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Sintex Industries: Time to exit the stock?
Jun 9, 2014

Sintex Industries has announced the fourth quarter results of financial year 2013-2014 (4QFY14). The company has reported around 41.5% YoY growth in sales while net profits have grown by 6.8% YoY. Here is our analysis of the results.

Performance summary
  • Consolidated total income increases 41.5% YoY during 4QFY14. This was mainly due to a 69% YoY growth in the buildings material segment. However, other segments namely custom moldings (+17% YoY) and textile segment (+18% YoY) also registered strong growth in 4QFY14 thereby fuelling overall revenue growth for the quarter.
  • Operating profits increased 89.1% YoY with margins showing an improvement of 450 bps YoY. This was primarily due to strong topline performance, cost control measures and improved efficiency measures undertaken by the company.
  • Net profits increased by 6.8% YoY despite a strong performance at the operating level. This was primarily due to fall in other income (-81.8% YoY) and rise in interest (+110.7% YoY) and depreciation (+49.5% YoY) expenses.
  • The board of directors recommended a dividend of Rs 0.7 per share for the fiscal under consideration.
  • The consolidated debt/equity ratio of the company stood at 1.07x at the end of the year.
  • Pledged promoter equity falls from 64.5% at the end of Dec 13 to 58.2% at the end of March 2014.
  • Promoters increased their stake in the company by 5% during the quarter.

Consolidated performance snapshot
(Rs m) 4QFY13 4QFY14 Change FY13 FY14 Change
Total income 14,013 19,831 41.5% 51,079 58,645 14.8%
Expenditure 12,123 16,257 34.1% 43,384 49,003 13.0%
Operating profit (EBDITA) 1,890 3,574 89.1% 7,695 9,642 25.3%
Operating profit margin (%) 13.5% 18.0%   15.1% 16.4%  
Other income 522 95 -81.8% 860 774 -9.9%
Interest 502 1,058 110.7% 1726 2894 67.6%
Depreciation 546 817 49.5% 2054 2548 24.0%
Exchange gain/(loss) (116) 1 NM (903) (161) NM
Profit before tax 1,247 1,796 44.0% 3,871 4,814 24.4%
Tax (250) 175 NM 669 1,180 76.3%
Share of profit in associates 13 (9) NM 36 13 -63.9%
Profit after tax/(loss) 1,510 1,612 6.8% 3,238 3,647 12.6%
Net profit margin (%) 10.8% 8.1%   6.3% 6.2%  
No. of shares (m)         311.2  
Basic earnings per share (Rs)         11.7  
P/E ratio (x) *         8.7  
* On trailing 12 month basis

What has driven performance in 4QFY14?
  • The 41.5% YoY increase in Sintex's consolidated total income during 4QFY14 was largely driven by 69% YoY growth in the buildings material segment. The sanitation program launched by government benefitted the company this quarter in the form increased order inflow and thus revenues. With the new government coming to power, focus on education, sanitation and healthcare is bound to increase in the future. Sintex will be the prime beneficiary of this move.

    Segment-wise performance (Consolidated)
      4QFY13 4QFY14 Change FY13 FY14 Change
    Textiles
    Revenue (Rs m) 1,300 1,530 17.7% 4,732 5,482 15.9%
    % share 9.3% 7.7%   9.3% 9.3%  
    PBIT margin 13.5% 17.9%   8.9% 13.4%  
    Plastics
    Revenue (Rs m) 12,384 14,002 13.1% 42,638 46,103 8.1%
    % share 88.4% 70.6%   83.5% 78.6%  
    PBIT margin 14.3% 17.4%   12.3% 14.0%  
    Infrastructure
    Revenue (Rs m) 329 4,299 1205.6% 3,709 7,059 90.3%
    % share 2.3% 21.7%   7.3% 12.0%  
    PBIT margin NM 3.9%   9.3% 3.8%  
    Total*
    Revenue (Rs m) 14,013 19,831 41.5% 51,079 58,645 14.8%
    PBIT margin 11.1% 14.5%   11.7% 12.7%  
    * Excluding Unallocated

  • Revenues from the custom molding business increased 17% YoY while that from the textiles business increased 18% YoY. Revenues from the textile business increased due to improvement in realization as well as utilization. However, monolithic construction continues to remain a drag but the working capital concerns eased marginally in the segment.

  • Operating profits increased 89.1% YoY during the quarter. The operating margins stood at 18.0% during the quarter compared to 13.5% in 4QFY13. Strong performance at the topline level enabled healthy growth in operating profits. Overall, better utilization, and tight cost control has led to significant improvement in margins.

  • Net profits of the company grew by 6.8% YoY despite strong performance at the operating level. Fall in other income by 81.8% YoY and rise in interest and depreciation expenses by 110.7% YoY and 49.5% YoY curtailed profitability growth. However, adjusting for the exchange gains/losses, profits declined 0.9% YoY.
What to expect?
At the current price of Rs 101 the stock is trading at a multiple of 8.7x its trailing twelve month earnings. The stock price has witnessed a huge appreciation since our last result update. In fact, it has trebled since our last update and breached our target price of Rs 97. The rally is attributable to three factors. The first one being general positive sentiment towards infrastructure stocks in general. At the same time, the company reported strong set of results in 4QFY14. Lastly, allotment of shares to promoters at Rs 70 odd towards the warrant conversion further fuelled the rally in the stock.

Now coming to segmental analysis, it may be noted that while the performance of the monolithic segment continues to remain sluggish it has shown marginal improvement on the working capital front. However, other segments like building materials, custom molding etc are showing strong improvement as witnessed in the current quarter results.

As far as the spindle project is concerned, the work has already commenced on the site and the production will start from the year 2015-16.

While the stock may appear cheap at 8x TTM earnings, we believe that current valuations are pricing in future earnings growth to a large extent. And if the earnings fail to materialize one may witness a negative surprise. Thus, based on current valuations we recommend investors to SELL the stock and book their profits. Since our HOLD recommendation in January 2013 the stock price has appreciated by 47% odd.

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