Sintex - Improving Sales & Profitability


(Hemant V Bhatia) #21

Highlights of the call by Capital Mkt;

  • The consolidated net sales for Q3 FY15 have inclined by 32% to Rs 1832.9 crore. The net profit has increased by 91% to Rs 162.04 crore.The sales of Prefab building systems was Rs 413 crore, monolithic was Rs 114 crore, overseas custom molding was Rs 572 crore, domestic custom molding was Rs 304crore, storage tank was Rs 85 crore, textile was Rs186 crore and EPC was Rs 147 crore.
  • The margin in prefab was 26%, monolithic was 14%, storage tank was 11.76%, custom molding India was 19.4% & overseas was 19.63%, textile was 27.9% and EPC was at 7%.Prefab continues its strong sales growth. Execution in education (class rooms), healthcare and sanitations remains key drivers.
  • Deeper penetration to new and existing customers drove the textile growth while enriching product portfolio, de-bottlenecking of facilities and high utilization boost operating margins.
  • The mgmt said that spinning mill will commence commercial production of first 1 lakh spindles in September 2015 with 80% utilization, and balance 2 lakh by December 2015. It expects ramp-up to full utilization by FY17. Almost 75% of sales will be contributed by exports to China, East and Central Europe, Africa etc. The mgmt future added that given that Gujarat government's favorable textile policy is applicable on investment before December 2017, The capex cycle of next phases of 6-7 lakh spindle may start soon after, which may result into further rise in gearing.
  • Monolithic segment posted 40% de-growth YoY, along with margin contraction of QoQ due to certain cancellations. Current facility utilization is at 33%. The revival of this segment dependent on clarity on government plan of implementing mass housing projects. FY15 revenue guidance moderated to Rs 600 â 700 crore.
  • In overseas custom molding business, the quarter witnessed a strong scale up in revenue driven by contribution from Simonin and steady ramp-up in Poschmann (Germany and Poland). Simonin is contributing mid-teen EBITDA-based RoCE with outlook of margin improvement from 8% to 9-10%.Tax rate for Q3 down because of MAT credit .US $ 55 mn of FCCB is converted till Q3 with balance to have reduced coupon rate of 3.75%. Probability of conversion is intact.The mgmt said that receivables are well in control.The mgmt expects Q4 better than Q3.The mgmt expects better OPM in coming quarters due to better capacity utilization provided raw material prices remain intact.Consolidated net debt stood at Rs 4200 crore.


(Srikanth) #22

Thank you Hemant for the sharing details of conf call.


(Hemant V Bhatia) #23

Con call was add by Mr. Amit Patel MD.Key Highlights by Capital Mkt
Of the total sales, Building Materials sales grew by 16% to Rs 3176 crore with Ebidta margin of 19%, that of custom molding business both domestic and international stood at Rs 3107 crore, up by 21% with Ebidta margin of 14% and sales from Textile segment stood at Rs 724 crore with Ebidta of 25%.
The company will add about 1 lakh spindles in Q3 FY’16 and Q4 FY’16 each, thus by Mar’16, the total spindle capacity will be around 3.2 lakh spindles. Overall management has plans to make total spindle capacity to around 10 lakh, but all depends upon how well the 3.2 lakh spindle capacity perform.
Management expects OPM of textile division to further improve by 50 bps with economies of scale coming in with new capacities getting on-stream.
In building product segment, new products in segments of environment and clean fuels, cold chains and warehouses are driving growth along with traditional education and healthcare sectors. The company has received fresh orders in Prefab segment from new territories and new product ranges. The company is the only company in India to get government approval for prefabricated biogas plants.
However Monolithic business still continues to be in loses and the segment is operating at much lower capacity. Management expects the segment to continue to remain under pressure as initiatives from government will take some more time for the sector to be in profits.
Indian Custom Molding business grew by around 20% in FY’15 with sectors like Electrical, industrial and automotive doing well.
The international Custom Molding business grew by more than 34% but due to Euro depreciation, the translation impact restricted the topline growth to around 22%. Sectors such as Aerospace, Electrical accessories, Automotive, Medical imaging, mass transit and others are driving the international custom molding business. Globally, OEM’s are looking for low costs producing nations and the company by far represents the best combination of technology and low costs.
While the Raw material costs are lower, generally, this is a pass through item in their contracts. However, some gain will be there.
Overall, management expects net sales growth of around 20% for FY’16. Prefabs and Custom Molding business will drive the growth in FY’16 as well. Management expects overall OPM to improve given the sale of high value added component getting increased.
Total debt at consolidated level was gone up by Rs 600 crore in FY’15. Net Consolidated debt to Ebidta stands around 3.5 times.
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.


(Abhishek Basumallick) #24

Reasonably good results from Sintex. The company needs to reduce its overall debt though cost of debt is low because a majority of the debt is TUF related. Also, the promoters need to increase its stake in the company to buoy investor sentiment. Overall, if the economic revival takes shape, Sintex will likely benefit disproportionately through their custom moulding, prefab and waste water treatment products. Overall, an interesting company to keep watch on.


(DoVai) #25

Any one looked at latest results?


(Varadharajan Ragunathan) #26

I track this stock - it’s an average quarter. nothing great still - I think, given the FCCB overhang and textile debt, this may start inching up only after a quarter of at least 20% revenue growth - a sub 10% growth does not cut it. In any case, other income constituted a big chunk of the increase.

Sintex is a great company but let down by poor capital allocation - if they could just do the pre fab/building materials biz, this could trade like cera/HSIL. instead, the management is all over the place including buying private jet and plying them illegally.

Again adding spindles to service european luxury brands when europe has a lot of trouble ahead - I have no idea how it will pan out. In any case, it has a lower ROCE than their pre fab business in which they have quite a moat - sintex brand is very very strong and synonymous with shelters, water tanks, toilets etc. It beats me as to why mgmt will take out excess cash from this and plough into a mature, intensely competitive biz like textiles where there are larger players anyway across the world doing battle.

Discl : Invested but worried about mgmt quality, which continues to be an overhang on the stock. At this price, there is enough MOS though.

http://www.moneycontrol.com/stocks/reports/sintex-ind-announces-q1-results-limited-review-report-forquarter-ended-june-30-2015-1125521.html


(DoVai) #27

Vardha,

My 2 cents -

Positive triggers- Order flows from Swacch bharat- at least 6-9 months away

  • Commissioning of capacity in textile- these could mean stock should start moving up some time in next 3 months in anticipation
  • Margin improvement- we saw some of this in last 6-9 months
  • Low cost debt

Issues

  • Capital allocation and low ROE- I dont think this is going to get resolved anytime soon
  • Business does not have competitive advantage from operations stand point , the more serious brand advantage is underutilized in my opinion. - would love to see company make more efforts on this.

(DoVai) #28

Key points that i noted from concall

Custom Moulding business – strong outlook for the year - over next two years higher share of domestic business will lead to higher margins
Substantial interaction with Government over last 45- 60 days on prefab business –growth will easily exceed 20 -22%

The company essentially suffered on account of logistics related execution challanges in Q1- This will be made up in Q2 - this is not an issue of order inflow- pure execution issue

The company has indirectly suffered to the extent of approx 20 crs due to change in steel prices affecting inventory valuation in this quarter-

textiles business
September 2015 – first 1 lakh spindles
–entire capacity of 3 lakh spindles will be operational for feb 2016

Capex for FY16
Yarn – 800 crores
Non Yarn Capex of 300 crores – out of which 120 odd crores is maintenance

appointed a new Group CEO who has expertise in business transformation (17 yrs experience)


(Hemant V Bhatia) #29

Highlights of the call by Capital Mkt
Consolidated net sales for Q1 FY16 have inclined by 9% to Rs 1471.2 crore. Lower revenue was due to dip in prefab business growth. The net profit has increased by 12% to Rs 69 crore.The sales of Prefab building systems was Rs 273 crore, monolithic was Rs 180 crore, overseas custom molding was Rs 454.3 crore, domestic custom molding was Rs 315.7 crore, storage tank was Rs 74 crore and textile was Rs 171.9 crore.The margin in prefab was 23%, monolithic was 12%, storage tank was 11%, custom molding India was 27% & overseas was 9% and textile was 22%.There was rise in other income on account of one-time foreign exchange gains due to FCCB conversions.
The dip in prefab business was due to halt in executions due to restructuring of the logistics team in order to ramp up efficiency in line with the manufacturing division of the segment. The mgmt said that the things are back to normal and current shortfall shall be recovered in Q2. The mgmt expects prefab to grow atleast 20% in FY16.The mgmt said that the incremental growth acceleration from the much awaited benefits of government’s clean India mission is taking more time to percolate. However, there has been increased traction in initial government process related to CSR based toilet blocks over past 45-60days.The mgmt plans to install 20000 biogas plants in FY16, which will have revenue of Rs 70 crore and expects margins of 20-22%. It expects to install 60000 biogas plants per annum after 2 yrs.
Growth in overseas custom molding operations was attributable to integration of Simonin (France) in Q1, which albeit has dent margins. The mgmt outlook strong on growth as strong utilization of facilities is key driver to sustaining overseas growth.The mgmt expects domestic mix to improve from current 41% to 50%, thus will help in growth of custom molding margin.
Spinning project is progressing as per schedule to start operations in phases from September 2015 to February 2016.The consolidated textile business is expected to do business of Rs 1000 crore for FY16, of which spinning would be Rs 150 crore and textile would be Rs 850 crore. The consolidated business is expected to do business of Rs 2000 crore in FY17 and Rs 2400 crore in FY18.The mgmt expects textile business margin to grow from 22% to 25%, going forward.Entire US $ 120m of FCCB is converted as on date and no further dilution expected.Order book for monolithic stand at Rs 1200 crore.The management does not plan any M&A in Europe and India, but will be on look out for small acquisition opportunities in USA.The capex for FY16 is Rs 300 crore out of which Rs 120-150 crore is routine capex.Tax rate for FY16 will be 30%.


(Aksh) #30

Thanks Hemant for the notes. Nice to know that the entire US $ 120m of FCCB is fully converted and no further dilution is expected now. This will help the fair discovery of the price with growing numbers. Also, as per the mgmt, lower than expected numbers this quarter was because of some logistics related issues and not because of business slowdown and this shortfall in the numbers will be recovered in Q2 so we can expect better than normal numbers in Q2.


(Abhishek Basumallick) #31
  • The total amount raised as FCCB was $140 million. At the end of FY2015, they had cleared $116mn.

  • The paid up equity share capital of the Company as on July 15, 2015 stands increased from Rs. 44,59,23,717/- to Rs. 44,65,50,721/- divided into 44,65,50,721 Equity shares of Re. 1/- each. The FY2015 year-end number of outstanding shares were 42,63,61,194.


(Varadharajan Ragunathan) #32

would love to understand your thoughts on teh repeated governance concerns that keep arising in sintex - esp the latest one about zap infratech being sold to a related company for debentures and terms of debentures being changed without informing shareholders. These adventures keep acting as a drag on any potential re-rating of the stock and the stock trades at rock bottom valuations.

I am invested in sintex


(Abhishek Basumallick) #33

Yes… the management has done something which is not entirely transparent. I have tried to reach out to the company but have not heard back from them. But when I look at the financials, the value of Zap is too small to fret over. Its a 200 odd cr transaction for a 7000 cr company. But definitely something to keep note of for the future. Also, the management pedigree (or the lack of it) may be built into the price.


(Varadharajan Ragunathan) #34

@basumallick this is not the first time nor will it be the last time. Awarding EPC contracts to its own sister company, buying private jet disguised as a commercial airliner, selling a going concern for debentures to its own sister concern (what happens to the counterparty risk in this case of such a small company).

I do agree that it’s built into the price - that’s what I think each time and each time the management pulls a new trick out of their bag to further de-rate the stock. As buffet said, there’s never one single cockroach in the kitchen.

I am invested but suffice to say I am cognizant of these risks. As marlon brando said, “he could have been a contender”. Sintex could easily be a 20 % ROCE biz with 20 % EPS growth and trade at at least 12-14 x but no institutional investor will get confidence with things like these.

I intend to hold on and give it time though.


(Hemant V Bhatia) #35

Highlights of the call by Capital Mkt
The consolidated net sales for Q2 FY16 have inclined by 14% to Rs 1911.94 crore. The net profit has increased by 37% to Rs145.73 crore on the back of increased value-added segments of custom molding and prefabs.The sales of Prefab building systems was Rs 578 crore (up 46%), monolithic and EPC was Rs 173 crore, overseas custom molding was Rs 440 crore, domestic custom molding was Rs 390 crore (up 33%), storage tank was Rs 91 crore and textile was Rs 232 crore.The margin in prefab was 21%, monolithic was 13%, custom molding India was 19% & overseas was 10-11% and textile was 21%.
Total custom molding grows 19% due to our focus on value added segment including 2 paint shops in India, integration of complex metal over plastic technology from recent acquisition of Groupe Simonin and strong customer relationship… Sintex has already signed a JV with an Italian Rotomolding technology provider to focus on emission compliant products.The custom molding India’s 90% of revenue comes from automobile, which has helped for stronger custom molding India growth. International business has grown because of various segments.
The custom molding India margin is coming down. The mgmt said that custom molding India margin depend on product and products mix. There are 1000 products and each product has different margin.The mgmt said that it will improve international custom molding business.
Prefab grew 46% during the quarter. This was achieved through increased penetration in orders in already successful healthcare, education and sanitation segment products. On top of it, newer products have also started seeing the momentum. Like RO water enclosures, Sewage treatment products and Biogas chambers. Sintex would continue to remain ahead of curve and the needs of Indian society by innovating simple and affordable solutions like waste treatment solutions, Bio digesters etc.
Margins have come down in prefab due to low margin new products like toilet one. However they have helped the volume to grow.Expects 25% growth in prefab, the way toilet order getting.In FY13-14 done large capex in textile business which has help it to clock good growth in Q2. Currently it is running at full capacity. Don’t see big growth in textile business in Q3 and Q4, if raw material cost remain same,
Raw material up on YoY and QoQ despite falling raw material prices, due to FIFO effect. Whenever raw materials price comes down, will see raw material cost % to sales to go up temporary. Raw material % to sales will be at 60% in coming quarters.Monolithic revenue growth was negative which help to bring down receivables. Receivables are around 120 days.
Sintex is in the process of conducting trials for 30,000 spindles. 1,00,000 spindles to be fully operational between November-December. Work on 2,00,000 spindles are progressing on track
.Spinning target capacity utilization will be 92- 96%. To achieve it will take 6 months. Rs 1250- 1400 crore revenue on current numbers.Spinning revenue will start within 45 days. Commission of entire project will start be on March 2016. Depreciation and interest will come from next year.
Raw material cost to sale is 60% in spinning business.
The company is putting compact cotton spinning spindles, which doesn’t have excess capacity in India.The company will do 60 - 90% export in spinning business.
Not more focus on infra business including monolithic business. So that receivables can be manageable.Debt increased by Rs 576 crore . Avg. Cost of debt – 11% minus subsidy.
Loan repayment is Rs 82 crore for FY16 and Rs 200 crore FY17.
The capex on custom molding and prefab is Rs 300- 400 crore. Textile is less than Rs 100 crore. That includes routine capex which is 50-60% of deprecation.Annualized capex is Rs 450 crore for FY16.Positive outlook in custom molding and prefab in H2. Will maintain earning guidance for FY16 of 20% top-line growth.Tax rate FY16 - 30%.


(bibhu ashish panda) #36

Some crisp analysis by MInt


#37

My friends who have very good understanding of stock market and Chennai companies advised me not to enter the counter, when I wanted to buy sales impressed by their product portolio. Please do more due diligence.


(SAMIR SHAH) #38

But it is not a chennai company


(hrfacebuk) #39

With all due respect, it will be more helpful for other members if the reasons for avoiding it are specifically quoted rather then stating that friends adviced to avoid it.

Just in the spirit of constructive discussion and adding value :slight_smile:

Regards.


(Marathondreams) #40

Motilal Oswal came up with buy recommendation research report with target price of Rs. 145

http://www.moneycontrol.com/news/recommendations/buy-sintex-industries-targetrs-145-motilal-oswal_3629841.html"?port_flg=yes&utm_source=MC_INMAIL_NEWS"

Disc : invested