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Sintex: Maintains the momentum - Views on News from Equitymaster

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Sintex: Maintains the momentum

Oct 11, 2008

Performance summary
  • Consolidated sales grow by 85% YoY during 2QFY09, aided by acquisitions during the previous year. Plastic division leads growth during the quarter.

  • Operating margins contract by 3.5% YoY on the back of higher staff and other costs.

  • Net profits rise by 89% YoY during the quarter aided by a strong topline growth and higher other income.

Consolidated financial snapshot
(Rs m) 2QFY08 2QFY09 Change 1HFY08 1HFY09 Change
Sales 3,894 7,198 84.9% 7,329 14,347 95.8%
Expenditure 3,109 5,999 93.0% 5,963 12,363 107.3%
Operating profit (EBDITA) 785 1,199 52.8% 1,366 1,984 45.2%
Operating profit margin (%) 20.2% 16.7% 18.6% 13.8%
Other income 83 362 338.2% 206 743 260.9%
Interest 143 187 31.0% 268 362 35.2%
Depreciation 132 314 138.5% 263 618 134.7%
Profit before tax 593 1,060 78.8% 1,041 1,747 67.9%
Minority interest 8 1 15 3 -79.9%
Tax 143 222 55.4% 253 341 34.9%
Profit after tax/(loss) 443 838 89.2% 772 1,403 81.6%
Net profit margin (%) 11.4% 11.6% 10.5% 9.8%
No. of shares 121.6 136.5
Diluted earnings per share (Rs)* 21.5
P/E ratio (x)* 9.1
* On a trailing 12-months basis

What has driven performance in 2QFY09?
  • The strong 85% YoY growth in Sintexís consolidated topline during 2QFY09 was largely a result of robust performance by its plastics division, which recorded a growth of 110% YoY. However, it is important to note that Sintex acquired four companies in this division during the previous fiscal (FY08) and one in this fiscal (Digvijay Communications), which makes the numbers incomparable. The plastic divisionís sales growth on a standalone basis was remarkable as well at 48% YoY.

    While the plastic divisionís building material business grew sales by 24% YoY during the quarter, it was the 441% YoY growth in sales of custom molding products that really pumped up the overall performance. The strong numbers from the custom molding business were largely due to the consolidation of performances of Wausaukee Composites, Bright Autoplast and Nief Plastic, which Sintex had acquired during the previous fiscal.

    Segment-wise performance
    (Rs m) 2QFY08 2QFY09 Change 1HFY08 1HFY09 Change
    Textile revenue 838 887 5.9% 1,591 1,716 7.9%
    % share 21.4% 12.1% 21.5%11.7%
    PBIT margin 16.9% 16.2% 16.5% 15.4%
    Plastic revenue 3,070 6,453 110.2% 5,796 12,910 122.8%
    % share 78.6% 87.9% 78.5% 88.3%
    PBIT margin 17.9% 16.2% 16.7% 13.3%
    Source: Company

    As for the business of monolithic construction (part of the building materials segment), the company has an order backlog of Rs 15 bn to be executed by the end of next fiscal.

    As for Sintexís textiles business, sales grew by 6% YoY during the quarter. This growth was largely owing to the strong performance of the companyís Collections business, where Sintex supplies to two large design houses in Europe.

  • Sintexís operating margins declined by 3.5% YoY during 2QFY09. This was owing to higher staff costs as also on account of purchase of traded goods. The companyís raw material costs declined from 57.6% of sales in 2QFY08 to 49% in 2QFY09, thus paring the pressure on margins.

  • Despite the contraction in operating margins during the quarter, Sintex managed to grow its bottomline at a superlative rate (89% YoY). This growth was aided by a more than four-fold rise in other income. The decline in effective tax rate (from 24% in 2QFY08 to 21% in 2QFY09) also helped matters for the company.

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 investment perspective. We maintain our positive view on the stock from a 2 to 3 years perspective.

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