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Sintex Industries: Signs of revival - Views on News from Equitymaster
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Sintex Industries: Signs of revival
Oct 17, 2012

Sintex Industries has announced the second quarter results of financial year 2012-2013 (2QFY13). The company has reported around 3.6% YoY growth in sales while net profits have grown by 86.5% YoY. Here is our analysis of the results.

Performance summary
  • Consolidated total income increases 3.6% YoY during 2QFY13. The textiles division grew 2.6% YoY while the plastics division grew 3.7% YoY during the quarter.
  • Operating profits decline 10.5% YoY during the quarter.
  • Net profits increase 86.5% YoY. However, adjusting for exchange gains/losses profits fall 21.5% YoY.
  • The board is considering a proposal of preferential allotment of warrants to the promoters in order to fund Foreign Currency Convertible Bond (FCCB) redemption.

Consolidated financial snapshot
(Rs m) 2QFY12 2QFY13 Change 1HFY12 1HFY13 Change
Total income 11,570 11,985 3.6% 22,690 22,791 0.4%
Expenditure 9,527 10,157 6.6% 18,745 19,187 2.4%
Operating profit (EBDITA) 2,043 1,828 -10.5% 3,945 3,604 -8.6%
Operating profit margin (%) 17.7% 15.3%   17.4% 15.8%  
Other income 67 64 -3.7% 235 106 -54.9%
Interest 416 361 -13.2% 766 715 -6.7%
Depreciation 437 505 15.6% 876 988 12.8%
Exchange gain/(loss) (596) (49)   (606) (337)  
Profit before tax 661 978 47.9% 1,932 1,671 -13.5%
Tax 275 258 -6.5% 614 499 -18.7%
Minority Interest 0 0   0 0  
Share of profit in associates 2 3 41.7% 15 20 30.4%
Profit after tax/(loss) 388 724 86.5% 1,334 1,191 -10.7%
Net profit margin (%) 3.4% 6.0%   5.9% 5.2%  
No. of shares (m)         273.0  
Basic & Diluted earnings per share (Rs)         4.36  
P/E ratio (x) *         6.9  
* On trailing 12 month basis

What has driven performance in 2QFY13?
  • The 3.6% YoY growth in Sintex's consolidated sales during 2QFY13 was largely driven by a modest revival in growth from both the segments. The plastics business, which formed around 89.8% of the company's consolidated sales, grew by 3.7% YoY during the quarter. This was primarily due to strong growth in revenues from the prefabricated building systems. The domestic custom molding segment also registered a strong growth of 9% YoY. However, revenues from the overseas custom molding segment declined. Also, revenues from the monolithic construction declined 14% YoY during the quarter.

    Segment-wise performance (Consolidated)
      2QFY12 2QFY13 Change 1HFY12 1HFY13 Change
    Textiles
    Revenue (Rs m) 1,140 1,169 2.6% 2,238  2,273 1.6%
    % share 9.8% 9.7%   9.8% 9.9%  
    PBIT margin 10.9% 8.0%   10.5% 7.2%  
    Plastics
    Revenue (Rs m) 10,431 10,816 3.7% 20,452 20,517 0.3%
    % share 89.6% 89.8%   89.2% 89.6%  
    PBIT margin 16.0% 11.5%   14.9% 12.2%  
    Unallocated
    Revenue (Rs m) 67 64 -3.7% 235 106 -54.9%
    % share 0.6% 0.5%   1.0% 0.5%  
    PBIT margin NA 2.0%   NA NA  
    Total
    Revenue (Rs m) 11,637 12,050 3.5% 22,925 22,897 -0.1%
    PBIT margin 9.3% 11.1%   11.8% 10.4%  

  • Sintex saw a 10.5% YoY decline in its operating profits during 2QFY13. The operating margins stood at 15.3% during the quarter compared to 17.7% in 2QFY12.

  • Net profits of the company increased 86.5% YoY. However, after adjusting for forex gains/losses the net profits declined 21.5% YoY.

What to expect?
At the current price of Rs 73, the stock is trading at a multiple of 6.9 times its trailing twelve month earnings. Except for monolithic construction and overseas custom molding, the other segments of the company did well. For FY13, management maintained its guidance of 8-10% growth in topline. Thus, the company expects to clock revenues of Rs 47-48 bn in the next year. Bottom line is expected to be in the region of Rs 3.7-3.8 bn.

Growth from the monolithic segment is expected to pick up soon as the company is gradually reducing the number of slow moving sites. The number of slow moving sites has come down to 5 from 7 and is further expected to come down to 3 by the end of FY13. This should help improve the working capital cycle and thus the balance sheet strength.

With regards to FCCB redemption, the company has 3-4 options in hand. It can go in for a QIP, pure ECB, preferential allotment of warrants to promoters or convertible bonds. Management has shown willingness towards the preferential allotment option which has excited the markets on two counts. First, it reaffirms the promoter's faith in the company. Second, dilution will bring down the debt to equity ratio.

Based on these factors and current valuations we maintain our HOLD view on the stock.

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