Sintex Results – Good Quarter – Concerns Remain

Sintex reported 3QFY11 consolidated EBITDA at Rs1.96 bn versus our estimates at Rs1.77bn. The outperformance has come on the back of higher execution (Rs11.86 bn vs our estimates at Rs10.69 bn) against our estimates. The EBITDA margins in 3QFY11 at 16.6% are exactly in line with our estimates. We see incremental risks and any rally on the back of good news/results should be used to pare down exposure.

The outperformance on the execution front has come primarily from the standalone pre-fab and custom molding segment. In the pre-fab segment, the 3QFY11 revenues came at Rs1,770 mn versus our estimates at Rs1,150 mn; standalone custom molding revenues came at Rs1,070 mn versus our estimates at Rs800 mn.

EBITDA margins, though below Q2FY11 levels, improved by c.270 bps yoy; on track to deliver on the company’s guidance of c.17.5% EBITDA margin for FY11E. This margin improvement helped the company offset the impact of higher interest expenses (up 60% yoy). We lower our EPS for FY11E-13E by c.2% as we increase interest rate forecasts by c.100 bps.

Sintex Industries is expected to report an EPS between Rs 16.5 to Rs 18 for FY 2012 according to various Insitutional Research. This is a tepid growth and hence investors can look forward to switching out of the stock when favorable.