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Sintex Industries

ENGINEERING & CONSTRUCTION

SNTX.NS SINT IN

EQUITY RESEARCH

Downgrading to Neutral

July 25, 2013 Rating Down from Buy Target price Reduced from 100 Closing price July 23, 2013 Potential upside

Higher-than-anticipated capex implies depressed ROCE, could delay any re-rating of the name
Downgrade to Neutral, TP scaled back to INR39 We downgrade Sintex to Neutral, as we scale back average FY14-15F EBITDA by ~16% and cut our target EV/EBITDA to 4.0x (vs 4.8x earlier). We believe that incremental capex (partly related to the spindle project) will lead to a 260bp y-y decline in FY14F pre-tax ROCE (vs our earlier anticipated increase) and delay any re-rating of the stock. Current valuation at FY14F EV/EBITDA of 4.9x is in line with the past one-year average trading multiple of 4.8x. Higher FY14F capex guidance of INR3.5-4.0bn and likely investment in spindle project imply subdued returns and negative FCF Sintexs earlier plans to curtail capex and focus on FCF, debt reduction and improved ROCE have been pushed back, with indications of higher capex guidance of INR3.5-4.0bn for FY14F, vs our earlier expectation of INR2.0-2.5bn. In addition, as per management, the company intends to set up a spindle plant in Gujarat to manufacture cotton yarn which would require capex of ~INR17bn over the next three years. As a result, we expect the company to generate negative FCF, its debt level to increase and its ROCE to decline over FY13-15F. FY14F outlook more muted, consciously slowing execution in monolithic to manage working capital We estimate modest sales growth of ~4.9% in FY14F, as the company plans to scale-back its monolithic business by 25-30% vs FY13. Although we estimate its overseas custom moulding business will grow ~18% y-y in FY14F driven by currency translation benefits and the Poschmann acquisition, we expect domestic custom moulding business to be flat owing to a slowdown in the auto sector.
31 Mar Currency (INR) FY12 Actual Old FY13F New Old FY14F New Old FY15F New

Neutral
INR 39 INR 36 +8.3%

Anchor themes Sintex is likely to be a key beneficiary of government social spending in India towards slum rehabilitation, mass housing, urban decongestion, education, healthcare and sanitation, targeting the lower end of the population pyramid. Nomura vs consensus Our FY14F EBITDA is ~10% below consensus as we factor in sales de-growth of 25% and lower monolithic business margin of 15%.
Research analysts India Mid-Caps Ankur Agarwal, CFA - NFASL ankur.agarwal@nomura.com +91 22 4037 4489 Lalit Kumar - NFASL lalit.kumar@nomura.com +91 22 4037 4511

Revenue (mn) Reported net profit (mn) Normalised net profit (mn) FD normalised EPS FD norm. EPS growth (%) FD normalised P/E (x) EV/EBITDA (x) Price/book (x) Dividend yield (%) ROE (%) Net debt/equity (%)

44,535 3,068 3,405 12.56 -25.5 2.8 4.6 0.4 1.6 12.2 89.5

48,822 2,700 3,251 9.92 -21.1 N/A N/A N/A N/A 9.3 56.4

51,079 3,237 3,985 12.15 -3.3 2.9 4.8 0.4 1.5 11.2 88.4

56,084 4,330 4,330 10.05 1.3 N/A N/A N/A N/A 12.6 39.7

53,602 3,559 3,041 7.06 -41.9 5.0 4.9 0.3 1.5 10.6 77.6

64,508 5,606 5,606 13.01 29.5 N/A N/A N/A N/A 14.2 27.2

63,834 4,277 4,277 9.93 40.6 3.6 4.4 0.3 1.8 11.3 79.9

Source: Company data, Nomura estimates

See Appendix A-1 for analyst certification, important disclosures and the status of non-US analysts.

Key company data: See page 2 for company data and detailed price/index chart.

Nomura | Sintex Industries

July 25, 2013

Key data on Sintex Industries


Incomestatement(INRmn)
Year-end 31 Mar Revenue Cost of goods sold Gross profit SG&A Employee share expense Operating profit EBITDA Depreciation Amortisation EBIT Net interest expense Associates & JCEs Other income Earnings before tax Income tax Net profit after tax Minority interests Other items Preferred dividends Normalised NPAT Extraordinary items Reported NPAT Dividends Transfer to reserves Valuation and ratio analysis Reported P/E (x) Normalised P/E (x) FD normalised P/E (x) FD normalised P/E at price target (x) Dividend yield (%) Price/cashflow (x) Price/book (x) EV/EBITDA (x) EV/EBIT (x) Gross margin (%) EBITDA margin (%) EBIT margin (%) Net margin (%) Effective tax rate (%) Dividend payout (%) Capex to sales (%) Capex to depreciation (x) ROE (%) ROA (pretax %) Growth (%) Revenue EBITDA EBIT Normalised EPS Normalised FDEPS Per share Reported EPS (INR) Norm EPS (INR) Fully diluted norm EPS (INR) Book value per share (INR) DPS (INR)
Source: Company data, Nomura estimates

Relative performance chart (one year)


FY11 44,837 -26,306 18,531 -7,254 -4,613 6,664 8,155 -1,491 6,664 -1,089 24 455 6,054 -1,505 4,549 -3 FY12 44,535 -25,842 18,693 -8,075 -5,120 5,499 7,177 -1,678 5,499 -1,358 68 505 4,713 -1,308 3,405 0 FY13F 51,079 -30,210 20,869 -9,325 -5,902 5,641 7,695 -2,054 5,641 -1,462 43 596 4,818 -833 3,985 0 FY14F 53,602 -31,711 21,891 -10,811 -6,152 4,927 7,527 -2,599 4,927 -1,766 45 596 3,801 -760 3,041 0 FY15F 63,834 -37,796 26,037 -12,482 -7,333 6,222 9,293 -3,070 6,222 -1,516 45 596 5,347 -1,069 4,277 0

Source: ThomsonReuters, Nomura research


(%) Absolute (INR) Absolute (USD) Relative to index Market cap (USDmn) Estimated free float (%) 52-week range (INR) 3-mth avg daily turnover (USDmn) Major shareholders (%) Promoters 75.6/35.35 4.00 1M 3M 12M

-14.0 -26.2 -42.0 -14.7 -32.9 -45.7 -22.0 -31.6 -62.7 162.4

35.0

4,546 31 4,577 -206 4,371

3,405 -337 3,068 -153 2,915

3,985 -747 3,237 -162 3,076

3,041 518 3,559 -178 3,381

4,277 0 4,277 -214 4,063

Source: Thomson Reuters, Nomura research

Notes

2.1 2.1 2.1 2.3 2.1 1.0 0.4 3.4 4.1 41.3 18.2 14.9 10.2 24.9 4.5 15.4 4.6 21.0 13.1

3.1 2.8 2.8 3.1 1.6 na 0.4 4.6 6.0 42.0 16.1 12.3 6.9 27.7 5.0 17.0 4.5 12.2 9.4

3.1 2.5 2.9 3.2 1.5 3.3 0.4 4.8 6.6 40.9 15.1 11.0 6.3 17.3 5.0 8.6 2.1 11.2 8.4

3.2 3.8 5.0 5.5 1.5 1.6 0.3 4.9 7.5 40.8 14.0 9.2 6.6 20.0 5.0 17.6 3.6 10.6 6.6

2.7 2.7 3.6 3.9 1.8 2.4 0.3 4.4 6.6 40.8 14.6 9.7 6.7 20.0 5.0 14.8 3.1 11.3 7.6

We expect total interest expense to decrease even though gross debt will likely increase in FY15F. This is on account of increased contribution from non-interest bearing debt towards TUF and the spindle project in Gujarat

35.1 51.6 69.3 58.7 58.7

-0.7 -12.0 -17.5 -25.5 -25.5

14.7 7.2 2.6 11.5 -3.3

4.9 -2.2 -12.7 -32.4 -41.9

19.1 23.5 26.3 37.2 40.6

16.97 16.86 16.86 88.62 0.76

11.32 12.56 12.56 97.01 0.56

11.38 14.01 12.15 99.81 0.52

11.08 9.47 7.06 108.58 0.54

13.00 13.00 9.93 120.93 0.65

Nomura | Sintex Industries

July 25, 2013

Cashflow(INRmn)
Year-end 31 Mar EBITDA Change in working capital Other operating cashflow Cashflow from operations Capital expenditure Free cashflow Reduction in investments Net acquisitions Reduction in other LT assets Addition in other LT liabilities Adjustments Cashflow after investing acts Cash dividends Equity issue Debt issue Convertible debt issue Others Cashflow from financial acts Net cashflow Beginning cash Ending cash Ending net debt
Source: Company data, Nomura estimates

FY11 8,155 296 1,129 9,579 -6,920 2,659 -141 57 -1,576 999 -190 4 880 0 -1,126 -433 566 9,295 9,861 17,877 FY12 7,177 -6,826 -911 -560 -7,555 -8,115 121 2,455 3,393 -2,146 -206 0 2,643 0 -2,947 -509 -2,655 9,861 7,206 23,709 FY13F 7,695 -4,684 495 3,506 -4,400 -894 0 61 328 -505 -205 2,969 4,626 -15,477 6,027 -2,061 -2,565 7,206 4,641 27,634 FY14F 7,527 2,124 -198 9,453 -9,417 36 0 116 596 748 -178 1,103 0 0 -1,766 -841 -93 4,641 4,548 27,727 FY15F 9,293 -1,803 -1,024 6,465 -9,417 -2,951 0 0 596 -2,356 -214 0 3,000 0 -1,516 1,270 -1,086 4,548 3,462 31,813 Notes

We expect capex of INR9.4bn each in FY14/15F, with ~INR 5.7bn capex towards the spindle project

Balancesheet(INRmn)
As at 31 Mar Cash & equivalents Marketable securities Accounts receivable Inventories Other current assets Total current assets LT investments Fixed assets Goodwill Other intangible assets Other LT assets Total assets Short-term debt Accounts payable Other current liabilities Total current liabilities Long-term debt Convertible debt Other LT liabilities Total liabilities Minority interest Preferred stock Common stock Retained earnings Proposed dividends Other equity and reserves Total shareholders' equity Total equity & liabilities Liquidity (x) Current ratio Interest cover Leverage Net debt/EBITDA (x) Net debt/equity (%) Activity (days) Days receivable Days inventory Days payable Cash cycle
Source: Company data, Nomura estimates

FY11 9,861 3,216 13,923 3,770 6,101 36,871 559 24,834 2,190 438 64,893 7,672 6,105 4,311 18,088 10,020 10,046 2,723 40,877 0 271 23,745 0 24,016 64,893

FY12 7,206 754 16,535 3,955 9,655 38,104 669 28,934 2,179 410 70,296 18,190 5,308 4,632 28,130 1,215 11,510 2,958 43,813 0 271 26,212 0 26,483 70,296

FY13F 4,641 598 17,806 4,531 12,940 40,516 705 33,415 2,157 459 77,253 7,680 6,282 4,108 18,070 16,901 7,694 3,338 46,003 0 311 30,939 0 31,250 77,253

FY14F 4,548 598 15,769 4,756 12,940 38,611 705 40,117 2,157 459 82,049 7,680 6,594 4,108 18,382 16,901 7,694 3,338 46,315 0 327 35,407 0 35,734 82,049

FY15F 3,462 598 17,924 5,669 12,940 40,593 705 46,463 2,157 459 90,378 10,680 7,859 4,108 22,647 16,901 7,694 3,338 50,580 0 327 39,470 0 39,798 90,378

Notes

We expect the working capital cycle to reduce as the company scales back its monolithic business. Also, increased capex may lead to increased debt levels by FY15F

2.04 6.1

1.35 4.0

2.24 3.9

2.10 2.8

1.79 4.1

2.19 74.4

3.30 89.5

3.59 88.4

3.68 77.6

3.42 79.9

97.9 49.8 69.7 77.9

125.2 54.7 80.8 99.0

122.7 51.3 70.0 103.9

114.3 53.4 74.1 93.7

96.3 50.3 69.8 76.9

Nomura | Sintex Industries

July 25, 2013

Increased capex in FY14-15F, investment in spindle project, and more subdued operating outcome to depress ROCE
We believe the companys recent announcement of higher capex, especially its planned investment in the spindle project is contrary to the discipline on returns metric that we had anticipated from management. It may well be attributed to the fact that managements time horizon for any visible improvement in returns, free cash flows is being much more backward loaded than our expectations. Apart from higher-thananticipated capex in FY13, the company now guides for higher capex in FY14 as well. (The companys actual capex for FY13 was INR4.4bn, including the Poschmann acquisition and interest capitalisation, which was much more than its earlier capex guidance of INR1.2bn.) It now expects capex of INR3.5-4.0bn in FY14F vs. its earlier guidance of INR2.0-2.5bn. This, along with potential capex for setting up its spindle project (mentioned in detail below) implies that its short- medium-term cashflows, return metrics are likely to be significantly more subdued, in our view. Apart from the additional capex, return ratios will also likely be impacted by operating outcome, we estimate, as the company cuts back on its monolithic business and grapples with the current slowdown in the auto sector which affects its domestic custom moulding business As shown below, while we had earlier expected adjusted pre-tax ROCE to improve from 13.7% in FY12 to 15.1%/17.6% in FY14F/FY15F, we now expect adjusted ROCE to deteriorate to 8.7%/9.9% in FY14F/15F which should delay any potential re-rating of this name. Similarly, earlier we had expected the company to generate positive FCF over FY1315F; however, we now expect FCF to remain negative in FY14-15F which implies its net debt-equity ratio will likely remain at ~0.8-0.9 over FY13-15F vs. our earlier expectation of a decline from 0.87 in FY12 to 0.27 by FY15F.

Fig. 1: Adj ROCE earlier and current expectations, post the increased capex in FY13/14F and investment in spindle project
Earlier Current

Fig. 2: Decline in ROCE should delay a re-rating of the stock


Adj ROCE (LHS) Average EV/EBITDA (RHS) 14.0

19%

19%
16%

11.0

16%
13%

8.0

13%
10%

5.0

10%

7% FY08 FY09 FY10 FY11 FY12F FY13F FY14F FY15F

2.0

7% FY08 FY09 FY10 FY11 FY12 FY13 FY14F FY15F

Source: Company, FACTSET, Nomura estimates

Source: Company, Nomura estimates

Nomura | Sintex Industries

July 25, 2013

Fig. 3: Pre-tax ROCE vs. WACC in FY13-15F


(INR mn)

Re Rd Tax rate Net debt Equity Spindle project + TUF loan WACC Adj pre taxROCE*
Source: Company, Bloomberg, Nomura estimates

FY13F 16.9% 10.0% 17.3% 17,927 31,803 2,360 14% 12.6%

Old FY14F 16.9% 10.0% 20.0% 14,680 36,952 2,020 15% 15.1%

FY15F 16.9% 10.0% 20.0% 11,492 42,278 1,680 15% 17.6%

FY13F 16.9% 10.0% 17.3% 27,036 31,250 2,360 13% 11.3%

New FY14F 16.9% 10.0% 20.0% 27,129 35,734 7,687 13% 8.7%

FY15F 16.9% 10.0% 20.0% 31,215 39,798 13,013 12% 9.9%

Note: * Adjusted for cash & marketable securities, goodwill and other income

Intent to invest in spindle project capex estimated at INR17bn over next three years
During the 1QFY14 concall, management highlighted that it is evaluating to invest in a spinning unit to manufacture cotton yarn with 0.3mn spindles which will be ramped-up to 1mn spindles in five years. As per management, setting up the unit with 0.3mn spindles would entail a capex of INR17bn. As mentioned below, its intent to venture into the spindle project has been driven by the various incentives provided by the state government and the opportunity available in Gujarat. While we expect the project may be positive for the company in the long-term, in the short- to medium-term it will likely have a negative impact on key metrics such as ROCE, FCF and net D/E which we and investors had expected to improve. Rationale for the companys venture into the spindle project: Easy access to raw material: Gujarat accounts for ~70% of cotton production in India and India exports ~ 25%, which indicates abundant supply of raw material. India is the third-largest producer of cotton in the world after China and the US (as per the company). While acreage under cotton in India has been increasing every year, the acreage under cotton has been on a downtrend in China owing to a focus on food grains and other priority crops. Gujarat - New Textile Policy: o State government to give 7% interest subsidy over and above the 4% TUF (textile upgradation fund) subsidy offered by the central government. This would imply nearly interest-free loan for Sintexs spindle project, on our reading. Gujarat has surplus power which would be available at a subsidised rate (rate less by INR1/unit) to spinning units. VAT refund until project cost is recovered. Duty exemption ~15% on power tariff is also expected, as per the company.

o o o

Monolithic business is being scaled back


The company now guides for FY14F sales at INR7.0-7.5bn for its monolithic business vs. its earlier indication of 10-20% potential growth. This implies ~25-30% negative sales growth for its monolithic business. We understand that its monolithic business is working capital intensive and scaling back this business would release working capital. However, this implies that overall consolidated sales growth will likely remain muted at ~4.9% in FY14F, especially given the subdued outlook for its subsidiary Bright Autoplast which is linked to the slowing domestic auto industry.

Nomura | Sintex Industries

July 25, 2013

Summary of our estimate changes


Apart from factoring in the knock-on impact actual outcome especially on cash flow for FY13 and recently announced Q1 results, we have incorporated the following changes for FY14-15 in our forecasts We have raised our FY14/15F gross capex estimate from INR2.0/2.0bn to INR9.4/9.4bn. We now build in capex of INR3.75 for the prefab/custom moulding business including maintenance capex and INR5.67bn capex for the spindle project which has been highlighted earlier (we expect management to go ahead with the project). This has also raised our estimate for depreciation in FY14/15F. The increased capex will likely increase debt by INR3bn in FY15F. We have reduced our tax rate assumption to 20% (previously 30%), as guided by the company during the 1QFY14 concall. For its textiles business, we build in sales contribution of INR2.6bn from the spindle project from FY15F. Our sales assumption of INR2.6bn is based on our expectation of 96mn kg yarn production per spindle and realisation of USD3. We are not building in any contribution in FY14F, as we expect production to start only in FY15F, post evaluation of the spindle project and set-up. For its monolithic business, we now expect sales to decline ~25% in FY14F vs. our earlier growth expectation of ~20%. Similarly, we have scaled back our sales growth estimate from 20% to 0% for FY15F. Lower execution in the monolithic business would also lead to lower margins, in our view. Accordingly, we have reduced our EBITDA margin estimate for both FY14/15F by 300bp. This, however, will have a positive impact on working capital. Hence, we have reduced receivable days by 20 days. We have also raised our sales growth estimate for its overseas custom moulding business from 4% to 18% owing to recent depreciation of the INR vs. USD and EUR, and our expectation of increased sales contribution from Poschmann. We have reduced our EBITDA margin estimate for both FY14/15F from 9.9% to 8.1% on account of lower capacity utilisation at Poschmann. For its domestic custom moulding business, we reduce our growth estimate from 6% to 0%, owing to negative sales growth of 16% in 1Q and our expectation of continued weakness in the domestic auto sector. We have also captured the reported forex loss of INR37mn in 1QFY14F. Interest expense: we raise our interest expense estimate for FY14/15F, because earlier we expected a reduction in debt vs. our current expectation of flat/increase in debt in FY14/15F. Also, now the interest on the newly raised FCCB is being captured in the P&L which would increase interest expenses. We have also assumed that the company will raise debt for its spindle capex which will be interest-free, and re-pay part of the interest-bearing debt in FY14/15F. The company has closed two water tank plants in Kutch and Bangalore and plans to close another water tank plant at Daman. According to the company, this would entail cash inflows of INR0.8-1.0bn from the sale of the closed plant and land. We have captured INR684mn as exceptional gains in FY14F and assume INR116 as book value.

Fig. 4: Changes to our estimates


(INR mn)

Revenue
- growth(%)

Old FY14F 56084


9.8%

FY15F 64508
15.0%

New FY14F 53602


4.9%

FY15F 63834
19.1%

% Change FY14F -4% -18% -18% -30%

FY15F -1% -14% -24% -24%

EBITDA
- margin (%)

9,158
16.3%

10,811
16.8%

7,527
14.0%

9,293
14.6%

PAT Adj PAT


Source: Nomura estimates

4,330 4,330

5,606 5,606

3,559 3,041

4,277 4,277

Nomura | Sintex Industries

July 25, 2013

Fig. 5: Nomura vs. consensus our FY15F sales estimate is higher than consensus, as we factor in contribution from the spindle project
(INRmn)

Revenue
- growth(%)

Nomura FY14F 53602


4.9%

FY15F 63834
19.1%

Consensus FY14F 54784


7.3%

FY15F 60619
10.7%

Difference FY14F -2% -10% -5% -18%

FY15F 5% -2% -3% -3%

EBITDA
- margin (%)

7,527
14.0%

9,293
14.6%

8,336
15.2%

9479
15.6%

PAT Adj PAT

3,559 3,041

4,277 4,277

3,727 3,727

4409 4409

Source: Bloomberg Consensus, Nomura estimates

Valuation Target price scaled back to INR39


We have updated our SOTP-based valuation (methodology unchanged) of Sintex to arrive at a revised TP of INR39. Apart from changing our EBITDA estimate for its various divisions and assuming higher net debt owing to the newly announced capex, we assign a 15% discount to our earlier target multiple for each segment (given the pre-tax ROCE decline vs. our earlier expectation of an increase), which drives a sharp reduction in our target price The stock currently trades at a one-year forward EV/EBITDA multiple of 4.6x (4.9x FY14F and 4.4x FY15F), which is in line with the past one-year average trading multiple of 4.8x. Our FY14F TP of INR39 implies an EV/EBITDA multiple of 4.1x FY15F and 5x FY14F which we believe is fair given that we expect ROCE will likely decline over FY1415F and remain lower than WACC in both FY14-FY15F. This, we believe, should delay any re-rating of the stock.
Fig. 6: SOTP-based TP of INR39
(INRmn)
Business EBITDA FY15 Textiles Prefab Monolithic Storage containers, door & windows Custom Moulding (Domestic) Wausaukee Bright Autoplast Nief Plastic Total 1706 2668 1165 340 1819 189 724 1277 9888 EV/EBITDA mutiple New (15% discount ) 4.1 4.5 4.5 2.7 3.7 5.2 4.1 3.0 Old 4.8 5.3 5.3 3.2 4.3 6.2 4.8 3.6 6960 12018 5250 925 6641 991 2956 3865 39604 39604 23282 16322 10% 380 39 Target multiple at 20% discount to target multiple for Raymond having strong brand & retail presence. Target multiple in line with midcap construction companies. Target multiple in line with midcap construction companies. Target multiple In line with Nilkamal depressed trading multiple. Target multiple at ~40% discount to weighted average trading multiple of Marauti Suzuki and Bajaj Electric. Target multiple at ~20% discount to Acciona (wind energy) trading multiple as Wausaukee is tier 1 supplier. Target multple at ~40% discount to target multiple for Marauti Suzuki trading having strong brand and retial presence. Target multiple at ~50% discount to weighted average trading multiple of European Auto companies (Renault), electric companies (Schneider,Valeo, ABB, Alstom). Adiditional 15% discount on increased capex & ROCE decline by ~ 260 bp in FY14F vs our earlier expectation of 250 bps improvement We have assumed 50% FCCB conversion which has been acccounted in number of shares EV FY14 Comments

EV (FY14) 9888 Net debt Market Value Holding Discount Number of Shares (mn) Implied Stock Price (INR, FY14)
Source: Bloomberg, Nomura estimates

4.0

We have assumed diluted number of shares (100% QIP, 100% warrant & 50% FCCB)

Nomura | Sintex Industries

July 25, 2013

Fig. 7: EV/EBITDA trading multiple on consensus


18 EV/EBITDA 16 14 12 10 8 6 4 2 1 stdev Average 1 stdev

Source: Bloomberg, FACTSET, Nomura research

Investment risks
Economic downturn: Sintexs growth is linked to trends in the governments spending and consumption, especially in the auto sector. While we have factored in a slowdown, especially in the auto end-market, our earnings forecasts would be affected by a greater-than- expected decline in this end-market. High volatility in raw materials: High volatility in raw material prices, especially in the custom moulding division could have an adverse impact on our assumptions. Raw material costs in monolithic and prefab are largely a pass-through. Government projects account for a major part of the companys order book. A greaterthan-anticipated slowdown in government decision-making could result in delays in execution because of increases in working capital requirements as receivable days increase. We have assumed that the company would go ahead with the capex for the spindle project. If the company gets more conservative and focuses more on medium-term cash flows, it may be a positive for the stock. Delays or cost over-runs in execution of the spindle project, which management is seriously evaluating at this stage.

Nomura | Sintex Industries

July 25, 2013

Appendix A-1
Analyst Certification
We, Ankur Agarwal and Lalit Kumar, hereby certify (1) that the views expressed in this Research report accurately reflect our personal views about any or all of the subject securities or issuers referred to in this Research report, (2) no part of our compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this Research report and (3) no part of our compensation is tied to any specific investment banking transactions performed by Nomura Securities International, Inc., Nomura International plc or any other Nomura Group company.

Issuer Specific Regulatory Disclosures


The term "Nomura Group" used herein refers to Nomura Holdings, Inc. or any of its affiliates or subsidiaries, and may refer to one or more Nomura Group companies.

Materially mentioned issuers


Issuer Sintex Industries Ticker SINT IN Price INR 36 Price date 23-Jul-2013 Stock rating Sector rating Disclosures Neutral Not rated

Sintex Industries (SINT IN)


Rating and target price chart (three year history)

INR 36 (23-Jul-2013) Neutral (Sector rating: Not rated)


Date 11-Feb-13 30-Apr-12 12-Jan-12 12-Jan-12 Rating Target price 100.00 109.00 Buy 122.00 Closing price 60.60 73.90 72.20 72.20

For explanation of ratings refer to the stock rating keys located after chart(s)

Valuation Methodology We value Sintex using SOTP. Our TP of INR39 is based on peer multiples for individual businesses and implies a target EV/EBITDA of 5x on FY14F. We use domestic peers for businesses such as textiles [discount to Raymonds (RW IN) target multiple], monolithic and prefab construction (in line with our target multiple for mid-cap construction). We use international peers (discount to trading multiples of key customers) for the overseas subsidiaries in the custom moulding business, which contribute c.22% of total group revenue. Risks that may impede the achievement of the target price Key investment risks are: 1) economic downturn - Sintexs growth is linked to trends of government spending and domestic consumption, especially in the auto sector; 2) high volatility in raw material prices - high volatility in raw material prices, especially in the custom moulding division, could have an adverse impact on our assumptions; and 3) slow execution of orders and increase in working capital in monolithic business.4)We have assumed that the company would go ahead with the capex in the Spindle project. If the company gets more conservative and focuses more on medium term cash flow, it may be a positive for the stock. 5)Delays or cost over-runs in execution of the spindle project, which management is seriously evaluating at this stage.

Nomura | Sintex Industries

July 25, 2013

Important Disclosures
Online availability of research and conflict-of-interest disclosures
Nomura research is available on www.nomuranow.com/research, Bloomberg, Capital IQ, Factset, MarkitHub, Reuters and ThomsonOne. Important disclosures may be read at http://go.nomuranow.com/research/globalresearchportal/pages/disclosures/disclosures.aspx or requested from Nomura Securities International, Inc., on 1-877-865-5752. If you have any difficulties with the website, please email grpsupport@nomura.com for help. The analysts responsible for preparing this report have received compensation based upon various factors including the firm's total revenues, a portion of which is generated by Investment Banking activities. Unless otherwise noted, the non-US analysts listed at the front of this report are not registered/qualified as research analysts under FINRA/NYSE rules, may not be associated persons of NSI, and may not be subject to FINRA Rule 2711 and NYSE Rule 472 restrictions on communications with covered companies, public appearances, and trading securities held by a research analyst account. Nomura Global Financial Products Inc. (NGFP) Nomura Derivative Products Inc. (NDPI) and Nomura International plc. (NIplc) are registered with the Commodities Futures Trading Commission and the National Futures Association (NFA) as swap dealers. NGFP, NDPI, and NIplc are generally engaged in the trading of swaps and other derivative products, any of which may be the subject of this report. Any authors named in this report are research analysts unless otherwise indicated. Industry Specialists identified in some Nomura International plc research reports are employees within the Firm who are responsible for the sales and trading effort in the sector for which they have coverage. Industry Specialists do not contribute in any manner to the content of research reports in which their names appear. Marketing Analysts identified in some Nomura research reports are research analysts employed by Nomura International plc who are primarily responsible for marketing Nomuras Equity Research product in the sector for which they have coverage. Marketing Analysts may also contribute to research reports in which their names appear and publish research on their sector.

Distribution of ratings (Global)


The distribution of all ratings published by Nomura Global Equity Research is as follows: 43% have been assigned a Buy rating which, for purposes of mandatory disclosures, are classified as a Buy rating; 37% of companies with this rating are investment banking clients of the Nomura Group*. 45% have been assigned a Neutral rating which, for purposes of mandatory disclosures, is classified as a Hold rating; 49% of companies with this rating are investment banking clients of the Nomura Group*. 12% have been assigned a Reduce rating which, for purposes of mandatory disclosures, are classified as a Sell rating; 18% of companies with this rating are investment banking clients of the Nomura Group*. As at 30 June 2013. *The Nomura Group as defined in the Disclaimer section at the end of this report.

Explanation of Nomura's equity research rating system in Europe, Middle East and Africa, US and Latin America
The rating system is a relative system indicating expected performance against a specific benchmark identified for each individual stock. Analysts may also indicate absolute upside to target price defined as (fair value - current price)/current price, subject to limited management discretion. In most cases, the fair value will equal the analyst's assessment of the current intrinsic fair value of the stock using an appropriate valuation methodology such as discounted cash flow or multiple analysis, etc. STOCKS A rating of 'Buy', indicates that the analyst expects the stock to outperform the Benchmark over the next 12 months. A rating of 'Neutral', indicates that the analyst expects the stock to perform in line with the Benchmark over the next 12 months. A rating of 'Reduce', indicates that the analyst expects the stock to underperform the Benchmark over the next 12 months. A rating of 'Suspended', indicates that the rating, target price and estimates have been suspended temporarily to comply with applicable regulations and/or firm policies in certain circumstances including, but not limited to, when Nomura is acting in an advisory capacity in a merger or strategic transaction involving the company. Benchmarks are as follows: United States/Europe: please see valuation methodologies for explanations of relevant benchmarks for stocks, which can be accessed at: http://go.nomuranow.com/research/globalresearchportal/pages/disclosures/disclosures.aspx; Global Emerging Markets (ex-Asia): MSCI Emerging Markets ex-Asia, unless otherwise stated in the valuation methodology. SECTORS A 'Bullish' stance, indicates that the analyst expects the sector to outperform the Benchmark during the next 12 months. A 'Neutral' stance, indicates that the analyst expects the sector to perform in line with the Benchmark during the next 12 months. A 'Bearish' stance, indicates that the analyst expects the sector to underperform the Benchmark during the next 12 months. Benchmarks are as follows: United States: S&P 500; Europe: Dow Jones STOXX 600; Global Emerging Markets (ex-Asia): MSCI Emerging Markets ex-Asia.

Explanation of Nomura's equity research rating system in Japan and Asia ex-Japan
STOCKS Stock recommendations are based on absolute valuation upside (downside), which is defined as (Target Price - Current Price) / Current Price, subject to limited management discretion. In most cases, the Target Price will equal the analyst's 12-month intrinsic valuation of the stock, based on an appropriate valuation methodology such as discounted cash flow, multiple analysis, etc. A 'Buy' recommendation indicates that potential upside is 15% or more. A 'Neutral' recommendation indicates that potential upside is less than 15% or downside is less than 5%. A 'Reduce' recommendation indicates that potential downside is 5% or more. A rating of 'Suspended' indicates that the rating and target price have been suspended temporarily to comply with applicable regulations and/or firm policies in certain circumstances including when Nomura is acting in an advisory capacity in a merger or strategic transaction involving the subject company. Securities and/or companies that are labelled as 'Not rated' or shown as 'No rating' are not in regular research coverage of the Nomura entity identified in the top banner. Investors should not expect continuing or additional information from Nomura relating to such securities and/or companies. SECTORS A 'Bullish' rating means most stocks in the sector have (or the weighted average recommendation of the stocks under coverage is) a positive absolute recommendation. A 'Neutral' rating means most stocks in the sector have (or the weighted average recommendation of the stocks under coverage is) a neutral absolute recommendation. A 'Bearish' rating means most stocks in the sector have (or the weighted average recommendation of the stocks under coverage is) a negative absolute recommendation.

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Target Price
A Target Price, if discussed, reflects in part the analyst's estimates for the company's earnings. The achievement of any target price may be impeded by general market and macroeconomic trends, and by other risks related to the company or the market, and may not occur if the company's earnings differ from estimates.

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Disclaimers
This document contains material that has been prepared by the Nomura entity identified at the top or bottom of page 1 herein, if any, and/or, with the sole or joint contributions of one or more Nomura entities whose employees and their respective affiliations are specified on page 1 herein or identified elsewhere in the document. The term "Nomura Group" used herein refers to Nomura Holdings, Inc. or any of its affiliates or subsidiaries and may refer to one or more Nomura Group companies including: Nomura Securities Co., Ltd. ('NSC') Tokyo, Japan; Nomura International plc ('NIplc'), UK; Nomura Securities International, Inc. ('NSI'), New York, US; Nomura International (Hong Kong) Ltd. (NIHK), Hong Kong; Nomura Financial Investment (Korea) Co., Ltd. (NFIK), Korea (Information on Nomura analysts registered with the Korea Financial Investment Association ('KOFIA') can be found on the KOFIA Intranet at http://dis.kofia.or.kr); Nomura Singapore Ltd. (NSL), Singapore (Registration number 197201440E, regulated by the Monetary Authority of Singapore); Nomura Australia Ltd. (NAL), Australia (ABN 48 003 032 513), regulated by the Australian Securities and Investment Commission ('ASIC') and holder of an Australian financial services licence number 246412; P.T. Nomura Indonesia (PTNI), Indonesia; Nomura Securities Malaysia Sdn. Bhd. (NSM), Malaysia; NIHK, Taipei Branch (NITB), Taiwan; Nomura Financial Advisory and Securities (India) Private Limited (NFASL), Mumbai, India (Registered Address: Ceejay House, Level 11, Plot F, Shivsagar Estate, Dr. Annie Besant Road, Worli, Mumbai- 400 018, India; Tel: +91 22 4037 4037, Fax: +91 22 4037 4111; SEBI Registration No: BSE INB011299030, NSE INB231299034, INF231299034, INE 231299034, MCX: INE261299034) and NIplc, Madrid Branch (NIplc, Madrid). 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To the maximum extent permissible all warranties and other assurances by Nomura group are hereby excluded and Nomura Group shall have no liability for the use, misuse, or distribution of this information. Opinions or estimates expressed are current opinions as of the original publication date appearing on this material and the information, including the opinions and estimates contained herein, are subject to change without notice. Nomura Group is under no duty to update this document. Any comments or statements made herein are those of the author(s) and may differ from views held by other parties within Nomura Group. Clients should consider whether any advice or recommendation in this report is suitable for their particular circumstances and, if appropriate, seek professional advice, including tax advice. Nomura Group does not provide tax advice. Nomura Group, and/or its officers, directors and employees, may, to the extent permitted by applicable law and/or regulation, deal as principal, agent, or otherwise, or have long or short positions in, or buy or sell, the securities, commodities or instruments, or options or other derivative instruments based thereon, of issuers or securities mentioned herein. Nomura Group companies may also act as market maker or liquidity provider (within the meaning of applicable regulations in the UK) in the financial instruments of the issuer. Where the activity of market maker is carried out in accordance with the definition given to it by specific laws and regulations of the US or other jurisdictions, this will be separately disclosed within the specific issuer disclosures. This document may contain information obtained from third parties, including ratings from credit ratings agencies such as Standard & Poors. Reproduction and distribution of third party content in any form is prohibited except with the prior written permission of the related third party. Third party content providers do not guarantee the accuracy, completeness, timeliness or availability of any information, including ratings, and are not responsible for any errors or omissions (negligent or otherwise), regardless of the cause, or for the results obtained from the use of such content. Third party content providers give no express or implied warranties, including, but not limited to, any warranties of merchantability or fitness for a particular purpose or use. Third party content providers shall not be liable for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including lost income or profits and opportunity costs) in connection with any use of their content, including ratings. 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Nomura | Sintex Industries Additional information is available upon request and disclosure information is available at the Nomura Disclosure web page: http://go.nomuranow.com/research/globalresearchportal/pages/disclosures/disclosures.aspx Copyright 2013 Nomura International (Hong Kong) Ltd. All rights reserved.

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