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  • May 17, 2012 - Sintex Industries: Monolithic business under pressure

Sintex Industries: Monolithic business under pressure

May 17, 2012

Sintex Industries has announced the fourth quarter and full year results of financial year 2011-2012 (FY12). The company has reported around 30.1% YoY decline in sales while net profits have declined by 45.7% YoY. It may be noted that the fourth quarter numbers are balancing figures after taking into account the full year audited results.

Performance summary
  • Consolidated total income declines 30.1% YoY during 4QFY12. Muted performance from the plastics business division, registering a decline of 33.2% YoY impacted the top-line growth.
  • Even the textiles segment reported a modest growth of 2.2% YoY during the quarter. For the full year, the company reported a 0.7% YoY decline in sales.
  • Operating profits decline 44.7% YoY during the quarter due to muted growth in top-line. Operating margins contract to 15.6% during 4QFY12, from 19.8% in 4QFY11.
  • Net profits decline 45.7% YoY. Dismal performance at the operating level took a toll on profits. However, fall in interest and depreciation expenses curbed the decline in profits.
  • For FY12, the company has recommended a dividend of Rs 0.65 per share.
  • The consolidated debt/equity ratio of the company stood at 1.1x at the end of FY12.

Consolidated performance snapshot
(Rs m) 4QFY11 4QFY12 Change FY11 FY12 Change
Total income 14,640 10,237 -30.1% 44,837 44,535 -0.7%
Expenditure 11,744 8,637 -26.5% 36,682 37,358 1.8%
Operating profit (EBDITA) 2,896 1,600 -44.7% 8,155 7,177 -12.0%
Operating profit margin (%) 19.8% 15.6%   18.2% 16.1%  
Other income 86 116 34.7% 455 505 10.8%
Interest 295 238 -19.3% 1089 1,358 24.7%
Depreciation 396 335 -15.4% 1491 1,678 12.6%
Exchange gain/(loss) 23 4 -81.2% 62 (466)  
Profit before tax 2,313 1,147 -50.4% 6,092 4,179 -31.4%
Tax 650 263 -59.6% 1508 1,160 -23.1%
Minority Interest 3 0 -100.0% 3   -100.0%
Share of profit in associates 19 28 48.8% 19 49 159.3%
Profit after tax/(loss) 1,680 912 -45.7% 4,600 3,068 -33.3%
Net profit margin (%) 11.5% 8.9%   10.3% 6.9%  
No. of shares (m)         273.0  
Basic & Diluted earnings per share (Rs)         11.2  
P/E ratio (x) *         4.8  

What has driven performance in 4QFY12?
  • The 30.1% YoY decline in Sintex's consolidated sales during 4QFY12 was largely driven by a subdued performance from the plastics segment. The plastics business, which formed around 86% of the company's consolidated sales, declined by 33.2% YoY during the quarter. This was primarily led by growth moderation in monolithic business and international custom molding segment. For the full year, revenues were relatively flat. The building material segment, suffered the most with a 6.8% YoY decline in sales. However, revenues from custom molding and textile business grew 3.5% YoY and 7.3% YoY during the year.

    Segment-wise performance (Consolidated)
      4QFY11 4QFY12 Change FY11 FY12 Change
    Revenue (Rs m) 1,290 1,319 2.2% 4,375 4,702 7.5%
    % share 8.8% 12.7%   9.7% 10.4%  
    PBIT margin 15.2% 16.6%   13.7% 12.2%  
    Revenue (Rs m) 13,349 8,918 -33.2% 40,462 39,833 -1.6%
    % share 90.7% 86.1%   89.3% 88.4%  
    PBIT margin 17.8% 12.5%   15.3% 13.0%  
    Revenue (Rs m) 86 116 34.7% 455 505 10.8%
    % share 0.6% 1.1%   1.0% 1.1%  
    PBIT margin 45.9% 43.1%   82.4% -39.4%  
    Revenue (Rs m) 14,726 10,353 -29.7% 45,292 45,040 -0.6%
    PBIT margin 17.7% 13.4%   15.9% 12.3%  

  • Led by higher employee cost and muted top line growth, Sintex saw a 44.7% YoY decline in its operating profits during 4QFY12. The operating margins stood at 15.6% during the quarter compared to 19.8% in 4QFY11. It may be noted that Sintex's employee cost and other expenditure increased from 8.1% and 11.3% of sales in 4QFY11 to 13.1% and 13.0% respectively in 4QFY12.

  • Net profits of the company declined 45.7% YoY due to muted performance at the operating level. However, fall in interest and depreciation expenses curbed the fall in profits.

What to expect?
At the current price of Rs 54, the stock is trading at a multiple of 4.8 times its trailing twelve month earnings. In all, FY12 and particularly fourth quarter was very disappointing for the company. The buildings materials segment was under pressure due to execution delays and stretched collection period. The custom molding business, though witnessed 3.5% YoY growth, was reeling under pressure due to slowdown in Europe. The domestic segment was, however, strong on account of growth in automotive segment and outsourcing.

Going forward, management expects 10% top-line growth in FY13 while operating margins are expected to remain in the region of 16-16.5%. However, concerns with respect to overseas business, slowdown in the monolithic segment due to delays in decision making, stretched working capital cycle and leveraged balance sheet are likely to be an overhang. Although the company currently trades at attractive valuations, we believe that the stock is being re-rated due to the above mentioned concerns. Further, we do not see the environment in monolithic business or overseas markets to improve anytime soon. As a result, we downgrade the stock to a HOLD. We would come out with a revised target price on the company soon.

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