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Sintex: Plastics steal the show - Views on News from Equitymaster

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Sintex: Plastics steal the show

Jan 17, 2011

Plastics major, Sintex has announced its 3QFY11 results. The company has reported a 40% YoY growth in sales while net profits are up by 56% YoY. Here is our analysis of the results.

Performance summary
  • Consolidated net sales grow by almost 40% YoY during 3QFY11. Growth driven by both the plastics and the textiles divisions, especially the former that has grown by 41% YoY during the quarter.
  • perating margins expand to 16.6% during 3QFY11, from 15% in 3QFY10. This is led by lower staff costs and other expenditure (both as percentage of sales).
  • Led by a strong sales growth and expansion in operating margins, net profits surge by 56% YoY during the quarter.
  • During the nine-month period (9mFY11), net sales and profits grow by 36% and 53% YoY respectively.
  • Acquires a 30% stake in Durha Constructions to boost monolithic execution capabilities.

Consolidated performance
(Rs m) 3QFY10 3QFY11 Change 9mFY10 9mFY11 Change
Sales 8,478     11,860 39.9% 22,256     30,197 35.7%
Expenditure 7,209 9,893 37.2% 18,808 25,141 33.7%
Operating profit (EBIDTA) 1,269 1,967 55.0% 3,448 5,057 46.6%
Operating profit margin (%) 15.0% 16.6%   15.5% 16.7%  
Other income 249 137 -45.0%  656   611 -6.9%
Interest 175 279 59.9%  473  794 67.7%
Depreciation 355 374 5.4% 1,093 1,095 0.1%
Profit before tax 988 1,450 46.8% 2,538 3,779 48.9%
Tax 260 322 23.8%   616  859 39.3%
Minority interest 3 -         19 3 -86.0%
Profit after tax/(loss) 724 1,128 55.7% 1,903 2,918 53.4%
Net profit margin (%) 8.5% 9.5%   8.5% 9.7%  
No. of shares       273.0 273.0  
Diluted earnings per share (Rs)*         15.8  
P/E ratio (x)*         10.5  
* On a trailing 12-months basis

What has driven performance in 3QFY11?
  • The 40% YoY growth in Sintex's consolidated sales during 3QFY11 was largely driven by strong performance from its plastics business. The business, which forms around 90% of the company's consolidated sales grew by 41% YoY during the quarter. This was primarily led by the sub-segment of building material (prefabs and monolithic construction), where sales grew by a whopping 76% YoY during the quarter. This was led by the company's entry into newer segments like industrial site offices, coal chains and agriculture sheds.

  • Sintex's order backlog in this business currently stands at around Rs 26 bn to be executed over the next 20-21 months. Sales from the second sub-segment of the plastics business - custom molding - grew by 15% YoY during the quarter. As for Sintex's second key business (apart from plastics) of textiles, sales grew by 29% YoY during the quarter.

    Segment-wise performance
    (Rs m) 3QFY10 3QFY11 Change 9mFY10 9mFY11 Change
    Textile revenue 890   1,150 29.2%    2,411 3,085 28.0%
    % share  10.5% 9.7%   10.8% 10.2%  
    PBIT margin 7.3% 14.0%   6.7% 13.1%  
    Plastic revenue 7,588 10,710 41.1%  19,845 27,112 36.6%
    % share  89.5% 90.3%   89.2% 89.8%  
    PBIT margin 11.5% 13.6%   12.4% 14.5%  

  • Led by lower staff costs and other expenditure, Sintex saw a 1.6% YoY improvement in its operating margins during 3QFY11. The margins stood at 16.6% during the quarter. Sintex’s staff costs declined from 13.5% of sales in 3QFY10 to 9.9% in 3QFY11. The margin performance would have been better but for a rise in raw material costs and cost on purchase of traded goods. The raw material costs, for instance, increased to 58.6% of sales during the quarter, from 53.8% in 3QFY10.

    Based on segment, both the plastics and textiles segments reported a good improvement in PBIT margins during the quarter. A greater share of high margin monolithic business helped profitability of the plastics business. As for textiles, the management has indicated that margins improved on the back of improved sales of high-end structured fabrics as also better pricing.

  • Sintex’s net profits grew by a robust 56% YoY during 3QFY11. This was helped by a strong growth in sales and expansion in operating margins. A lower effective tax rate also helped the matters for the company. The effective tax rate stood at 22.2% during the quarter, down from 26.3% in 3QFY10.

  • Sintex acquired a 30% stake in the Delhi based Durha Constructions during the quarter. The consideration paid for the same stood at around Rs 420 m. Sintex plans to raise its stake to 51% over the next few months. Durha is involved in the field of civil and mechanical construction across sectors like power, petrochemicals and cement. Its current order book stands at Rs 7.5 bn, which provides it with a good revenue visibility. During FY10, Durha’s sales stood at Rs 1.5 bn while it earned operating margins of 16.6% and net margins of 8% (almost in line with Sintex’s profitability). Sintex’s management has indicated that this acquisition will start reflecting fully in the company’s financials from the ongoing quarter (4QFY11). It expects Durha’s business to grow by 45-50% over the next 2-3 years while margins are expected to improve by around 2-3%.

  • Sintex is looking to spend Rs 800 m over the next 2-3 years to pick up a maximum 24% stake in a group company that is setting up 300 MW worth of power capacities. The company will use the power for captive purposes, which is expected to lower its power costs, thereby aiding margins in the future.

What to expect?
At the current price of Rs 165, the stock is trading at a multiple of 7.4 times our estimated FY13 consolidated earnings. Sintex’s 9mFY11 performance is in line with beating our full year FY11 estimates. As such, we would have to revise upwards our forward estimates for the company. At the current levels, we maintain our view on the stock from a 2-3 years perspective.

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