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Sintex: Lower margins hurt profits

Apr 30, 2010

Plastics major, Sintex has announced its FY10 results. The company has reported a 6% YoY growth in its sales while net profits have grown by 1% YoY. Here is our analysis of the results.

Performance summary
  • Consolidated sales grow by 28% YoY during 4QFY10, 6% YoY during FY10. Growth primarily driven by the plastics division that sees a sales growth of 8% YoY. Sales of the textile division fall by 7% YoY. Actual sales higher by 7% as compared to our FY10 estimates.
  • Operating margins drop marginally to 16.2% in FY10. This is owing to higher raw material cost and stock related adjustments.
  • Higher depreciation leads to net profit growing at a slower pace than sales growth for both the periods under consideration. Profit growth during FY10 stands at 1% YoY. Actual profit is higher by 13% as compared to our FY10 estimates.
  • The company has recommended a dividend of Rs 1.2 per share (dividend yield of 0.4%).
  • Board also recommends a stock-split in the ratio of 2:1 - one share of Rs 2 face value will split into two shares of Re 1 face value.

Consolidated performance
(Rs m) 4QFY09 4QFY10 Change FY09 FY10 Change
Sales 8,530 10,936 28.2% 31,356 33,192 5.9%
Expenditure 6,847 9,003 31.5% 26,139 27,811 6.4%
Operating profit (EBIDTA) 1,683 1,932 14.8% 5,217 5,380 3.1%
Operating profit margin (%) 19.7% 17.7%   16.6% 16.2%  
Other income 131 222 69.2% 846 878 3.8%
Interest 205 257 25.7% 820 731 -10.8%
Depreciation 211 351 66.7% 1,144 1,445 26.3%
Profit before tax 1,399 1,546 10.5% 4,100 4,083 -0.4%
Tax 248 156 -37.1% 826 772 -6.5%
Minority interest 11 2 -77.3% 23 21 -5.8%
Profit after tax/(loss) 1,140 1,387 21.7% 3,251 3,290 1.2%
Net profit margin (%) 13.4% 12.7%   10.4% 9.9%  
No. of shares       136.5 136.5  
Diluted earnings per share (Rs)         24.1  
P/E ratio (x)         13.3  

What has driven performance in 3QFY10?
  • The 6% YoY growth in Sintex’s consolidated sales during FY10 was largely the result of a 8% YoY growth in sales of the plastics division (90% of total sales). Textile sales dropped by 7% YoY during the quarter owing to slowdown in demand from the European region. As for the plastics business, a large part of the growth came from the building material sub-segment (49% of segment sales), which grew by 13% YoY during the year. The company is seeing strong traction in the monolithic construction segment. Its current order backlog for this business stands at Rs 22 bn. The management expects strong growth in this business over the next two years. This is owing to the increased government spending in healthcare, education, sanitation and affordable housing. As for the second sub-segment of the plastics business - custom molding - sales grew by 5% YoY during the year. The management also expects better times for this segment in the coming quarters.

  • Sintex saw a 0.4% YY decline in its operating margins during FY10. This was led by higher raw material costs owing to hardening of commodity prices. Given that it takes the company some lag to pass on higher costs to customers, margins are expected to improve in the coming quarters.

  • Despite a 6% YoY growth in net sales and largely owing to the decline in operating margins, Sintex could manage just a 1% YoY rise in its net profits during FY10. Higher depreciation (up 26% YoY) also spoilt matters for the company.

What to expect?
At the current price of Rs 320, the stock is trading at a multiple of 12.0 times our estimated FY12 consolidated earnings for the company. Sintex’s FY10 performance has come fairly in line with our estimates. We maintain our positive view on the stock from a 2 to 3 years perspective.

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