07082017195814Initiating coverage on Sintex Plastics
Albeit the revenues of Sintex Plastics Technology (SPTL) have de-grown in FY17 (due to demonetization and uncertainty over GST), we believe that the company will revert to its growth trajectory considering the strong revival in various capex programs & adoption of welfare schemes by the government. In line with the favourable outlook, we expect SPTL’s revenues to grow at 10.2% CAGR to Rs 7,770.3 crore by FY20. Margins are expected to pick up by 190bps to 19.3% in FY20 and the absolute EBIDTA is expected to grow at a CAGR of 14.0% to Rs 1,501.5 crore by FY20. Net earnings too are expected to grow by 19.3% CAGR to Rs 713.9 crore, over the same period from Rs 420.8 crore in FY17.
We are optimistic about the company’s prospects, given that:
Revenues are expected to grow at 10% CAGR to Rs 7,770.3 crores by FY20 from Rs 5,810.6 crores in FY17, due to stable growth in the industrial custom moulding business, a turnaround in the pre-fab business, which had seen a negative growth rate in FY17 and a high growth rate in the retail custom moulding business.
FCCBs worth $67mn are expected to be fully converted into equity as we believe that post listing of Sintex plastics Technology Ltd, the combined value of both demerged entities (Sintex Industries and Sintex Plastics) would be way above the conversion rate of Rs 92.16 and hence, we believe that the bond-holders will try to capitalize on such large gains.
The return ratios of Sintex Plastics were way below that of its peers in FY17. However, we believe that the return ratios have bottomed out and expect ROE and ROCE to increase by ~120 bps and ~280 bps by FY20 to touch 14.7% and 14.2%, respectively.
We expect the company to bring down its total debt by Rs 558.1 crore from Rs 4061.6 crore in FY17 to Rs 3,503.5 crore in FY20.