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Sintex: Acquisitions drive growth - Views on News from Equitymaster
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Sintex: Acquisitions drive growth
Apr 30, 2008

Performance summary
  • Consolidated sales grow by 95% YoY in FY08, 143% YoY during the fourth quarter. On a standalone basis, sales grow by 48% YoY during the fiscal. Actual sales figure 20% higher than our estimates.
  • Plastic division leads topline growth with 129% YoY and 191% YoY higher sales during FY08 and 4QFY08 respectively. However, results not really comparable due to acquisitions made during the fiscal.

  • Substantially higher staff costs leads to 2.3% YoY contraction in operating margins during the fiscal.

  • Bottomline surges 73% YoY during FY08, led by strong topline performance and higher other income.

  • Board recommends dividend of Re 1 per share (dividend yield of 0.2%).

Consolidated financial performance
(Rs m) 4QFY07 4QFY08 Change FY07 FY08 Change
Sales 3,823 9,285 142.8% 11,653 22,742 95.2%
Expenditure 3,045 7,840 157.5% 9,426 18,915 100.7%
Operating profit (EBDITA) 778 1,445 85.7% 2,227 3,827 71.8%
Operating profit margin (%) 20.4% 15.6%   19.1% 16.8%  
Other income 80 314 292.4% 269 601 123.1%
Interest 129 152 17.8% 415 643 55.0%
Depreciation 110 291 163.6% 420 765 82.2%
Profit before tax 619 1,316 112.6% 1,661 3,019 81.7%
Minority interest (0) (0) 0.0% 7 19 177.6%
Tax 80 371 364.3% 327 698 113.5%
Profit after tax/(loss) 539 946 75.3% 1,328 2,303 73.4%
Net profit margin (%) 14.1% 10.2%   11.4% 10.1%  
No. of shares       111.9 136.5  
Diluted earnings per share (Rs)       9.7 16.9  
P/E ratio (x)         27.3  

What has driven performance in FY08?
  • Sintex’s plastics business (85% of consolidated FY08 revenues) was again the lead growth driver for the company during the fiscal. The segment recorded sales growth of 129% YoY during FY08, aided by a 191% YoY growth reported for the fourth quarter. However, it is important to note that Sintex acquired four companies in this division during the fiscal, which make the numbers skewed.

    While the division’s prefab structures business grew sales by 69% YoY during the fiscal, it was the 267% 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, Bright Autoplast and Nief Plastic, which Sintex had acquired during the fiscal (details shown in the table below).

    Sintex: FY08 acquisition details
    Co. Acquired When Business Consideration
    (Rs m)
    FY08 sales
    (Rs m)*
    Nero Plastics, US Dec-07 Custom molder of low and medium volume
    structural plastic and composite components
    188 Included in
    Wausaukee's sales
    Nief Plastic, France Oct-07 Manufacturer of auto parts 1,902 3,845
    Bright Autoplast, India Sep-07 Auto components and consumer durable components 1,466 404
    Wausaukee Composites, US Jun-07 Manufacturer of composite plastic components sectors such
    as medical imaging, mass transportation, electrical components,
    auto components and engineering plastics
    820 1,032
    *Performance of Bright AutoPlast, Nief Plastics and Wausaukee are for 4, 6 and 9 months period respectively. Source: Sintex Press Release

    As for the prefab business specifically, which constituted 53% of Sintex’s plastic sales, growth was aided by expansion as also strong performance from Zeppelin Mobile Systems, which Sintex had acquired a couple of years back. The management further expects Zeppelin to clock in a revenue growth of 200% during FY09, given the strong demand for BT shelters from the telecom sector. As for the business of monolithic construction (around 11% of plastic business revenues), the company has an order backlog of Rs 17 bn to be executed over a period of 24 to 30 months. As a matter of prudence, it is not taking in further orders for this segment as deliveries will remain tight over the next 2-3 years.

    Consolidated segment-wise performance
    (Rs m) 4QFY07 4QFY08 Change FY07 FY08 Change
    Textile revenue 923 962 4.3% 3,180 3,483 9.5%
    % share 24.0% 10.2%   27.2% 15.2%  
    PBIT margin 31.3% 21.1%   20.6% 19.2%  
    Plastic revenue 2,916 8,476 190.7% 8,528 19,496 128.6%
    % share 76.0% 89.8%   72.8% 84.8%  
    PBIT margin 13.9% 13.9%   15.2% 14.4%  

    As for Sintex’s textiles business, sales grew by 10% YoY during FY08 (4% YoY during 4QFY08). 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.

  • Despite the strong growth in sales, Sintex recorded a 2.3% YoY contraction in its operating margins during FY08. This was owing to higher staff costs as also on account of stock related adjustments. Importantly, the company’s raw material costs declined from 62.6% of sales in FY07 to 56.9% in FY08, thus paring the pressure on margins. The management has indicated that the average EBIDTA margins of acquired entities stood at 6% in FY08, which are targeted to reach 15% levels over the next few years.

  • The contraction in operating margins during FY08 could not take the steam off Sintex’s bottomline performance. The same grew by 73% YoY during the fiscal, also aided by a 123% YoY rise in other income (largely operational income).

What to expect?
At the current price of Rs 468, the stock is trading at a multiple of 15.8 times our estimated FY10 earnings, which we shall have to revise upwards considering the superior performance in FY08. As indicated by the management, the integration of companies acquired during the fiscal is going as planned. The company is also looking to make a large acquisition in the composite* space by the end of this year, for which it has already raised funds by way of FCCB and preferential issues. While Sintex’s strong growth momentum is a reason to cheer for its shareholders, the fact that the company will be diluting equity (20% further dilution over the current levels) shall impact the per share numbers. Overall, we maintain our positive view on the stock from a 2 to 3 years perspective. We shall soon update our research report on the company.

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