Few observations on Sintex,
- The trading arm WOS BVM Overseas - trading yarn at very little or no mark up. My assumption is that sole motive of its existence is to fulfill the obligation to export 2K Cr + of goods to avail duty free import of machinery. Therefore, it’s only worthwhile to look at the turnover of the standalone entity. So compared to Q4 FY18, in Q1 FY19, turnover increase is only ~10%.
Refer to last concall, In Q4 capacity utilization of 2nd phase of 300,000 spindles was about 60% which reached 80% in Q1 FY19.
- As per AR2018, there is still 2K Cr+ of CWIP even though all 600K spindles are live.
Around 152,000 additional spindles will be added by March 2019.
- They have deferred tax liability of 80 odd Cr which they will have to pay out. One of the reason for lower PAT in Q1. This might continue over the course of the year?
Kindly elaborate on this. As per my understanding, their Tax should be lower because of high depreciation benefit as per Income Tax Act but their Reported profit as per Companys Act should be higher because of slm method of depreciation
- Unabsorbed depreciation of 200Cr + is already on the books. They might have to book it sometime in the future? This will only increase going forward and might keep the PAT low for a long time, even though EBITDA might grow substantially.
Unabsorbed depr. of 200cr …please elaborate on this. Is it according to Company’s Act ?
- There is also this, “Difference between book and tax depreciation” - which is above 560 Cr. I’m assuming this will have some impact on the PAT in the future.
In Textile industry its a usual practice to depreciate plant & machinery over 22 - 30 yrs using slm. But for tax purposes they use wdv method hence difference in Profit as per Company’s Act and Profit as per Income Tax Act
In my view, the only positive here is that they might generate good cash, which they should ideally use to reduce debt quickly. That would help them improve PAT and the share price.
Discl: Invested, 5%+ of portfolio.
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