Sintex Industries results a welcome surprise

 

Sharp revenue growth and the relatively slower pace of increase in total expenses meant that Sintex’s operating profit margins expanded by about 450 basis points to 18% in the March quarter. Photo: Mint 

After a disappointing December quarter, Sintex Industries Ltd’s financial results for the March quarter was a pleasant surprise.

Consolidated operating revenue increased robustly by 42% on a year-on-year (y-o-y) basis to Rs.1,983 crore. That’s encouraging, compared with the 2.7% decline in revenue in the December quarter.

March-quarter revenue was driven by strong growth in prefabs and custom moulding business. The prefabs business consists of construction concepts. The company’s infrastructure segment saw substantial revenue increase, compared with the year-ago period. On the other hand, the monolithic construction (including housing construction solutions) business delivered a moderate revenue performance.

Sharp revenue growth and the relatively slower pace of increase in total expenses meant that Sintex’s operating profit margins expanded by about 450 basis points (bps) to 18% in the March quarter. One basis point is one-hundredth of a percentage point. Comparatively slower growth in employee costs and other expenditure helped in boosting margins.

On a sequential basis though, margins show only a slight improvement. Operating profit thus increased by 89% y-o-y to Rs.357 crore. However, lower other income, higher depreciation costs and interest expenses meant that profit before tax and exceptional items increased at a slower pace of 32% to Rs.179 crore.

In the current fiscal year, Sintex intends to grow its revenue by 15%, excluding its spinning business performance.

So far, shareholders have little to complain. Since the beginning of this financial year, the Sintex stock has outperformed the BSE-500 index. 

At Rs.51, the stock trades at 4.5 times its estimated earnings for 2014-15. 

No doubt the valuations are attractive. But as the stock has already increased by 17% so far in this fiscal year, immediate gains could be capped. 

 

Moreover, Sintex’s debt position is a concern.

“Ongoing capex is expected to keep the increase in gearing further in FY15,” Motilal Oswal Securities Ltd said in its post-results earnings note, adding that 2013-14 net debt was up Rs.970 crore y-o-y to Rs.3,730 crore (debt-to-equity ratio of 1.02 times). This is likely to increase to Rs.5,000 crore in 2014-15 till its spinning project is completed, the brokerage said.

The company’s latest market capitalization stands at Rs.1,590 crore.

Even as it focuses on improving its working capital situation in the monolithic business, the outlook is dull.

Meanwhile, Sintex’s spinning business is expected to contribute to revenue by
the end of this financial year.

Rahul kumar Gupta

PGDM,1st Year

Source:-Mint