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Sintex Industries: Textile business surprises - Views on News from Equitymaster

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Sintex Industries: Textile business surprises
Aug 28, 2014 | Updated on Sep 1, 2014

Sintex Industries has announced the first quarter results of financial year 2014-2015 (1QFY15). The company has reported around 19.3% YoY growth in sales while net profits have grown by 32.1% YoY. Here is our analysis of the results.

Performance summary
  • Consolidated total income increases 19.3% YoY during 1QFY15. The buildings material segment registered a growth of 12% YoY. Custom moldings and textile segment also registered strong growth of 14% YoY and 39% YoY respectively in 1QFY15.
  • Operating profits increased 28.9% YoY with margins showing an improvement of 110 bps YoY.
  • Net profits increased by 32.1% YoY due to a strong performance at the operating level. Adjusting for the extraordinary gains/losses net profits increased by 30.3% YoY.
  • Pledged promoter equity falls from 58.2% at the end of March 14 to 51.6% at the end of June 2014.
  • Subsequent to the FCCB conversion worth US$ 1.3 m, the number of equity shares increased by 0.1 m odd.

Consolidated financial snapshot
(Rs m) 1QFY14 1QFY15 Change
Total income 11,281 13,454 19.3%
Expenditure 9,672 11,380 17.7%
Operating profit (EBDITA) 1,609 2,074 28.9%
Operating profit margin (%) 14.3% 15.4%  
Other income 87 25 -71.0%
Interest 434 649 49.4%
Depreciation 564 546 -3.1%
Exchange gain/(loss) (37) (40) NM
Profit before tax 661 864 30.7%
Tax 201 254 26.1%
Share of profit in associates 6 5 -13.7%
Profit after tax/(loss) 466 616 32.1%
Net profit margin (%) 4.1% 4.6%  
No. of shares (m)   330.6  
Basic earnings per share (Rs)#   1.9  
P/E ratio (x) *   6.0  
* On trailing 12 month basis
#Based on shares outstanding as of June 2014

What has driven performance in 1QFY15?
  • The building materials segment grew by 12% YoY. Continued thrust on sanitation and housing for all will be the key growth driver for the segment going ahead. Also, measures to increase the focus on infra segment will lead to increase in demand for prefabricated structures.

  • Revenues from the custom molding business increased 14% YoY. The company has strong presence in the US and European markets and is as such well placed to capitalize on the global demand surge. Sintex acquired a company for Euro 18 m in the quarter to further consolidate its presence in overseas markets. The domestic custom molding business is also doing well (grew by 35% during the quarter) with a revival in the auto sector. Revenues from the textile business increased sharply by 39% YoY due to rise in volume growth.

  • Operating profits increased 28.9% YoY during the quarter due to better cost control measures and healthy topline growth.

  • Net profits of the company grew by 32.1% YoY due to strong performance at the operating level. Other income fell sharply by 71.4% YoY during the quarter.

  • The spinning project is running on schedule. The first 100,000 spindles will be on stream by March 2015
What to expect?
At the current price of Rs 73 the stock is trading at a multiple of 6x its trailing twelve month earnings. After rallying substantially, the stock price has corrected a bit in the last quarter. We had stated in our last update that a huge rally then was attributable to general positive sentiments towards infrastructure stocks and may not be sustainable. And our faith was vindicated once we saw a correction of 30% odd in the last quarter. While the current set of positive results and governments focus on sanitation and housing programs indicate that the future growth prospects are buoyant over the long term, valuations seem to price the benefits at current levels. As a result, we maintain our SELL rating on the stock.

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