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

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Sintex: Plastics steal the show…yet again

May 28, 2009

Performance summary
  • Consolidated sales grow by 37% YoY during FY09, down 10% YoY during 4QFY09. Growth during the full year largely aided by the plastic division, which has grown by 42% YoY.
  • Operating margins contract by 1.1% YoY during the year.
  • Net profits rise by 41% YoY during FY09 and 21% YoY during the fourth quarter.
  • Recommends a dividend of Rs 1.1 per share (dividend yield of 0.5%).
  • As compared to our estimates, reported sales lower by 3% while profits higher by 13%.

Consolidated financial performance snapshot
(Rs m) 4QFY08 4QFY09 Change FY08 FY09 Change
Sales 9,439 8,530 -9.6% 22,978 31,356 36.5%
Expenditure 7,840 6,847 -12.7% 18,915 26,139 38.2%
Operating profit (EBDITA) 1,599 1,683 5.3% 4,063 5,217 28.4%
Operating profit margin (%) 16.9% 19.7%   17.7% 16.6%  
Other income 159 131 -17.7% 365 846 131.9%
Interest 152 205 35.0% 643 820 27.4%
Depreciation 290 211 -27.5% 765 1,144 49.5%
Profit before tax 1,316 1,399 6.3% 3,019 4,100 35.8%
Minority interest (0) 11   19 23 21.2%
Tax 370 248 -33.1% 698 826 18.4%
Profit after tax/(loss) 946 1,140 20.6% 2,303 3,251 41.2%
Net profit margin (%) 10.0% 13.4%   10.0% 10.4%  
No. of shares       136.5 136.5  
Diluted earnings per share (Rs)*         23.8  
P/E ratio (x)*         8.8  
* On a trailing 12-months basis

What has driven performance in FY09?
  • Sintex grew its consolidated sales by 37% YoY during FY09. This was largely led by the company’s plastics division, which grew by 42% YoY. However, it is important to note that Sintex acquired four companies in this division during the previous fiscal (FY08) and one in this fiscal (Digvijay Communications), which makes the numbers incomparable. The plastic division’s sales growth on a standalone basis stood at 16% YoY.

    Segment-wise performance
    (Rs m) 4QFY08 4QFY09 Change FY08 FY09 Change
    Textile revenue 962 1,049 9.0% 3,483 3,710 6.5%
    % share 10.2% 12.3%   15.2% 11.8%  
    PBIT margin 21.1% 19.5%   19.2% 17.9%  
    Plastic revenue 8,476 7,457 -12.0% 19,496 27,621 41.7%
    % share 89.8% 87.7%   84.8% 88.2%  
    PBIT margin 13.9% 17.8%   14.4% 13.8%  
    Source: Company

    As indicated by the management, the growth in sales of the plastics division would have been higher but for the drop in realisations which was a direct result of company passing on the lower raw material costs to customers. Within the plastics segment, the company operates in two sub-segments – building material (47% of segment’s sales), and custom molding (53% of segment’s sales). While the former has grown by 23% YoY during FY09, it is the latter i.e., custom molding where the company has seen significant traction. Sales for this business grew by 59% YoY during the fiscal. A large part of the growth in the custom molding business came through Sintex’s subsidiaries – Wausaukee and Bright Autoplast (see table below).

    Subsidiaries' sales performance
      FY08 FY09 Change
    Sintex-Standalone (Rs m) 16,629 18,911 13.7%
    Zeppelin (Rs m) 1,273 1,108 -13.0%
    Wausaukee (US$ m)* 34 43 27.0%
    Bright (Rs m)* 1,212 1,267 4.5%
    Nief (Euro m)* 122 114 -6.6%
    * FY08 sales of Bright AutoPlast, Nief Plastics and Wausaukee were reported for a four month, six
    month and nine month period respectively. We have annualised these for comparison purposes

    While these growth figures give a good first impression, the fact is that the company is facing slowdown in some of its sub-segments. Its BT-shelter business for telecom companies is one such pressure point which is witnessing slowdown in demand considering that clients are going slowly in their tower expansion plans. The electrical business in international markets is also feeling some pain of slowdown. Sintex however draws some respite from the monolithic construction business, where the current orders in hand (around Rs 14 bn) will keep it occupied till the middle of 2010. While the company talked in the past of not booking any fresh orders so as to focus on existing projects, it did book fresh orders worth Rs 2 bn during the fourth quarter.

  • Sintex’ operating margins contracted by 1.1% YoY during FY09. This was largely a result of a sharp increase in staff costs. These costs rose from 9.1% of sales in FY08 to 13.2% in FY09, which was possibly a result of higher cost staff that the company got through its international acquisitions.

  • Sintex grew its net profits by 41% YoY during FY09, which was a result of a strong topline growth as also the lower effective tax rate, which declined from 23% in FY08 to 20% in FY09.

What to expect?
At the current price of Rs 219, the stock is trading at a multiple of 9.1 times our estimated FY11 earnings. The company’s FY09 performance has been largely in line with our estimates. As for the capex, the company plans to spend Rs 1.8 to 2 bn each year over the next 3-4 years to expand capacity and reach. We maintain our positive view on Sintex from a 2 to 3 years perspective, notwithstanding the concerns (on account of a general economic slowdown) that might impact its performance in the near term.

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