan, which has share of about 6.5%. Next to Asia is North America with 26% share, then Western Europe with 23% share in the global market.
The key growth segment remains “Packaging” which accounted for over 35% of the global consumption. Amongst the individual Plastics Materials, Polyolefin accounted for 53% of the total consumption, (PE with 33.5%, PP with 19.5%) followed by PVC – 16.5%, PS8.5%, PET & PU - 5.5%, Styrene copolymers (ABS, SAN, etc) – 3.5% other engineering & high performance & speciality plastics, blends, alloys, thermosetting plastics – 13%.
In recent years, significant aspect of plastics material growth globally has been the innovation of newer application areas for plastics such as increasing plastics applications in automotive field, rail, transport, defence & aerospace, medical and healthcare, electrical & electronics, telecommunication, building & infrastructure, furniture, etc. Plastics have become the key drivers of innovations & application development. PolymerElectronics is one such area which has opened up new avenues for plastics; from organic light emitting diodes to electro-optical and bio-electrical complements, from low-cost
plastic chips to flexible solar cells. New plastics can conduct electricity and emit light. While polymers will not replace silicon as semiconductors, they do offer completely new opportunities for low-priced mass-manufactured products. Radio-frequency identification (RFID) tags in smartcards for identification and access control, payment and ticket systems, price labels, product tracking systems in the logistics chain or packaging that monitors product quality – many things are in offing. Growth-trend of plastics has proved that there has been a quiet “Plastics – revolution” taking place in the material – sector.
Global Per capita consumption of Plastics is ( in Kgs)
World Average North America West Europe East Europe China India South East Asia L. America
26 90 65 10 12 5.0 10 18
INDIAN PERSPECTIVEOver the years, India has made significant progress in the industrial world with healthy economic growth. On purchase power parity basis, it is one of the top five global economics and is expected to be the third largest by the turn of this decade. Plastics, one of the fastest growing industries in India, have a vital role to play. Indian Plastics Industry is expanding at a phenomenal pace. Major international companies from various sectors such as automobiles, electronics, telecommunications, food processing, packing, healthcare etc. have set-up large manufacturing bases in India. So, demand for plastics is rapidly increasing and soon India will emerge as one of the fastest growing markets in the world.
The next two decades are expected to offer unprecedented opportunities for the plastic industry in India. This would necessitate industry initiatives to foster investments, grow the market, upgrade quality standards, enhance global participation, encourage Indian industry, to adopt and adapt to world class technology and manufacturing practices
Despite instability in International prices of polymer materials in 2006 - 07, plastics industry in the country has consolidated its performance by consuming about 5.0 million tonnes of polymers, as compared to Chinese consumption of about 30 million tonnes in 2007. Indian plastics industries are enthusiastic about the acceleration of the growth engine in the next 3 to 5 years due to capacity expansion of existing petrochemical complexes and setting up of new crackers in the country currently. Reliance Industries Ltd., (RIL) has about 75% share of Indian Petrochemical Cracker capacity, followed by medium sized capacity of Gas Authority of India Ltd. (GAIL) and Haldia Petrochemicals Ltd., (HPL). I Indian Oil Corporation (IOC) has also planned an 800 K tonnes naphtha cracker at Panipat at an investment of Rs.6300 crores to produce 800 KT of PE and PP each at Panipat. IOC would also be setting up a production capacity 150 KT PP at Chennai by year 2009 as well as styrene, which is not being produced in India. TABLE Current Indian Petrochemicals Capacities (in KT) Producer & Location RIL, Hazira RIL, Jamnagar RIL Patalganga IPCL, Nagothane IPCL, Vadodara IPCL, Gandhar GAIL, Auriya HPL, Haldia BRPL, Bongaigaon Finolex, Pisranpar LG Poly, Vizag Supreme, Mumbai Chem Plast, Metturdam DCW, Sahupuram DCM, Shriram, Kota RPRL, Abu BASF Styrenics, Bharuch Mitsubishi, Haldia TOTAL Grand Total PP 350 600 60 60 75 210 1355 HDPE 160 100 200 460 LDPE 80 80 160 HD/LL 400 220 160 260 1040 5665 PTA 800 300 400 1500 PS 80 240 16 60 360 PVC 300 55 150 130 60 60 35 790
Typical Polymer consumption pattern of different polymers Polymer LDPE/EVA LLDPE HDPE PP PVC PS PET Film Bottle SAN/ABS Polyamide Polycarbonate Polyacetal PET/PBT Others Thermoset Total 4820 35 72 8 7 3 100 125 135 100 235 90 275 550 920 1300 1000 225 1745 KT
The top 100 players account for just 20% of the industry turnover. The total number of players in the sector is more than 25,000. However, the degree of fragmentation, worldwide, is a large and despite the small size of operations of the players, they are able to operate profitably. Further, the high growth in demand ensures that the market is able to absorb the excess capacity in quick time. Overall, the degree of competition can be considered high in the Indian plastic processing industry.
The sector has a significant presence of the unorganised sector, which accounts for more than 70% of the industry turnover. More than 95% of the firms in the industry are partnership, proprietorship or private limited companies. Further, these small companies get significant advantages in taxes. These firms thus provide significant level of competition to the organised sector companies, which combined together are making losses. The organised sector companies thus need to build up significant brand image to survive against the competition from the unorganised sector. The key organised sector players include Nilkamal Plastics Limited and Supreme Industries Limited.
Statistics of Plastics Industries in India : Current Status Major Raw Material Producers Processing Units Turnover (Processing Industry) Capital Asset (Polymer Industry) Raw Material Produced approx Raw Material Consumed approx Employed Direct/Indirect Export Value approx. Revenue to Government approx. By 2011 – 12 Demand Potential Additional Employment Investment Potential 12.5 MMT 4.0 Million Rs.84,000 Crores 15 Nos. 25,000 Nos. Rs.85,000 Crores Rs.55,000 Crores 5.3 MMT 5.1 MMT 3.3 Million US $ 1.90 Billion Rs.7300 Crores
VISION 2015 – Indian Plastics Industry : Consumption of Polymers @ 15% CARG Turnover of plastics Industries Additional Employment Generation Requirement of Additional Plastics Processing Machines Additional Capital Investment In Machines (2004-2015) 18.9 Million tonnes Rs.1,33,245 crores 7 Million 68113 Nos Rs.45,000 crores
RECENT HAPPENINGS IN PLASTIC INDUSTRY:1)Indian Plastic Industry in the next 5 yearsThe plastic industry in India has made significant achievements since its modest but promising beginning by commencing production of polystyrene in 1957. Plastic industry in India symbolizes a promising industry and at the same time helps in creating new employment opportunities for the people of India. The Indian plastic processing industry is highly fragmented and comprises 30,000 firms. Barring 10- 15% of the firms, which can be classified as medium scale operations, all the units operate on a small-scale basis. Trends in the Industry:- Plasticulture- A win-win situation! - Emergence of flexible packaging - Plastics in Medicare - Increasing usage of PVC A large investment in telecom, ports, roads, power, and railways, has ensured that this sector continues to grow at more than 10% p.a., for several years to come. The focus on plasticulture in the agricultural sector – envisaged coverage of 17 mn hectares under micro-irrigation schemes, will further boost the prospects of the plastics industry.
The plastics processing industry is a source of great potential for global businesses. There is tremendous scope for innovative technological up gradations and thus rapid growth of the sector. Overall turnover of the plastic processing industry – which currently stands at USD 17.5 Billion, is expected to touch USD 20.3 Billion in 2012 and further USD 27 Billion by 2015. The Indian packaging industry is expected to become the fourth-largest packaging market in the world, with revenues of US$43.7 billion in 2016. Flexible plastic packaging was the fastest-growing packaging category in India, achieving a CAGR of 16.6% during the review period. During the review period, the packaging industry benefitted from strong growth in the Indian retail market. Other end-user markets from packaging, including pharmaceutical and processed food, have been growing rapidly over the review period, both domestically and internationally. This demand from enduser markets is expected to remain high during the forecast period.
Key Highlights - India’s retail growth and increased consumption of consumer products is driving the demand for packaging in the country - India is the sixth-largest packaging market in the world, with sales of US$24.6 billion in 2011 - The packaging industry is expected to grow at a CAGR of 12.3% during the forecast period, to become the fourth-largest global market, with sales of US$43.7 billion in 2016 - The Indian food processing market is one of the largest in the world in terms of production, consumption and growth prospects - India’s per capita annual packaging expenditure was US$20 in 2011, which is significantly lower than the top 20 market average of US$347.6. The low per capita expenditure offers a huge business
opportunity for packaging companies - Despite the Indian packaging industry undergoing some consolidation, it is still fragmented, especially following the introduction of new companies in the country 2)Indian plastics industry set to clock strong growth in 2012 The Indian plastics industry is expanding at a phenomenal speed and also among the fastest growing sectors in the country. It is expected that this industry's turnover may rise to Rs 1,000 billion (Rs 100,000 crore) in 2012, according to Plastindia Foundation. Plastindia Foundation, an apex forum of India's plastics industry, also estimated that the demand potential will jump to 12.5-million metric tonnes. It is noteworthy that India's plastics processing sector is set to grow from 69,000 machines to 150,000 machines by 2020. India's demand for plastics in irrigation alone is projected to surpass 2.5 million tonnes by 2015. It is also likely that this industry will employ nearly 4 million people in 2012 and 7 million people by the year 2015. 3)India wants to offer support to GCC nations for plastic industry India is keen to offer support to Gulf Cooperation Council (GCC) nations in their focus on value addition, from oil economy to polymers and plastic products. Moreover, the booming Indian plastics industry has got the highest number of exhibitors – almost half of the overall participation - while the remaining are from China, France, Germany, Hong Kong, Iran, Japan, South Korea, Saudi Arabia, Pakistan, Portugal, Qatar, Russia, South Africa, Spain, Switzerland, Taiwan, Turkey, the UAE and the UK. The packaging sector, which is a key driver of the plastics industry, in the UAE was worth $1.84 billion during 2011, posting growth at a CAGR of 4.27%. It is likely to grow at a CAGR of 4.68% to reach $2.3 billion in 2016.
COMPETITOR ANALYSIS
ricing- The commodity plastics market is characterised by a short term volatility in prices, but their steady rise over the longer term. Bulk polymers have always been subject to the cyclical effects of supply and demand that characterise all Commodities, and current price rises for these commodity materials are predominantly in response to growing demand in countries such as China and India. Short term shocks can also be caused by the oil price. The biggest competitor of Sintex Industries in the plastic sector is Grasim. The comparison between the two is as follows Name Sintex Share Price 63.15 Market Cap (Rs. Cr) 1,723.94 Sales Turnover (Rs. Cr) 2,568.22 Net Profit (Rs. Cr) 229.69 Total Assets (Rs. Cr) 4,668.40Grasim 2,634.80 24,166.82 4,969.72 1,177.00 9,729.73
SWOT ANALYSIS OF INDIAN PLASTIC INDUSTRY:STRENGTHS1. Indian polymer advantage 2. Availability of Low cost labour 3. Strong Supporting Industries 4. Widespread Usage 5. Produces huge quantity of recycled plastic. WEAKNESSES1. Poor industry image 2. Health Hazards 3. High cost of finished plastic products 4. Suffers from low productivity of workers 5. Outdated machinery and equipments 6. Lack of focus on exports OPPORTUNITIES1. Plasticulture still at a nascent stage in India 2. Booming Automotive sector 3. Rising water management 4. Food packaging – Riding High! 5. Changing Consumer behaviour 6. Entering high priced processed plastic exports segment 7. Demand generated by industries like Retail etc. THREATS1. Government bans 2. Fluctuating prices of raw material, especially crude oil 3. Competition & Replacement threat from substitutes. 4. Shortfall of skilled labour 5. Import threat from Middle east
COMPANY ANALYSIS
Company Profile – Businesses Divisions:? ? ? Sintex Industries Ltd is one of the leading providers of plastics and niche textile-related products in India. The Sintex group is one of the leading providers of plastics and niche textile-related products in India Established in India in 1931, Sintex has a proven track record of pio neering innovative concepts in plastics and textile sectors in India and an uninterrupted 77 years of dividend payment to its shareholders. The company is organized into two business segments namely, textile and plastics. In the textile division, the company manufactures high-value, yarn-dyed structured fabrics, corduroy and items relating to home textiles. In the plastic division , the company manufactures the following: storage solutions for water, oil and fuel; prefabricated structures, monolithic structures, industrial custom moulded products, consumer custom moulded products and interiors products.
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Location of headquarters & manufacturing facilities:? ? ? The company is headquartered in Kalol in Gujarat with 13 branch offices across India. The company is having eight manufacturing facilities located at Kalol, Kolkata, Daman, Bangalore, Nagpur, Baddi, Salem and Bhachau in India. They are having a strong presence in the European, American, African, and Asian markets including countries like France, Germany and USA.
Establishment & Journey so far:1931-74 • Incorporated as The Bharat Vijay Mills Limited in June 1931 • Established composite textile mill in Kalol, Gujrat 1975-90 • Commenced manufacturing of plastic moulded polyethylene liquid storage tanks water tanks. • Introduced new plastic products like doors, window frames and pallets • Plastic Sections for Conversion into Partitions, False Ceilings, Wall panelling, Cabins, Cabinets, Furniture etc. 1995 • Renamed to Sintex industries limited • Commenced manufacturing of SMC moulded products, pultruded products, resin transfer moulded products and injection moulded products • Modernization and expansion of the textile unit • Commenced structured yarn dyed business
including
2000-Till date • Alliance with European design houses and a UK based textile marketing company • Commenced production of pre-fabricated structures for classrooms, booths kiosks and office rooms • Acquisition of 74% stake in Indian subsidiary of Zeppelin Mobile systems Ltd.,Germany • Entered the housing sector with monolithic construction • First international acquisition by acquiring 81% stake in Wasaukee Composites Inc., USA. • Acquired 100% stake in Nief Plastic SA, a French company • Acquired automotive business division of Bright Brothers Limited • Wausaukee acquired 100% stake of its competitor, Nero Plastics Inc., USA • Zeppelin acquired Digvijay Communications and Network Pvt. Ltd., Indore and became the total solution provider for telecom sector
Share Holding Pattern :? ? ? ? BSE: 502742 NSE: SINTEXEQ ISIN code: INE429C01035 CURRENT STOCK PRIZE: 63.15 INR Holder's Name Promoters Foreign Institutions General Public Other Companies Banks &Mutual Funds Financial Institutions Others Foreign NRI No of Shares 99608765 80152616 33500556 29921222 13704582 8548373 5776257 1778495 % Share Holding 36.49% 29.36% 12.27% 10.96% 5.02% 3.13% 2.12% 0.65%
Top Management - Board Of Directors:Chairman Vice Chairman Directors Dinesh B Patel Arun P Patel Ramnikbhai Ambani Ashwin Lalbhai Shah RooshiKumar Pandya Indira J Parikh Rajesh B Parikh Lavkumar Kantilal Rahul A Patel Amit D Patel S B Dangayach L M Rathod Hitesh T Mehta
Managing Director Company Secretary Deputy Company Secretary
Financial performance of Sintex Industries The consolidated revenue and EBITDA of the Company has grown at a CAGR of 43.9% and 45.3% over the last four years. All business segments of Sintex Industries have registered consistent growth in both top and bottom lines over the past four years. The plastics division, which remains the mainstay of the company’s business, accounted for 80.36% of the total revenues with growth of 63.69% in FY11. Prefabricated structures, part of the plastics division was the main driver of growth. This growth was driven by the demand for prefabricated structures such as monolithic construction and BT shelters particularly to major telecom providers such as Bharti Airtel and Reliance. The textiles division’s revenues grew 9.51% during FY11 largely on account of a 49% rise in exports to Euro-denominated nations like Italy and Spain - a natural hedge against a weakening US dollar. The Company strengthened its business through alliance renewals with leading EU and UK design houses. Sintex Industries Q1-2012 PAT drops to Rs.46.79 crore Sintex Industries Ltd announced its Financial Results for the period ended June 30, 2012. The company has posted net profit of Rs.467.936 million for the quarter ended June 30, 2012 as compared to Rs.945.762 million for the quarter ended June 30, 2011, representing a decrease of 50.52%. Total income was at Rs.10805.600 million for the quarter ended June 30, 2012 where as the same was at Rs.11119.956 million for the quarter ended June 30, 2011, representing a decrease of 2.83%. The company has reported an EPS of Rs.1.72 for the quarter ended June 30, 2012 as compared to Rs.3.49 for the quarter ended June 30, 2011. Shares of Sintex Industries Ltd was trading in BSE at Rs.66.60, up by Rs.2.10 or 3.26%. The stock hit an intraday high of Rs.67.20 and low of Rs.61.90. The total traded quantity was 35.58 lakhs compared to 2 week average of 9.06 lakhs.
SWOT ANALYSIS of SINTEX INDUSTRIES :STRENGTHS? ? ? ? India’s prefabricated leader, leveraging a rich government/private sector customer mix. Limited competition in growth segment such prefabricated buildings due to high entry barriers Marketing concept as a base. The decision making and creation of the product is based on our customer's wants and needs
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Quality of the material . Very knowledgeable employees and a very good communication.
WEAKNESSES? ? ? Liquidity risk The company is still struggling to make a decent profit. The lack of monetary income hinders the ability to purchase the materials needed to make the product.
OPPORTUNITIES? ? Surging demand in downstream industries like packaging, automobile and retail. The Indian automotive sector is averaging an annual growth of more than 10%; the retail sector reflects a strong growth potential across the foreseeable future; the FMCG segment accelerated at 14.5% a year driving demand in the packaging sector India is expected to be the third largest plastic consumer after the US and China with an expected consumption of 12.5 MMT as against 38.9 MMT for the US and 31.3 MMT for China. The investment surge in India’s power sector strengthening the demand for electrical accessories. The Indian textile industry is projected to grow at 16% in value terms to reach USD 115 billion by 2012, with exports growing at 22%.
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THREATS? ? ? ? ? Execution delays in prefabricated building expansion plan Delay in integration of acquired assets. Declining economy. Freight pricing is another concern, due to escalating gas prices Mass amounts of competition.
BUSINESS STRATEGIES OF SINTEX :Objectives and Goals? ? ? Profit - Increase profit 20% over the next calendar year. Exposure - Create a bigger brand image for the company creating a bigger awareness throughout the US by 50% over the next calendar year. Volume - Increase volume shipped out to distributors by 25% over the next year, and start selling to dealers and increase the volume with dealers by 30%.
Acquisitions to drive growthSintex is well known for its water tanks has in India, has now made its entry into customized plastic manufacturing business post its new acquisitions. Through these acquisitions it has entered into new
and very fast growing business. It would now with the aid of new techniques and setups, focus on different ancillary products that can be used by the automobile, aerospace and power sectors. 1) The acquisition of 100% stake in France based Nief Plastic will enable the company to establish itself in the international plastic component and composite markets. This will provide ready access to reputed automobile manufacturers such as Renault, Peugot, Alstom, Schneider, Faurecia etc. and also deeper penetration into the EU markets with precision plastic auto-component products 2) The acquisition of 81% stake in Wisconsin based Wausaukee Composites will help it in spreading its composite component footprint across the US. The company will automatically cater to Nero’s reputed client base comprising Phillips, Siemens, Hitachi, Toshiba, GE, Caterpillar, New Holland Tractors, Agco, Bobcat, Alstom and Amtrac among others. 3) The acquisition of the automotive plastic division of Bright Brothers has enabled the company to assume control of five strategically located manufacturing plants in Pune, Sohna, Chennai, Pithampur and Nasik, specialising in the manufacture of injection-moulded plastic components for the automotive industry. Bright Brothers has leading automotive companies like Maruti Suzuki, Tata Motors, Honda, Mahindra & Mahindra and Hyundai as its clients.
Alliances to increase reachWith a view to strengthen our position, we at Sintex aim to offer ourselves as a global solutions provider to our clients both in India and abroad. To achieve this we have adopted an aggressive strategy of inorganic growth. Under this strategy we have acquired companies that are specialists in their respective areas. 1) Wausaukee Composites Inc. - USA • Front end marketing in US for Sintex products, manufactured across diversified processes • Access to OEM Fortune 500 customer base • Access to superior technology • Sinetx LCC advantage to leverage volume business for Wausaukee
2) Nief Plastic SAS • Access to Nief’s strong customer base • A route to enter the European plastic components market with competitive pricing and technical qualifications • Potential synergies with Bright Autoplast – to create a strong presence in automotive composite and electrical market 3) Bright AutoPlast Pvt.Ltd. , India
4) Zep Infratech Limited, India
PRODUCT INNOVATIONSWith its state of art technology, it has witnessed an enormous growth in its two segments viz. 'Prefabricated Structure' and 'Monolithic Construction'. These divisions will be the major growth drivers over the next few years. Sintex is present in the textile business, producing high quality fabrics under the brand BVM for its prestige clients Armani, Versace, Tommy Hilfiger and more. It has formed an alliance with the UK based textile entity to further improve in the areas of design, structure and finishes and to adapt some new innovations. 1)Prefab Structures and BT Shelters: Sintex has manufacturing plants spread across all five regions of India to cater to the respective regions. Prefabs are ideal for schools, kiosks, huts, tent substitutes, hospitals, police station, site offices etc. Strong demand is expected from municipal corporation, defense bodies, hospitals, telecom industries, government school bodies and various other sections within India. It also exports its prefabricated structures products to Africa and some parts of Asia for housing, schools, medical centers, kiosk and among others. 2)Monolithic Construction: After establishing its name in Indian plastic industry it will realize its name in monolithic construction business too. Sintex has made an entry into low cost housing projects in nine states of India. It uses new and innovative techniques that reduce construction time and cost. This has helped to grab huge orders from different government and municipal bodies. The demand for low cost housing in India is expected to maintain for many years given the immense shortage. Sintex currently has an order backlog of Rs22bn, which we believe will grow over time.
EXPANSION STRATEGIES/ INVESTMENT RATIONALE :Sintex is known as a plastic water tank manufacturer in India, over the years the name has become synonyms with water storage tanks. However since then it has come a long way and has diversified itself into various other businesses, albeit in the same product, plastics. It now has the ability to use its plastics in various forms in various industries. They have entered the construction and housing space, automobile ancillaries, and power ancillaries to name a few. In addition the products of Sintex have been accepted by the markets and these divisions have been growing rapidly and have been the growth drivers. 1)Prefabricated Structures and BT shelters has smoothen the road ahead One of the major changes in construction technology has been prefabricated structures. In a country like India that has a massive dearth of infrastructure, prefabricated structures (better known as prefabs) have a huge positive implication. Prefabs have a sprawling market in India in areas ranging from large industrial and commercial construction to mass housing. Over the past few years the construction techniques in India have seen a major improvisation thanks to the adoption of global practices. In the context of prefabs, the main application areas have so far been industrial buildings, workshops, etc. Mass housing, as a demand driver, is yet to be tapped. In rural areas in particular, though housing projects are sponsored by the government, there is very little supervision that results in poor quality of construction. The biggest advantage of prefab structures is that there is no room for error in terms of the basic structures. These structures have been tested and are known to be able to stand firm even in high winds and strong rains. These prefab structures have a life expectancy of 30 years and it usually takes a significantly shorter time to construct.
Prefab business has not only contributed to the revenue growth, but also further strengthens the operating margins. Prefabs have managed to generate an EBIDTA margin of 18% for the FY10. We believe margins could sustain at these levels going forward given the mass orders expected from government. Sintex uses honeycomb concrete between plastic channels, which makes prefab structures lighter and easier to transport. As the name suggests, these structures are pre-made at the factory and minimum work is done on the actual site. This reduces the cost by 25-40% and the time for erection by 85-90% as compared to conventional structures. 2)Monolithic construction key growth driver Sintex's entry into real estate business has accelerated its growth levels significantly. Monolithic contributes 22-25% to its revenues and is expected to rise going forward. This segment caters to the low cost housing segment, where a major chunk of its sales comes from the government and state municipal bodies. Currently it operates in 7 states of India and has an order book of Rs 22bn. on hand. It has chalked out plans to expand its construction business to all parts of India over the next few years. This division has been growing at a CAGR of 80% since FY08. Given the acute shortage of housing and the ever increasing demand of low cost housing in India we expect the order flow to remain robust. This will ensure this division post a growth of 30% over the next few years. The monolithic division generates an operating margin of 15% at the present moment. We believe going forward as project sizes and number of projects increase the operating margins of the company could increase marginally. 3)Composite plastic division The uses of plastic as a substitute for metals has grown significantly with its application in various manufacturing industry like automobile, medical, packaging, aerospace etc. With its unique properties like injection moulded, vacuum moulded and various other features plastic can be made in any form as per the requirements and its end use application. The demand for plastic went through the roof, driven largely by its use in automobile industries, which are replacing metal for plastic in the production of car and other vehicles. Sintex is one of the dominant player in Indian plastic industry has realized the opportunity and potential in the automobile industry and acquired one company in India, Bright Auto Plast Pvt. Ltd and two companies internationally, Nief Plastics SA of France and Wausaukee Composite Inc in the USA. Through its alliance with these companies, Sintex has laid a strong foundation for its custom moulding division, with a reach in all geographies along with India. Sintex manufactures various products like fuel tanks, cable trays, bus seats, satellite dish, meter boxes, polymeric insulators and other accessories catering to auto and rural and urban electrification industries. Besides this it manufactures plastic products used in aerospace and wind mills.
ValuationsWith higher growth expectation from Monolithic, Prefab and its Custom Moulding divisions, we expect revenue to grow 25 to 30% over next couple of years. At the current price the stock is trading at a P/E of 10.8x and 8.2x and an EV/EBIDTA of 10.9x and 8.9x for FY11E and FY12E respectively. Experts prefer the P/E multiple of 13x for FY11E & arrive at a price target of Rs.432 and thus recommend a BUY on Sintex Industries with an upside potential of 20%.
Risks in the BusinessDelays in orders execution Sintex major growth would be coming from its monolithic construction business which comprises an order book of Rs23bn. These orders need to be executed within next 21 to 22 months. Given these are government projects there is a strong possibility in delay of projects. Delay from the government end due to time lag between allotment of land and actual construction, delay due to modification of plans, delay due to inability of workforce. These risks would remain, we would consistently keep an eye on execution of these projects and update our numbers when required. Rise in level of working capital requirements Sintex's working capital requirements have moved up drastically since its entry into monolithic construction business. Debtor days have increased to 120 days from 95 days, while creditor days have declined to 50 from 35days. This increase in working capital cycle has led to negative operating cash flow. If they are unable to control their working capital this would add pressure on the balance sheet and profitability of the company. Prices of raw materials Raw material costs around 52 to 55 percent of total sales and around 60 percent of total expenditures. High volatility in commodity prices can affect the company's margins and bottom line growth. Raw material used in plastic are made from the petroleum products, where there prices are largely depends on the prices of crude. However given the pragmatic shift and increase in the use of plastic we feel most of the price rises would be passed on to the end user. Low entry barrier Sintex may have the market cornered with its respective products and business segments, but their success may inspire others to enter the business and challenge their position. There are large numbers of unorganised players in the prefabricated structure industry which we assume can lead to tough competition in future. However with good economies of scale and its synergy with its overseas subsidiaries Sintex outperforms in its all business divisions.
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