Tuesday, 18 October 2011

Q2FY12 Result Update: Sintex Industries

  • Sintex Industries has reported around 25.3% growth in sales. Net profits are down by 61.2%.
  • Growth was driven by both the plastics (25.9%) and textiles (20.2%) business divisions.
  • Operating margins have reduced from 18.6% to 17.7% due to higher raw material prices
  • Increase of 56.4% in interest costs
  • Net profits (without taking into account forex losses on outstanding FCCBs) increased by 23.3%
  • Current order book of the monolithic segment is 3,000 cr
  • The company commissioned a new plant in Chennai for custom moulding during this quarter. This is likely to help in revenue growth in the future.
  • Consolidated EPS for H1FY11 is Rs 4.9.

At the CMP of around Rs. 120, the stock is available at an attractive PE of about 7 (TTM EPS is about 17). The fundamentals of the company is robust with decent growth and a healthy order book. The major risk is the outstanding FCCB, which however seems to be priced into the stock at this time. Looks good for buying from a long term perspective.

FCCB
Sintex has $225mn of FCCBs outstanding having a conversion price of Rs. 246. These are due for conversion in March 2013. the FCCB money was raised to finance acquisitions and as there was no major acquisition by the company in FY10-11, only $60mn of the FCCB proceeds were utilised and the remaining $165mn lies in an escrow account at an overseas branch of State Bank of India, yielding a very low return and thus depressing the  return ratios.

If the FCCBs are redeemed, it would reduce the capital base,  leading to an improvement in
RoCE in FY13.
If the FCCBs are converted into equity, the company would have a better control on utilising  this money, including repayment of debt, and thereby reducing the capital base and improving the  return ratios.

The FCCB loss shown in the quarterly results are notional losses and does not have any negative cash flow implications.

Note: I am an investor and have a vested interest in Sintex. Please do your own due diligence before making a buy/sell decision.

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