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Sintex: Signs of improving times? - Views on News from Equitymaster

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Sintex: Signs of improving times?

Jan 13, 2010

Performance summary
  • Consolidated sales grow by 3% YoY during 3QFY10. Growth led by the plastics division where sales grew 5% YoY during the quarter. Sales for the textile division fell by 6% YoY. Overall sales decline by nearly 3% YoY during the nine-month period ended December 2009.
  • Operating margins expand to 18.1% during 3QFY10, from 16% in 3QFY09. Expansion led by lower other expenditure. Otherwise, raw material costs rise on the back of higher commodity prices.
  • A good operating performance fails to lead to a good bottomline picture. Higher depreciation impacts net profits, which rise by just around 2% YoY during 3QFY10, as compared to the 17% YoY growth in operating profits. 9mFY10 profits decline by around 10% YoY.

Consolidated performance
(Rs m) 3QFY09 3QFY10 Change 9mFY09 9mFY10 Change
Sales 8,202 8,478 3.4% 22,826 22,256 -2.5%
Expenditure 6,889 6,941 0.7% 19,291 18,808 -2.5%
Operating profit (EBIDTA) 1,313 1,538 17.1% 3,534 3,448 -2.4%
Operating profit margin (%) 16.0% 18.1%   15.5% 15.5%  
Other income 252 249 -1.0% 715 656 -8.2%
Interest 255 175 -31.5% 615 473 -23.0%
Depreciation 355 624 75.6% 933 1,093 17.2%
Profit before tax 954 988 3.5% 2,701 2,538 -6.0%
Tax 237 260 9.7% 578 549 -5.1%
Extraordinary income/(expense) - -   - (68)  
Minority interest 9 3 -62.2% 12 19 59.0%
Profit after tax/(loss) 708 724 2.3% 2,111 1,903 -9.9%
Net profit margin (%) 8.6% 8.5%   9.2% 8.5%  
No. of shares       136.5 136.5  
Diluted earnings per share (Rs)*         22.3  
P/E ratio (x)*         12.1  
* On a trailing 12-months basis

What has driven performance in 3QFY10?
  • The 3% YoY growth in Sintex’s consolidated sales during 3QFY10 was largely due to a 5% YoY growth in sales of the plastics division (90% of total sales). This was because the company’s textile sales dropped by 6% YoY during the quarter. As for the plastics business, a large part of the growth came from the custom molding sub-segment (54% of segment sales), which grew by 11% YoY during the quarter. The company is seeing strong traction in the domestic electrical accessories segment, as investments in the power sector pick up pace once again.

    As for the second sub-segment within plastics – building materials – sales here grew by a marginal 1% YoY during 3QFY10. The company’s order backlog for this business currently stands at around Rs 15 bn.

    Segment-wise performance
    (Rs m) 3QFY09 3QFY10 Change 9mFY09 9mFY10 Change
    Textile revenue 945 890 -5.9% 2,661 2,411 -9.4%
    % share 11.5% 10.5%   11.7% 10.8%  
    PBIT margin 20.7% 7.3%   17.3% 6.7%  
    Plastic revenue 7,257 7,588 4.6% 20,165 19,845 -1.6%
    % share 88.5% 89.5%   88.3% 89.2%  
    PBIT margin 10.6% 11.5%   12.3% 12.4%  
    Source: Company

  • Sintex improved its operating margins by 2.1% YoY during the quarter, to 18.1%. This was led by lower other expenditure, which fell to 15% of sales, from 20.6% in 3QFY09. The improvement in margins would have been higher but for the rise in raw material costs on the back of higher commodity prices.

  • Despite a 17% YoY growth in operating profits, Sintex could manage just a 2% YoY rise in its net profits during 3QFY10. This was owing to lower other income and significantly higher depreciation (up 76% YoY).

What to expect?
At the current price of Rs 265, the stock is trading at a multiple of 9.9 times our estimated FY12 consolidated earnings. Sintex’s nine-month performance is almost in line with our full year FY10 estimates. The management believes that it is seeing some strong signs of a pickup in economic activity that is leading to higher capacity utilization for the company. Overall, we maintain our positive view on the stock at the current juncture.

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