Sintex Plastics, multibagger-in-the-making?
In my earlier piece, I meticulously pointed out all the virtues of Sintex Plastics, the newly listed offspring of Sintex Industries.
In particular, I drew attention to the research reports of Ventura, Antique Stock Broking and Philip Capital, all of whom have unanimously opined that the small-cap is presently undervalued and has good potential to shower mega gains upon investors.
There is also a detailed investors’ presentation released by the Company which explains the growth plans in detail.
Porinju Veliyath’s “trillion dollar opportunity” theme
I also speculated that Sintex Plastics is an ideal candidate for Porinju Veliyath’s famous theory that select infra stocks will become 5x/ 10x multibaggers.
Over a dozen Infra cos at inflection point – stronger balance sheet, better visibility & exciting operating environment; potential 5x & 10x
— Porinju Veliyath (@porinju) July 26, 2017
We have had the bitter experience in the past of turning a deaf ear to Porinju’s pronouncements and losing out of megabagger gains which were handed over on a platter.
Clean chit by Shyam Sekhar
Shyam Sekhar, the noted value investor who has snared magnificent 10-baggers like Jayant-Agro for his portfolio, has also certified that Sintex Plastics is “definitely worth a good look”.
He has also made it clear that he follows a rigorous checklist before giving the green signal to a stock, which includes doing a “360 degree study of risks” and ensuring that the valuations are reasonable.
Sintex Plastics is a “Behatareen” share with low downside risk and huge upside potential: DD Sharma
DD Sharma, the veteran stock picker, has a knack of explaining the fundamentals of a stock in a simple and understandable manner.
Sintex Plastics is his latest recommendation.
He pointed out that the hi-tech plastic products manufactured by the Company have everlasting demand, not only in India but in three Continents across the Globe.
The said products are supplied to several marquee customers including several Fortune 500 companies.
He emphasized that the Company is generating free cash flows and that the same would be used to reduce debt as the Company has no expansion plans on the anvil.
It is obvious that a reduction in debt will result in a re-rating of the Company.
He also explained that the Company is expected to earn an EPS of Rs. 9 in FY 2017-18 and if that is discounted at the P/E of peer companies like Nilkamal and Supreme Industries, a target price of Rs. 180 in a year’s time is easily achievable.
The target price results in a massive upside potential of nearly 75% from the CMP of Rs. 105.
A similar view has been expressed by other knowledgeable investors:
*Interesting ard 100
*One of largest players in its segments
*No major capex ahead
Had reco full Sintex b4 demerger ard 80
— Dr ALLEN BABY PHD (@drallenbaby) September 9, 2017
Sintex Plastics is a great bet to ride on the electric cars theme. Co has a significant presence in automotive body plastics segment (1/2)
— Ranjan (@iRanjan_23) September 9, 2017
No wonder TPG Capital, Blackstone Group LP and Carlyle Group have expressed interest to buy $200m in Sintex Plastics (2/2) #Catchthemyoung
— Ranjan (@iRanjan_23) September 9, 2017
Sintex Plastic will post strong FCF growth: IIFL
IIFL has issued an initiating coverage report in which it has recommended a buy of Sintex Plastic on the following logic:
“We believe that increasing substitution of metal with composite plastics will drive overall top-line growth for Sintex Plastic Technology (SPTL). It is expected to post strong FCF growth on account of 1) lower focus on w/c intensive monolithic business, 2) asset light route (outsourcing) for retail custom molding business and 3) cost benefits arising out of shifting of production of low value-add work to low cost manufacturing sites. As a result, we expect steady reduction in debt to aid profitability. We value SPTL at 17.0x FY19 EPS of Rs 8.7 to arrive at a price target of Rs 147.”
The target price of Rs. 147 projected by IIFL implies that hefty gains of 36.6% can be harvested from the stock.
Sintex Plastics’ Monolithic construction business could be a dark horse: Joindre Capital
Joindre Capital, which is advisory service of Avinash Gorakshakar, the noted stock market expert, has opined that Sintex Plastics has multiple growth drivers:
“What are the Key Earnings Drivers for SPTL?
Monolithic construction business could turn out a potential dark horse over the medium term –
Earlier in the last 5 years the entire monolithic business segment was largely driven by government orders including from housing boards, slum rehabilitation, railways and government quarters amongst others. Typical order sizes here ranged between Rs 15 crs to Rs 75 crs. However given the large size of such orders and long delays in the payment cycle by the various government departments, led to receivable days increasing to 270 days from 100-120 days on an average earlier. This made Sintex scale back its monolithic construction business considerably earlier.
While SPTL has adopted a prudent strategy of focusing on profitable growth and remains selective in this space, we believe that this business segment can grow strongly ahead in the next 2-3 years as the impetus on low-cost/affordable housing is getting more prominence.
Another segment which SPTL is likely to look at is large real estate developers once RERA compliance improves and real-estate developers start focussing on affordable housing.
Business Outlook & Stock Valuation –
On a rough cut basis, in FY18, Revenue is expected to touch Rs 6595 crs.
On the bottomline level we expect the company to record a PAT of Rs 480 crs in FY18E. Thus on a conservative basis, SPTL should record a EPS of Rs 8 for FY18E. For FY19E and FY20E our expectation is that earnings traction for SPTL will continue to remain attractive wherein we expect a EPS of Rs 9.77 & Rs 12 respectively.
SPTL offers one of the widest plastic-based solutions in the global plastic processing space – from creating housing units to small components that find application in the medical equipment and electrical businesses.
SPTL is the only Indian plastic processing company with pan India presence and enjoys an early-mover advantage in businesses that are levered to the social sector spending in India (schools/ low-cost housing/ healthcare centres), funded almost entirely by government.
A macroeconomic turnaround, improving trajectory of businesses linked to government spending, improving financial performance and further easing of working capital will drive the expected improvement in the company’s operating metrics. Going ahead SPTL is not expected to incur high capex over the next 2 years as average capacity utilisation stands at around 60% across product segments and capex would be required once this improves to 80-90% (mostly in FY20E).
Valuation wise looking at the small earnings and revenue base of SPTL, we believe the markets would be looking at SPTL as a RE RATING story with overall debt reduction likely to boost earnings at the net level going ahead over the next 2 years.
Hence we believe that the SPTL stock should be purchased at the current price for a price target of around Rs 150 over the next 12 to 18 months.”
Prima facie, the unanimous bullishness of Shyam Sekhar, DD Sharma, Avinash Gorakshakar, Ventura, IIFL, Antique Stock Broking, Philip Capital and others about Sintex Plastics means that we have no option but to give the stock pride of place in our portfolios if we don’t want to have that left out feeling again!