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Sintex: New accounting stnd. cushions profits
Jan 16, 2012

Sintex Industries has announced the third quarter results of financial year 2011-2012 (FY12). The company has reported around 2.1% YoY decline in sales while net profits have declined by 27.1% YoY.

Performance summary
  • Consolidated total income declines 2.1% YoY during 3QFY12. Muted performance from the both plastics and textiles business divisions, registering a decline of 2.3% YoY and 0.4% YoY respectively impacted the top-line growth.
  • Operating margins contract to 14.1% during 3QFY12, from 16.6% during 3QFY11.
  • Net profits decline 27.1% YoY. Dismal performance at the operating level and rise in interest and depreciation expenses impacted profitability during the quarter.

Consolidated performance snapshot
(Rs m) 3QFY11   3QFY12 Change 9MFY11 9MFY12 Change
Total income 11,860 11,608 -2.1% 30,197 34,298 13.6%
Expenditure 9,893 9,977 0.8% 24,761 28,722 16.0%
Operating profit (EBDITA) 1,967 1,631 -17.1% 5,436 5,577 2.6%
Operating profit margin (%) 16.6% 14.1%   18.0% 16.3%  
Other income 124 154 24.5% 611 389 -36.3%
Interest 279 354 26.6% 794 1,120 41.1%
Depreciation 374 467 24.8% 1095 1,343 22.7%
Exchange gain/(loss) on FCCBs 13 135 915.6% (379) (471)  
Profit before tax 1,450 1,099 -24.2% 3,779 3,032 -19.8%
Tax 322 283 -12.1% 859 897 4.5%
Minority Interest       3    
Share of profit in associates   6     21  
Profit after tax/(loss) 1,128 822 -27.1% 2,918 2,156 -26.1%
Net profit margin (%) 9.5% 7.1%   9.7% 6.3%  
No. of shares (m)         271.1  
Basic & Diluted earnings per share (Rs)         7.95  
P/E ratio (x) *         5.2  
*On a trailing 12 months basis

What has driven performance in 3QFY12?
  • The 2.1% YoY decline in Sintex's consolidated sales during 3QFY12 was largely driven by a subdued performance from both plastics and textiles businesses. The plastics business, which forms around 89% of the company's consolidated sales, declined by 2.3% YoY during the quarter. This was primarily led by the sub-segment of building material (prefabs and monolithic construction), where sales declined by 14.0% YoY during the quarter. However, sales from the second sub-segment custom molding increased 13.1% YoY during the quarter.

    Segment-wise performance (Consolidated)
      3QFY11 3QFY12 Change 9MFY11 9MFY12 Change
    Textiles            
    Revenue (Rs m) 1,150 1,145 -0.4% 3,085 3,383 9.7%
    % share 9.6% 9.7%   10.0% 9.8%  
    PBIT margin 14.0% 10.5%   13.1% 10.5%  
    Plastics            
    Revenue (Rs m) 10,710 10,463 -2.3% 27,112 30,915 14.0%
    % share 89.4% 89.0%   88.0% 89.1%  
    PBIT margin 13.6% 10.5%   14.5% 13.4%  
    Unallocated            
    Revenue (Rs m) 124 154 24.5% 611 389 -36.3%
    % share 1.0% 1.3%   2.0% 1.1%  
    PBIT margin 90.9% 153.2%   39.8% -89.7%  
    Total            
    Revenue (Rs m) 11,984 11,762 -1.9% 30,808 34,687 12.6%
    PBIT margin 14.4% 12.4%   14.8% 12.0%  

  • Led by higher employee cost and other expenditure, Sintex saw a 2.5% YoY decline in its operating margins during 3QFY12. The margins stood at 14.1% during the quarter. Sintex's employee cost and other expenditure increased from 9.9% and 10.8% of sales in 3QFY11 to 11.4% and 14.7% respectively in 3QFY12.

  • Net profits of the company declined 27.1% YoY due to increase in interest and depreciation expenses. Further, it may be noted that the company has changed the way it reports exchange losses on foreign currency borrowings as per the new option available in accounting standards. Accordingly, henceforth any loss on foreign currency transaction will be amortized/capitalized/adjusted with reserves on the balance sheet rather than directly marking it down to the income statement.

What to expect?
At the current price of Rs 72, the stock is trading at a multiple of 4.7 times our estimated FY14 earnings. While the building material segment did well in the current quarter due to faster execution, monolithic business suffered due to slowdown in clearances and stretched payment cycles. However, the custom molding business registered a modest performance despite uncertainties in the overseas markets. Nonetheless, underutilization of capacities impacted margins from the custom molding segment. Further, with the company adopting to amortize/capitalize/adjust the reserves on the balance sheet for the losses on foreign currency transactions, volatility in the future earnings is expected to reduce.

Going forward, concerns with respect to overseas business, rising working capital and slowdown in the monolithic segment are expected to prevail. However, we believe that majority of the negatives have been priced in and thus, we maintain our positive view on the stock.

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