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Sintex: Lowering FY10 estimates - Views on News from Equitymaster
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Sintex: Lowering FY10 estimates
Oct 12, 2009

Performance summary
  • Consolidated sales decline by 3% YoY during 2QFY10, 6% YoY during 1HFY10. Pressure seen in both the plastic and textile businesses.
  • Operating margins remain stable for both the periods, helped by lower raw material costs (as percentage of sales).
  • Due to substantial decline in other income coupled with pressure on topline, net profits drop 32% YoY during the second quarter.


Consolidated financial performance snapshot
(Rs m) 2QFY09 2QFY10 Change 1HFY09 1HFY10 Change
Sales 7,340 7,154 -2.5% 14,626 13,778 -5.8%
Expenditure 5,999 5,849 -2.5% 12,363 11,599 -6.2%
Operating profit (EBDITA) 1,341 1,305 -2.6% 2,264 2,179 -3.7%
Operating profit margin (%) 18.3% 18.2%   15.5% 15.8%  
Other income 221 48 -78.1% 463 407 -12.1%
Interest 187 157 -16.0% 362 299 -17.5%
Depreciation 314 372 18.4% 618 738 19.4%
Profit before tax 1,060 825 -22.2% 1,747 1,550 -11.3%
Minority interest 1 10   3 16  
Extraordinary income/(expense) - (68)   - (68)  
Tax 222 174 -21.4% 341 288 -15.4%
Profit after tax/(loss) 838 572 -31.7% 1,403 1,178 -16.0%
Net profit margin (%) 11.4% 8.0%   9.6% 8.6%  
No. of shares       136.5 136.5  
Diluted earnings per share (Rs)*         22.2  
P/E ratio (x)*         11.3  
* On a trailing 12-months basis

What has driven performance in 2QFY10?
  • The 3% YoY decline in Sintex’s consolidated topline during 2QFY10 was largely due to a 14% YoY decline in sales of the textile division (11% of total sales). Revenues from the plastics business also recorded a 1% YoY drop. The management has attributed this fall to lower realisations as the company passed on the benefits of lower commodity prices to its customers. On the volumes front, the management has indicated that the company continues to see an improved momentum. As for the two sub-segments of the plastics business – building material and custom molding – these recorded flat sales performance.

    Segment-wise performance
    (Rs m) 2QFY09 2QFY10 Change 1HFY09 1HFY10 Change
    Textile revenue 887 762 -14.1% 1,716 1,521 -11.4%
    % share 12.1% 10.6%   11.7% 11.0%  
    PBIT margin 16.2% 3.8%   15.4% 6.4%  
    Plastic revenue 6,453 6,392 -0.9% 12,910 12,257 -5.1%
    % share 87.9% 89.4%   88.3% 89.0%  
    PBIT margin 16.2% 14.5%   13.3% 13.0%  
    Source: Company

  • What Sintex lost in terms of lower commodity prices on the sales front, it gained on the operating margins front that remained at around 2QFY09 levels of 18.2%. This was because the company’s raw material costs declined from 48.1% of sales in 2QFY09 to 45.9% in 2QFY10.

  • Due to the pressure on sales and lower other income (which was down 78% YoY), Sintex’s net profits declined by 32% YoY during 2QFY10. For the first half, net profits declined by 16% YoY.

What to expect?
At the current price of Rs 250, the stock is trading at a multiple of 8.3 times our estimated FY12 earnings, which we believe makes it fairly attractive for long-term investors. The management has lowered its sales and profit guidance to around 5% sales growth and 15 to 20% profit growth for FY10, which is still slightly above our estimates. Overall, we maintain a positive view on the stock.

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