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Sintex Industries: Power cost hurt margins - Views on News from Equitymaster

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Sintex Industries: Power cost hurt margins
Jul 17, 2012

Sintex Industries has announced the first quarter results of financial year 2012-2013 (1QFY13). The company has reported around 2.8% YoY decline in sales while net profits have declined by 50.5% YoY. Here is our analysis of the results.

Performance summary
  • Consolidated total income declines 2.8% YoY during 1QFY13. Muted performance from the plastics business division, registering a decline of 3.2% YoY impacted the top-line growth.
  • Even the textiles segment reported a flattish growth of 0.6% YoY during the quarter.
  • Operating profits decline 6.6% YoY during the quarter due to muted growth in top-line. Operating margins contract to 16.4% during 1QFY13, from 17.1% in 1QFY12.
  • Net profits decline 50.5% YoY. Dismal performance at the operating level, fall in other income and widening exchange losses took a toll on profits.

Consolidated performance snapshot
(Rs m) 1QFY12 1QFY13 Change
Total income 11,120 10,806 -2.8%
Expenditure 9,218 9,030 -2.0%
Operating profit (EBDITA) 1,902 1,776 -6.6%
Operating profit margin (%) 17.1% 16.4%  
Other income 168 42 -75.2%
Interest 350 354 0.9%
Depreciation 439 483 10.0%
Exchange gain/(loss) (10) (289) 2805.3%
Profit before tax 1,271 692 -45.5%
Tax 338 241 -28.6%
Minority Interest 0 0  
Share of profit in associates 13 17 28.8%
Profit after tax/(loss) 946 468 -50.5%
Net profit margin (%) 8.5% 4.3%  
No. of shares (m)   273.0  
Basic & Diluted earnings per share (Rs)   1.7  
P/E ratio (x) *   6.9  
(*On a trailing 12-month basis)

What has driven performance in 1QFY13?
  • The 2.8% YoY decline in Sintex's consolidated sales during 1QFY13 was largely driven by a subdued performance from the plastics segment. The plastics business, which formed around 89% of the company's consolidated sales, declined by 3.2% YoY during the quarter. This was primarily due to non conducive growth environment in the monolithic business. However, despite tough conditions the momentum in the domestic custom molding business and prefabricated structures was healthy. As far as, the segmental breakdown goes revenues from both building materials and custom molding declined 4.6% and 2.1% YoY.

    Segment-wise performance (Consolidated)
      1QFY12 1QFY13 Change
    Textiles      
    Revenue (Rs m) 1,098 1,104 0.6%
    % share 9.7% 10.2%  
    PBIT margin 10.1% 6.4%  
    Plastics      
    Revenue (Rs m) 10,022 9,701 -3.2%
    % share 88.8% 89.4%  
    PBIT margin 13.8% 12.9%  
    Unallocated      
    Revenue (Rs m) 168 42 -75.2%
    % share 1.5% 0.4%  
    PBIT margin 76.5% -665.5%  
    Total      
    Revenue (Rs m) 11,288 10,847 -3.9%
    PBIT margin 14.4% 9.6%  

  • Led by higher employee cost and other expenditure, Sintex saw a 6.6% YoY decline in its operating profits during 1QFY13. The operating margins stood at 16.4% during the quarter compared to 17.1% in 1QFY12. It may be noted that Sintex's employee cost and other expenditure increased from 11.6% and 13.8% of sales in 1QFY12 to 13.0% and 15.2% respectively in 1QFY13. Increase in the power cost impacted the margins of the company.

  • Net profits of the company declined 50.5% YoY due to muted performance at the operating level and increasing exchange loss during the quarter. However, adjusting for the exchange loss profits declined 20.8% YoY.

What to expect?
At the current price of Rs 66, the stock is trading at a multiple of 6.9 times its trailing twelve month earnings. Except for monolithic construction and overseas custom molding, the other segments of the company did well. For FY13, management expects 8-10% growth in both topline and bottomline. Growth from the monolithic segment is expected to pick up by 2HFY13. However, since receivables in the segment tend to be sticky in nature, the working capital cycle is not expected to show any meaningful improvement over the next 2 quarters.

With regards to Foreign Currency Convertible Bonds (FCCBs), the company is likely to take a call over it between September and March and is confident of refinancing the same. Also, margins from the textile segment will be keenly eyed in the future as the current quarter was impacted by substantial rise in energy and chemical cost. Thus, taking into consideration slowdown in the monolithic business, stretched working capital cycle and leveraged balance sheet, we maintain our hold view on the stock.

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