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Sintex Industries: Custom molding shines - Views on News from Equitymaster

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Sintex Industries: Custom molding shines
Jul 23, 2015

Sintex Industries has announced the first quarter results of financial year 2015-2016 (1QFY16). While the topline grew by 9.3% YoY bottomline grew at a faster pace of 12.0% YoY during the quarter.

Performance summary
  • Net sales increase 9.3% YoY during 1QFY16.
  • Operating profits increase 11.8% YoY while margins expand by 40 bps YoY to 15.8% during the quarter.
  • In line with operating performance, net profits increase by 12% YoY. However, after adjusting for exceptional losses profits increase 13.9% YoY.
  • During the quarter, FCCBs aggregating to US$ 23.4 m have been converted into 19.5 m equity shares resulting in dilution. With this, the FCCB conversion has been cleared.

Consolidated Financial Snapshot
(Rs m) 1QFY15 1QFY16 Change
Total income 13,454 14,712 9.3%
Expenditure 11,380 12,393 8.9%
Operating profit (EBITDA) 2,074 2,319 11.8%
Operating profit margin (%) 15.4% 15.8%
Other income 25 186 638.1%
Interest 649 660 1.7%
Depreciation 546 764 39.8%
Profit before tax & exceptional items 904 1,081 19.6%
Tax 254 338 33.2%
Net foreign exchange gain/loss (40) (57)
Share of profit from associates 5 4 -34.5%
Profit after tax/(loss) 616 690 12.0%
Net profit margin (%) 4.6% 4.7%  
No. of shares (m)   445.9  
Basic diluted earnings per share (Rs)^   1.5  
P/E ratio (x) *   7.6  
* On trailing 12 month basis
^Based on latest number of shares outstanding

What has driven performance in 1QFY16?
  • Sales increase 9.3% YoY during 1QFY16. Revenues from the custom molding and textile businesses were up by 24% YoY and 11% YoY respectively. However, revenues from the building materials segment declined by 7.1% YoY.

  • Operating profits increased 11.8% YoY with margins expanding to 15.8%.

  • In line with operating profits, bottom line increased by 12% YoY. A 638.1% YoY rise in other income boosted net profits. However, depreciation expenses increased by 39.8% YoY thereby restricting profit growth to an extent. After adjusting for non-recurring items profits increased by 13.9% YoY.
What to expect?
At the current price of Rs 107, the stock trades at around 7.6 times its trailing twelve month earnings.

Performance of the custom molding business was a key highlight for the quarter. The industry itself is growing at a healthy pace while in India segments like auto; electrical accessories etc are showing improved traction. As far as margins are concerned, considering the fact that the contribution from domestic custom molding is on a rise overall, margins are likely to expand as domestic business enjoys double the margins of overseas business. Even the building materials segment is witnessing traction in terms of new enquiries due to various initiatives taken by the government like focus on education, healthcare, etc. As for the textile business, efforts are on to broaden the customer base and increase the reach in the export markets.

While the valuations at 7.6x TTM earnings may not appear expensive, high promoter pledge (47.2%) and free cash generation acts as an overhang. As a result, we maintain our SELL rating on the stock.

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