Don’t get into Sintex Industries. Highly manipulative stock. Promoters have been selling their stakes consistently for last 8 quarters. Textile is lower margin business and have huge debt and it can go back to 16. The value lies in Sintex plastic which is their high margin business.
Interesting thing is Morgan Stanley France have aggressively bought them in two tranches -
- 35 lakh shares at 28
- 30 lakh shares at 33.
Russell investment bought 33 lakh shares at 33.
Blackrock fund sold 53 lakh shares at 33.
The liquidity from retail investor will give an exit for these funds.
I understand that company has issued FCCBs wortb USD 67 MN. Given the combined value of both the scripts is higher than conversion rate of 92.16 should we assume that we may see some more decline in share prices as these bondholders will convert their bonds into equity to make quick money.
Discl. Invested.
It is fair to say that promoters’ selling is a red flag for Sintex Ind but since the promoters are the same for Sintex Plastics as well with the same holding structure, isn’t that a negative for plastics as well?
Sintex Ind has a huge debt but the interest is extremely low (almost 2-5%) and is, hence, beneficial for the investor. Provided the loans are significantly reduced when the subsidies run out.
There has been a major capex which will add significantly to their top-line and margins, esp. since they have planned capex for value added yarn.
Historically the textile division may have been neglected, but I believe it may not be the case anymore. The perception you have of it is probably the general perception out there and may be the precise reason for it being undervalued at the moment.
Do you have any reason to believe that this is a manipulative stock? Haven’t found anything to suggest so yet.
Disc. Invested
The reason I had mentioned manipulative stock is this came to limelight when Morgan Stanley bought shares around 28. The actual heavy buying happened much before this price. The price went from 18 to 34 (intraday) , a jump of 85% on demerger. It closed at 25. At this point the retail investors came in, which provides liquidity for institutional guys. It remained around this price for next few weeks. The second round of heavy buying started again at 26, which is when the large number retail investors jumped in. Morgan Stanley bought at price of 28. It went to high of 37 in few days, a jump of 45%. It fell back again to the same price from where the climb had started, i.e. 26, again a drop of 45%. It again started climbing to its expensive end i.e. 33. It’s falling again now. I expect, there would be one big rise again before one final fall.
- There are market makers (SEBI registered) whose job is to do this and they are there for a reason, to provide liquidity. Retail investor don’t have the resources to get a 45% increase and 45% drop in 7 days. They are further supported by brokers who provide margin to trade. This kind of movement don’t happen for fundamentally sound stocks.
- Agree to capacity expansion, but note that utilization is not great. It is at 80% for 3 lakh spindle. Another 3 lakh spindle will be added in phase II. The total capex is 1900 (Phase 1) + 2200 (Phase II). Additionally, textile business requires higher working capital.
- Profits of plastic division were offset by the loss of textile division which was primary reason for demerger. The margin of fabric division is 8-9 division and yarn will be 13-14%. 50% of the total capacity is for captive consumption and rest for open market. I’m not sure if the material cost can be different for captive and open market. I would take it otherwise that it cannot be as per law.
- Although the long term loans are said to be 2%. It is because of the subsidy. The subsidy provided by Gujarat government is 7% and by central TUFG scheme is 4% for phase 1. For phase II, the subsidy provided by gujarat goverment is 7 % and central TUFG scheme is 2%. The subsidy reimbursement from the government takes time and hence working capital is required. They had plan to setup 10 lakh spindle, but most likely wont add another 4 lakh as TUFG scheme be wont be applicable. 6 lakh spindle itself is one of the largest in India.
- Keep a watch on shareholding pattern of both companies. That will be good indication.
The risk I see is Sintex wont be able to generate enough profit to pay back debt after demerger with higher working capital needed and lower utilization.
I dont see the stock price movement as manipulative in nature, the swing that happened on the first day after demerger is quite common (Rs16-34), the volume traded on that day was 18Cr in Nse alone, out of 55Cr shares of the company. Most the people who have bought sintex before demerger has got both the entities together at around Rs 100, so when sintex industries list at 30-35 range it means sintex plastic rate is Rs 70(which is 10PE) so its safe to exit Sintex industries at 35 range for those who dont want to hold the textile business. Whenever Sintex plastics rates goes up Sintex Industraies rates go down because of the profit booking done by people who have got both the shares. Typically most of the people are sitting at 30-50% profit in a short span of 4 months time , so profit boking is bound to happen. It will take time for things to settle down.
Only issue the promoters have done is the constant equity dilution other than that I dont see much of a problem with management.
Salient features of FCCB issuance (after latest amendments) include
On redemption equal number of shares in Sintex Ind and Sintex Plastics will be issued
Fixed exchange rate 1 USD = 67.4463
Initial conversion price = Rs 92.16 / combined share on basis of the fixed exchange rate
Bond coupon = 7% till May 2018 (reduced to 5.9% on basis of some RBI guideline) and 3.5% afterwards
Considering the above we should expect the bondholders to retain bonds till May 2018 for higher coupon and redeem once coupon falls. Food for thought
The current appreciation in USD / INR may also affect the bond holders decision to convert
Discl : Invested in both Sintex Ind and SPTL
As on Aug 31, 2017 the outstanding FCCB is USD 46.0 mn which amounts to 3.34 crores of shares pending to be issued.
Total shares outstanding is 57.05 crores.
So dilution of 6% on share capital is pending and is expected to be fully issued by May 2018
The 2016 - 17 Annual Report of SPTL is available here:
http://www.bseindia.com/bseplus/AnnualReport/540653/5406530317.pdf
Discl: Invested in both Sintex Inds as well as SPTL
JP
is anyone closely following Sintex plastics? The company is having good margins with continued growth. But all the profits are eaten by interest on debt. Anybody having any report on management’s plan to reduce debt. Any concall transcripts, AGM discussion on this? the annual report 2016-17 doesnt say much on this
Research Report from Ventura:
This report came in before the listing of Sintex Plastics and even if we consider the listed price of 130+ levels the stock is trading now at a good 30% discount to the listing value. It seems that the FCCB conversion is taking the stock price down as equity base is to getting expanded from 57 cr to 60 cr ,
82 lakh more FCCB converted. Almost 2.5 crore shares pending conversion.
Hi Amit, can you let me know where can we find out the FCCB conversion that has happened so far.
I can see an announcement on the same in BSE, is there any other source where we can find out the FCCB’s that has been converted so far and the pending ones.
“An increase in buying by millers, has contributed to the bullish trend in both the spot and futures markets”
Disc: Invested in Sintex Inds & Plastics
Hi Amit!
After going through your report I initiated my study on Sintex Industries.
You have mentioned in your presentation that SIL already has capacity of 8 Lac spindles, but I could not find it anywhere in AR17 or Corporate Presentation. If possible can you please put up the source of the same here. Just about that 8 Lac spindle capacity.
Thanks!!
Pls ignore that number. I got confused … they had 50k spindles only
initially… 3 lakh spindle commissioned as phase 1 and another 3 lakh
spindle coming as phase 2. In total they will have 6.5 lalh spindles post
expansion of phase 1 and phase 2. I recalculated all my assumptions and
projections… they were all coming in similar range… would it be possible
for u to share ur analysis?
Phase 2 was comissioned in August. So you can assume 6 Lakh spindles capacity.
Will surely do once I am done.
Hi @amitsoni
Thanks for your hard work and analysis. This forum made me interested in this company. I have gone through all the posts. I have also gone through annual reports of the company and concalls. I have found out these details.
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Fifty thousand spindles were commissioned by May 16. But these 50000 are part of phase one. The rest of the phase one was commissioned sometime sometime during Q3 of FY 17, and full capacity utilization of this phase (3.3 lack spindles) occurred by the end of FY 17.
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Phase two was to be commissioned by August 17, but none of the company’s documents state that this commissioning has happened. Apparently phase two has been delayed. If I am wrong please correct me, but to me this appears to be the case.
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We may hear about phase III after commissioning of phase II. I agree that it might have been shelved.
This means that we have to wait for phase II commissioning. And we have to make calculations based on phase I alone.