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Sintex Industries: FCCB losses dampen profits - Views on News from Equitymaster
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Sintex Industries: FCCB losses dampen profits
Oct 13, 2011

Sintex Industries has announced the second quarter results of financial year 2011-2012 (FY12). The company has reported around 25.3% YoY growth in sales. However, net profits have declined by 61.2% YoY.

Performance summary
  • Consolidated total income grows 25.3% YoY during 1QFY12. Growth was driven by both the plastics and textiles business divisions, registering a growth of 25.9% YoY and 20.2% respectively.
  • Operating margins contract to 17.7% during 2QFY12, from 18.6% during 2QFY11.
  • Net profits decline 61.2% YoY. However, adjusting for the forex losses on outstanding FCCBs, net profits increased 23.3% YoY.
  • The order book in the monolithic segment stands at Rs 30 bn.

Consolidated performance snapshot
(Rs m) 2QFY11 2QFY12 Change 1HFY11 1HFY12 Change
Total income 9,231 11,570 25.3% 18,337 22,690 23.7%
Expenditure 7,515 9,527 26.8% 15,071 18,745 24.4%
Operating profit (EBDITA) 1,716 2,043 19.1% 3,266 3,945 20.8%
Operating profit margin (%) 18.6% 17.7%   17.8% 17.4%  
Other income 69 67 -3.3% 271 235 -13.3%
Interest 266 416 56.4% 514 766 49.0%
Depreciation 357 437 22.3% 720 876 21.6%
Exchange gain/(loss) on FCCBs 203 (596)   26 (606)  
Profit before tax 1,365 661 -51.5% 2,329 1,932 -17.0%
Tax 363 275 -24.1% 537 614 14.4%
Minority Interest 1     3    
Share of profit in associates   2     15  
Profit after tax/(loss) 1,001 388 -61.2% 1,790 1,334 -25.5%
Net profit margin (%) 10.8% 3.4%   9.8% 5.9%  
No. of shares (m)         271.1  
Basic & Diluted earnings per share (Rs)         4.9  
P/E ratio (x) *         7.7  
*On a trailing 12 months basis

What has driven performance in 2QFY12?
  • The 25.3% YoY growth in Sintex's consolidated sales during 2QFY12 was largely driven by strong performance from both plastics and textiles business. The plastics business, which forms around 89.6% of the company's consolidated sales, grew by 25.9% YoY during the quarter. This was primarily led by the sub-segment of building material (prefabs and monolithic construction), where sales grew by 22.5% YoY during the quarter. Sales from the second sub-segment custom molding also registered a healthy growth of 29.0% YoY during the quarter.

    Segment-wise performance (Consolidated)
      2QFY11 2QFY12 Change 1HFY11 1HFY12 Change
    Textiles 
    Revenue (Rs m) 948 1,140 20.2% 1,935 2,238 15.6%
    % share  10.2% 9.8%   10.4% 9.8%  
    PBIT margin 13.6% 10.9%   12.6% 10.5%  
    Plastics 
    Revenue (Rs m) 8,282 10,431 25.9% 16,402 20,452 24.7%
    % share  89.1% 89.6%   88.1% 89.2%  
    PBIT margin 16.7% 16.0%   15.1% 14.9%  
    Unallocated 
    Revenue (Rs m) 69 67 -3.3% 271 235 -13.3%
    % share  0.7% 0.6%   1.5% 1.0%  
    PBIT margin 170.7% NA   48.2% NA  
    Total
    Revenue (Rs m) 9,300 11,637 25.1% 18,608 22,925 23.2%
    PBIT margin 17.5% 9.3%   15.3% 11.8%  

  • Led by higher raw material cost, Sintex saw a 0.9% YoY decline in its operating margins during 2QFY12. The margins stood at 17.7% during the quarter. Sintex's staff costs declined from 11.7% of sales in 2QFY11 to 10.1% in 2QFY12. However, the raw material costs increased to 50.5% of sales during the quarter, from 48.9% in 2QFY11 leading to margin erosion.

  • Net profits of the company declined 61.2% YoY due to foreign exchange losses on FCCBs. However, after adjusting for this one time losses profits increased by 23.3% YoY. It may be noted that increase in interest costs by 56.4% YoY also impacted the profit growth.
What to expect?

At the current price of Rs 118, the stock is trading at a multiple of 5.4 times our estimated FY14 earnings. The current quarter results were a big disappointment on the profitability front due to FCCB losses resulting from rupee depreciation. Even the interest costs were higher in the quarter with the overall working capital cycle increasing due to delayed payments from overseas subsidiaries. However, the company commissioned a new plant in Chennai (custom molding) during the quarter. This is likely to support revenue growth in the future. Considering the current valuations and long term growth prospects we maintain our positive view on the stock.

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