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Sintex: Global ambitions drive growth

Jan 14, 2008

Performance summary
  • Consolidated sales more than double in 3QFY08, grow 72% YoY during the nine-month period. On a standalone basis, sales grow by 41% YoY during the quarter.
  • Plastic division leads topline growth with 159% YoY and 96% YoY higher sales during 3QFY08 and 9mFY08. However, results not really comparable due to two acquisitions made during the quarter, apart from the two made in 1QFY08 and 2QFY08.

  • Higher staff costs leads to marginal contraction in operating margins during both 3QFY08 and 9mFY08.

  • Topline benefits flow in to the bottomline, which surges 126% YoY during 3QFY08.

Consolidated financial performance
(Rs m) 3QFY07 3QFY08 Change 9mFY07 9mFY08 Change
Sales 2,846 6,129 115.3% 7,830 13,458 71.9%
Expenditure 2,345 5,112 118.0% 6,381 11,075 73.6%
Operating profit (EBDITA) 501 1,016 102.8% 1,449 2,382 64.4%
Operating profit margin (%) 17.6% 16.6% 18.5% 17.7%
Other income 67 81 21.4% 189 287 51.7%
Interest 115 224 94.8% 286 492 71.8%
Depreciation 105 211 100.7% 310 475 53.2%
Profit before tax 348 663 90.3% 1,042 1,703 63.4%
Minority interest 2 3 93.2% 7 19 172.1%
Tax 87 74 -14.6% 247 327 32.5%
Profit after tax/(loss) 259 585 125.6% 788 1,357 72.2%
Net profit margin (%) 9.1% 9.5% 10.1% 10.1%
No. of shares 120.7
Diluted earnings per share (Rs)* 15.7
P/E ratio (x)* 36.9
* On a trailing 12-month basis

What has driven performance in 3QFY08?
  • Sintex's plastics business (85% of consolidated revenues) was again the lead growth driver for the company during 3QFY08. The segment recorded sales growth of 159% YoY during the quarter, after the 61% and 63% growth that it had recorded during 2QFY08 and 1QFY08 respectively. While the division's prefab structures business grew sales by 149% YoY during the quarter, it was the 211% YoY growth in sales of custom molding products that really pumped up the overall performance. The strong numbers from the custom molding business were largely due to the consolidation of performances of Wausaukee Composites and Bright Brothers, which Sintex had acquired in 1QFY08 and 2QFY08 respectively, hence not truly a reflection of the actual performance.

    As for the prefab business, which constitutes 34% of the plastic sales, growth was aided by expansion as also strong performance from Zeppelin Mobile Systems, which Sintex had acquired a couple of years back.

    Consolidated segment-wise performance
    (Rs m) 3QFY07 3QFY08 Change 9mFY07 9mFY08 Change
    Textile revenue 836 930 11.3% 2,258 2,520 11.6%
    % share 29.3% 15.1% 28.7% 18.6%
    PBIT margin 20.0% 21.8% 16.1% 18.4%
    Plastic revenue 2,020 5,224 158.6% 5,612 11,019 96.4%
    % share 70.7% 84.9% 71.3% 81.4%
    PBIT margin 14.2% 12.6% 15.8% 14.8%

    As for Sintex's textiles business, sales grew by 11% YoY during 3QFY08 and 12% YoY during 9mFY08. This growth was largely owing to the strong performance of the company's Collections business, where Sintex supplies to two large design houses in Europe. This business recorded growth of 22% YoY during 3QFY08. As far as the readymade garments business is concerned, sales grew 6% YoY during the quarter.

  • Despite the strong growth in sales, Sintex recorded a 100 basis points (1%) contraction in its operating margins during 3QFY08. This was owing to higher staff costs as also on account of stock related adjustments. Importantly, the company's raw material costs declined from 63% of sales in 3QFY07 to 52% in 3QFY08, thus paring the pressure on margins. The management indicated during the conference call that the average EBIDTA margins of acquired entities stood at 6% in 3QFY08, which are targeted to reach 15% levels over the next few years. The decline in operating margins during 3QFY08 could not take the steam off the net profits, which grew by 126% YoY during the third quarter. This was largely due to a substantial decline in the effective tax rate for the company (from 25% in 3QFY07 to 11% in 3QFY08).

What to expect?
At the current price of Rs 580, the stock is trading at a multiple of 21 times our estimated FY10 earnings. This makes the stock look fairly valued. However, we will have to revise upwards our estimates for the company by factoring in the impact of acquisitions made over the past three quarters. The management has indicated that it shall continue to pursue an inorganic growth strategy for the plastics business, as there are many lucrative opportunities available, especially in the composites* and auto components space. We maintain our view on the stock.

* Composites are engineered materials made from two or more constituent materials with significantly different physical or chemical properties and which remain separate and distinct on a macroscopic level within the finished structure. - Wikipedia

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