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Sintex Industries: Low tax rate boosts profits - Views on News from Equitymaster

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Sintex Industries: Low tax rate boosts profits
Feb 2, 2015

Sintex Industries has announced the third quarter results of financial year 2014-2015 (3QFY15). The company has reported around 32.0% YoY growth in sales while net profits have grown by 91.3% YoY. Here is our analysis of the results.

Performance summary
  • Consolidated total income increases 32.0% YoY during 3QFY15. The buildings material segment registered a growth of 30% YoY. Custom moldings and textile segment also registered strong growth of 37% YoY and 22% YoY respectively in 3QFY15.
  • Operating profits increased 25.4% YoY. However, margins declined by 90 bps YoY.
  • Net profits increased by 91.3% YoY due to a strong performance at the operating level, substantial rise in other income and fall in tax rate. The tax rate stood at 7% for the quarter as the company carried forward unutilized MAT credit of previous years. Adjusting for the extraordinary gains/losses net profits increased by 89.7% YoY.
  • 51.6% of the promoter's equity remains pledged at the end of Dec 2014.
  • Subsequent to the FCCB conversion worth US$ 20.95 m during the quarter, the number of equity shares increased by 17.5 m odd.
  • Consolidated net debt stood at Rs 48 bn at the end of the quarter.

Consolidated performance snapshot
(Rs m) 3QFY14 3QFY15 Change 9MFY14 9MFY15 Change
Total income 13,884 18,329 32.0% 38,814 48,581 25.2%
Expenditure 11,437 15,260 33.4% 32,637 40,560 24.3%
Operating profit (EBDITA) 2,447 3,069 25.4% 6,177 8,021 29.9%
Operating profit margin (%) 17.6% 16.7%   15.9% 16.5%  
Other income 2 119 6062.1% 102 205 100.8%
Interest 441 648 46.9% 1360 1,974 45.1%
Depreciation 595 746 25.5% 1731 1,894 9.5%
Exchange gain/(loss) (41) (64) NM (162) (157) NM
Profit before tax 1,372 1,729 26.1% 3,026 4,201 38.8%
Tax 535 118 -77.9% 1,005 916 -8.9%
Share of profit in associates 11 9 -11.5% 22 25 12.0%
Profit after tax/(loss) 847 1,620 91.3% 2,043 3,310 62.1%
Net profit margin (%) 6.1% 8.8%   5.3% 6.8%  
No. of shares (m)         374.5  
Basic earnings per share (Rs)#         8.8  
P/E ratio (x) *         8.5  
* On trailing 12 month basis;
TTM EPS is calculated based on actual number of shares reported in current quarter.
#Based on shares outstanding as of Dec 2014

What has driven performance in 3QFY15?
  • The building materials segment grew by 30% YoY. Prefabricated structures saw healthy traction during the quarter. The custom molding business is also showing strong signs of growth with revival in the auto as well as industrial products business. The domestic custom molding business grew by 13% while the global business registered a growth of 65% during the quarter.

  • The textile business grew by 22% YoY during the quarter. Management expects to scale this business over a period of 2-3 years. Currently, it contributes about 8% to the topline and the aim is to scale it to 20% of topline.

  • Operating profits increased 25.4% YoY during the quarter due to better cost control measures and healthy topline growth.

  • Net profits of the company grew by 91.3% YoY. Huge surge in other income, lower tax rate and better operating performance yielded strong bottomline growth.

  • The spinning project is running on schedule and the commercial production for 100,000 spindles should commence by Sep 2015. The work for the balance 200,000 spindles shall begin by Dec 2015. The estimated capex towards this is Rs 18 bn.
What to expect?
At the current price of Rs 111, the stock is trading at a multiple of 8.5x its trailing twelve month earnings. Since the last 2-3 quarters, Sintex's financial performance has been excellent. Government's focus on sanitation and housing programs indicate that the future growth prospects are buoyant as well. Custom molding and textile businesses are also showing signs of improvement but slowdown in the monolithic business still remains a cause of concern. Further, high promoter pledge and ensuing dilution risk from FCCB conversion also acts as an overhang. Since our last update, we have revised our estimates and rolled forward our target price to FY17 which stands at about Rs 60 per share. We maintain our SELL rating on the stock.

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