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Sintex: Improved margins save the day - Views on News from Equitymaster

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Sintex: Improved margins save the day

Jul 14, 2009

Performance summary
  • Consolidated sales decline by 9% YoY during 1QFY10, led by pressure on both the plastic and textile divisions.
  • Operating margins improve by 0.5% YoY on the back of lower raw material costs (as percentage of sales).
  • Led by higher operating margins and other income and lower interest expenses, net profits manage to grow by 7% YoY during the quarter.


Consolidated financial performance snapshot
(Rs m) 1QFY09 1QFY10 Change
Sales 7,286 6,624 -9.1%
Expenditure 6,363 5,750 -9.6%
Operating profit (EBDITA) 923 874 -5.3%
Operating profit margin (%) 12.7% 13.2%  
Other income 242 359 48.1%
Interest 175 142 -19.1%
Depreciation 304 366 20.6%
Profit before tax 686 725 5.6%
Minority interest 3 5  
Tax 119 114 -4.4%
Profit after tax/(loss) 565 606 7.3%
Net profit margin (%) 7.8% 9.1%  
No. of shares 136.5  
Diluted earnings per share (Rs)*   24.1  
P/E ratio (x)*   7.7  
* On a trailing 12-months basis

What has driven performance in 1QFY10?
  • The 9% YoY decline in Sintex’s consolidated topline during 1QFY10 was largely a result of an almost equivalent decline in its plastics division, which forms around 89% of the company’s total sales. The management has attributed this fall to lower realisations as the company passed on the benefits of lower commodity prices to its customers. Both the sub-segments within the plastics segment – building material and custom molding – recorded decline in sales. Sales in the former declined by 14% YoY. However, Sintex continues to remain focused on growing its presence in this sector given that it expects large scale projects from the government to come in the mass-housing space. The company’s order backlog currently stands at Rs 16 bn in various projects ranging from slum development, police quarters, and government quarters.

  • As for the custom molding division, sales were down by 5% YoY during the quarter. Sintex’s textile revenues (11% of total sales) also witnessed pressure and declined by 8% YoY.

    Segment-wise performance
    (Rs m) 1QFY09 1QFY10 Change
    Textile revenue 829 759 -8.4%
    % share 11.4% 11.5%  
    PBIT margin 14.6% 9.0%  
    Plastic revenue 6,457 5,865 -9.2%
    % share 88.6% 88.5%  
    PBIT margin 10.4% 11.3%  
    Source: Company

  • What Sintex lost in terms of lower commodity prices on the sales front, it gained on the operating margins front that improved by 0.5% YoY, to 13.2% during 1QFY10. This was because the company’s raw material costs declined from 51.2% of sales in 1QFY09 to 46.9% in 1QFY10.

  • Thanks mainly to the improvement in operating margins as also higher other income and lower interest costs, Sintex managed to grow its bottomline by 7% YoY during the quarter. The decline in effective tax rate (from 17.3% in 1QFY09 to 15.7% in 1QFY10) also helped matters for the company on the bottomline front.

What to expect?
At the current price of Rs 195, the stock is trading at a multiple of 4.8 times our estimated FY11 earnings, which we believe makes it very attractive for long-term investors. The management has maintained the sales and profit guidance given at the start of the year at 10% sales growth and 20 to 25% profit growth for FY10, and that the lack of performance in this quarter would be made up in the rest of the quarter of the year.

The company’s debt currently stands at Rs 16.5 bn (including working capital debt), cash stands at Rs 15 bn, which gives a net debt of 1.5 bn. The company plans to spend Rs 2 bn as capex during the current fiscal as part of its broader plan of spending Rs 9 bn over a four year period. Overall, we maintain a positive view on the stock from a 2 to 3 years perspective.

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