Stock Update: Sintex

Sintex has made an announcement to the exchanges today that reads as follows:

Sintex Industries Ltd has informed BSE that a meeting of the Board of Directors of the Company will be held on May 19, 2016, inter alia, to consider various financing options for a fund raising by the Company through the issuance of foreign currency convertible bonds and/or non - convertible debentures in and/or outside India and to form a committee of directors ("2016 Securities Committee") to implement such fund raising, including deciding the mode of issuance and nature of securities to be issued. It is also intended that subject to appropriate market conditions, the 2016 Securities Committee will open the offering of relevant securities and, subject to appropriate demand, decide the terms of the issuance of the securities (including pricing) on May 19, 2016.

Further, the Trading Window of the Company pursuant to SEBI (Prohibition of Insider Trading) Regulations, 2015 read with Code of conduct to regulate, monitor and report trading by insiders of the Company will be closed for trading of Company's equity shares from May 16, 2016 to June 01, 2016.

It basically means that they are planning for FCCBs all over again. It seems that they did not learn the lessons of 2008 well enough.

Stock Update: Sintex

Sintex has come out with a decent set of results for FY2015. 

FY2015 Results (Consolidated)

Sales : 7006.6 cr (up 20%)

PAT : 528.8 cr (up 45%)

EPS (Diluted) : 13.5

Building materials grew 16% yoy (from 2734 cr to 3176 cr)
Custom moulding grew 21% yoy (from 2566 cr to 3107 cr)
Textile grew 33% yoy (from 546 cr to 724 cr)

The company also announced that it had won a large government order for rural RO water shelter enclosure and healthcare centre from couple of states.

The company will add about 1 lakh spindles by Sep 2015 and 2.2 lakhs by Mar'16 bringing the total spindle capacity to 3.2 lakh spindles. Overall the company plans to increase total spindle capacity to around 10 lakhs but that depends on capacity utilization of the initial setup. Company expects operating margins from the textile division to improve by 0.5%  with economies of scale coming in with new capacities getting on-stream.

In building product segment, new products in segments of environment & clean fuels, cold chains and warehouses are driving growth along with education and healthcare sectors. The company has received fresh orders in Prefab segment from new territories and for new product ranges. The company is the only company in India to get government approval for prefabricated biogas plants.

Custom moulding did very well both in India and Europe and is likely to continue with good performance with a pickup in industrial activity.

Of the total US $ 120 M FCCB conversion, only US $ 17 M is yet remaining to be converted, which will happen in Q1 FY'16.

High debt and low promoter holding (and promoter pledging of shares) remains a risk and creates an overhang on the stock.

Overall, it is an interesting stock to keep a watch on.

Stock Update - Sintex Industries

Sintex has been part of my portfolio before and suffered a lot due to untimely acquisitions and foreign borrowings. They are still paying the price for that through  equity dilutions because of conversion of bonds to equity. The reason I started taking a re-look at the company is that it is uniquely placed to gain from the Narendra Modi government's thrust on Swacch Bharat and Clean Ganga projects. Additionally, the new mandate for CSR activities and the resultant push from corporates in making toilets and classrooms in rural areas will create a demand for the companies products.

Swacch Bharat, Clean Ganga & CSR thrust:
Sintex is a market leader in pre-fabricated toilets (90%-95% marketshare) where they manufacture and install toilets with water tank, soak-pit or bio-gas chamber. The total cost outlay by GoI for Swacch Bharat has been put around Rs 62,000 cr of which Rs 14,600 will be provided by the Central Government. Clean Ganga  proposes to spend Rs 51,000 cr to completely stop  discharge  of  untreated  sewer  and  waste  water  from small and medium industries and urban habitations into the Ganges. Under the mission, all villages along the river is to be made free from open defecation. This represents a huge opportunity for toilet blocks, waste management and package treatment  plants. Sintex is a market leader in this space.


Custom Moulding & Textiles to add to growth:
With a revival in the industrial activity, the custom moulding division has started picking up and is expected to improve its performance in the future. This quarter the growth was 24%. 

Textile is starting to get benefits of the capacity expansion that the compnay had undertaken. 100,000 spindles will start every quarter next year 2015-16. Incremental 200-250 cr of revenue will come in at 50-60% capacity utilization. At full capacity, the new capacity is likely to add 1700-2400 cr to the topline.

Negatives:

• The company has outstanding FCCBs which will result in equity dilution to the tune of 25-33% which will be a dampener for EPS growth.
• The company has been investing a lot on capex and is currently running a negative cashflow, though it has positive cash flow.
• Govt projects typically mean delayed payments and high working capital requirements.

My expectations of growth

FY15 - expecting EPS range of 11-12. At a PE of 12, price can be 132 - 144.

FY16 - Expecting growth of 30%. EPS 15-16. PE of 15-20. Price can be 225 - 320.

Disclosure: I am not an investment analyst. Stocks discussed in the blog should not be construed as buy / sell recommendations. This blog is a chronicle of my actions and thoughts in the markets. Please consult an accredited financial advisor before investing yourself.

Sintex Industries - Fallen Angel

Sintex Industries has corrected significantly over the last few quarters.


The main reason it has corrected is the currency overhang on their FCCB borrowing of $225 million. The market is assuming that since Sintex took on the loan at a rate of Rs 40.53 and the rupee has depreciated to Rs 50-51, there is a large impending forex loss.

Here is where I think the market is wrong. If you look at this year's annual report and read through the details of the FCCB, here are some of the facts you will get.

1. In respect of US$ 225 million zero coupons foreign currency convertible bonds (FCCBs) raised by the Company on March 12, 2008 during 2010-11, no FCCBs were converted into equity shares. The bondholders are entitled to apply for equity shares at a reseted price of `246.50 per share with a fixed rate of exchange on conversion of `40.53 to US$ 1. On full conversion of FCCBs paid up capital of the Company will increase by 36994928 equity shares of `1 each amounting to `3.70 crore.

2. Premium payable on redemption of FCCB conversion is 263.17 cr is already put in as Provisions in this years Balance Sheet.

3. Total Rs 986.11 cr Fixed Deposits. Rs. 507.11 cr are lying as unutilized amount of FCCB as part of the FD.

The 3rd point is the most critical one here. Out of $225 mn, nearly $100mn is lying unused in the bank as an FD. The company has a total of about $190 mn in Fixed Deposits on Mar 31, 2011. So, it should have no problems at all in paying back the FCCB. I am assuming they would not be converted as the price of Rs 246.50 will be tough to get to by Mar 31, 2013 when the FCCBs come up for redemption.

Sintex is also a company which has paid a dividend consistently for the last 78 years!!

Valuation
The Consolidated EPS for FY11 was 16.97. The management has guided a 20% revenue growth this year. Even if we take a conservative view and take a flat growth, at a consolidated Rs. 17 EPS, the stock is currently available at a PE of 5.1. This is less than half of the last 5 year's average PE of 11.

If someone can hold on for 2 years from now, the expected 2014 EPS is likely to be upwards of Rs 25. At a PE of 8-10, the possible price range is Rs 200-250. That is more than a 100% appreciation in 2 years.

Note: I am invested in Sintex and may be biased. For all investment decisions, please consult your financial planner.

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.

Sintex Ind - Results Update

Good set of results from Sintex. The growth momentum continues.

Consolidate Net Sales is up from 930.9 cr to 1128.8 cr (up 21.3%)
Net Profit is up from 78.8 cr to 94.6 cr (up 20.1%)
EPS up from 2.91 to 3.49 (up 19.9%)

Monolithic segment order book at Rs 3000 cr after Q1 execution.

Category	Q1 FY11 (cr)	Q1 FY12 (cr)	Growth (%)	Remarks
Building Material	358.4	473.2	33.5%	Company adding execution capability in Bihar Private sector orders flowing in, reducing the dependency on the government projects for Pre-fabs
Custom Moulding	450.7	523.9	16.2%	Pursuing growth opportunities at 12-15 new companies
Textile	98.3	109.3	11.2%

Negative
The pledging of promoter holding has gone up from 29.6% (Q1 FY11) to 38.14% (Q1 FY12).

Sintex - Good Long Term Pick

Sintex is a solid company and has been in business for nearly 80 years. They are primarily known for their rooftop water storage tanks. Today, the tanks business is a small part of the overall company. Sintex has moved to becoming a major player in the infrastructure and plastics segment.

Some points for Sintex:-
* Promoter Holding has increased in the last 2 quarters (from Mar 2010 to Sep 2010) from 30.20% to 33.77%
* Has been paying dividends uninterrupted for 77 years
* Dividend paid is 5.98% of Net profit
* By 2012, India is expected to emerge as the world’s third largest plastic consumer after the US and China, consuming 12.5 mn tonnes annually and attracting US$80 bn fresh investments

Strategic developments, 2009-10
* Invested 137.89 crores in its standalone operations to enhance production and operational efficiency
* Established a new plant in Nalagarh while Nagpur and Namakal plants are under construction
* Nief Plastics acquired two companies named SICMO and SIMOP, increasing the European customer base; these companies are specialised in making and testing metallic moulds for plastic injection and light metal alloys
* Incorporated a wholly-owned subsidiary, Sintex Infra Projects Ltd to capitalise on the growing domestic infrastructural developments
* Acquired Esveegee Steel (Gujarat) Pvt. Ltd (100% equity stake) and renamed it Sintex Oil and Gas Pvt.

Building Materials Division:-
* 65% of sales
* Monolithic Concrete Housing Solutions, Prefabricated Structures, Liquid Management Solutions and Waste Management Systems
* Pioneered the manufacture of a range of panels used as roofing and wall materials. Energy Conservation Building Code (ECBC) 2007 is expected to drive energy-efficiency discipline in future, increasing sandwich-panel demand.

Core custom moulded products:-
* During 2009-10, Sintex initiated a project with Rafael, an Israel-based Company, supplying carrier cases for missile components

Areas of Future Growth:-
* Monolith construction, prefab construction
* The Company anticipates huge opportunities in the feeder pillar box segment owing to the growing popularity of underground cabling.
* Increasing focus on FRP transformer fencing, which is expected to generate enormous returns and volumes (received approvals in Gujarat and is likely to enter Uttar Pradesh)

On a consolidated basis, EPS for FY11 is expected to be around Rs. 30 (Rs 15 on the new FV of Rs 1) with a target of Rs 250-300 in the next six months. I am expecting the company to grow at an average of 20% over the next 3-4 years. With its existing consolidated PE at around 16, I do not expect any major re-rating to happen, so the growth in the stock price will come from the earnings growth.