Sintex Plastic Ltd


(Mute Spectator.) #1

It catched my attention when i saw its trading very cheap compared to peers
PE :
Sintex Plastic = 12.
Nilkamal Ltd = 22.
Astral Poly Technik Ltd = 81.
Supreme Industries Ltd = 42.
Finolex Industries Ltd = 22.
Jain Irrigation Systems Ltd = 30.

I came across this presentation, which looks pretty compelling.
http://www.sintex-plastics.com/wp-content/uploads/2017/08/SPTL_INVESTORS_MEET.pdf

Their product portfolio and Client base looks very impressive.

I would just like to know whats the reason its trading cheap compared to other Platic Companeis ?
Is there some Management History ? or is it the debt ?
If anyone is tracking would really like know your views

Thanks You…

Some of the highlights from Annual Report -

The Company has two business operations – custom moulding (under its subsidiary Sintex-BAPL Ltd.) and EPC contracts for various infrastructure projects (under its subsidiary Sintex Prefab and Infra Ltd.).
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-> Out of Rs 6,000 odd Cr Revenue , Rs 2052.85 Cr was from Prefab and Infra Ltd .

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-> The Size of PreFab Toilets order is not known ?
-> Have to see how this Cross selling is done to Sintex Industries Ltd ?


Some General Knowledge Stuff

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-> This is really interesting statistic - Much lower for some reason compared to EMs like Brazil and China as well.

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-> GST - Case for Unorganized to Organized If plays out there is some easy market share to gain.

Products of the company

Custom moulding – domestic operations --> It Includes
Water Tanks , power distribution, automobiles, electrical products, sanitation,
building interiors, warehousing and a host of other verticals.

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-> Majority of Orders from Government may be thats why they never made enough money for shareholders considering past corrupt history of Gov of India (My personal View). Things might change or may not lets see.

–> Below seems like a good business, Its growth is important for margins to expand.
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-> This seems interesting, Seems like are they are not talking numbers about Septic tank it might be very low and could increase in future or not has to be seen.

Some interesting Innovation :

In addition, the Group has created a retail business plan for small sewage treatment plants catering to individual houses, residential bungalows and propagated awareness of the product and its effectiveness by participating in seminars and by organising contractor work-shops. For retail usage the Group has created customised variants in which the treated water can be used for gardening, toilet flushing, floor washing, cooling tower and in construction activities. The Group has created a dedicated cell comprising consisting of service managers, technicians for aftersales services (including AMCs) to ensure the product performs upto client expectations.

-> Hard to predict how much this will come into revenue but good to see they are trying new things.

–> In Fy 15-16 they got approval for this too -

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–> India needs lots many more dustbins than it has :slight_smile:

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-> Business from Electricity Boards: This segment is the key revenue generator accounting
for more than 70% of the revenue for SMC business.

–> This Should do well considering election in Fy19, Government Expenditure in this area will go up -

–> Also lots of growth prospect by tapping markets into new states with GST in place as well should help in this regard.

–> Growth Plan :
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–> If chemical industry will continue to do well then this should do well as well :

–> Ohh Man too many Government Orders

–> Bus yehi government scheme bachi hui thi
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Promoters Holding Is Low - That too held by 15 members

–> This is like another Rs 500 Cr worth of shares


This will take the Debt down but will dilute the Equity Base , Not sure if this has happened already (Need to check latest data)

Financials

Ideally should be > 1 .
39 PM
Here you can see the liquidity Problem and High Working capital nature of the business.

The Interest coverage ratio seems good and long term debt ratios seems okay.
17 PM
Ideally would like to see Debt/ Equity going down.

ROE looks optically high because of high financial leverage in the balance sheet, Which (high leverage) is very evident from the pathetic ROCE.
03 PM

Good news is atleast company generating some “Free Cash” which can be used to re pay debt in future. I think most of the CAPEX is done So , far no mention of CAPEX in Annual Report.

Also, Would like to see Margin (ROS) improvement in future earnings.

42 PM

Source to my Sheet -
https://1drv.ms/x/s!AsYQRDZFvppuk_9ra5uhuDUGd_StzA

They have invested 50 Cr in Zillion Infraprojects

Not much info as its private company, CEO of the company doesn’t look Shady atleast Ex L&T guy
https://www.linkedin.com/in/c-s-saxena-61695526/
‘Zillion Infraprojects Pvt. Ltd.’ is an Industrial Construction company and was earlier known as ‘Durha Constructions Pvt. Ltd.’. I started this company more than 35 years back as a subcontractor to L&T. Now from a mere staff strength of 4 people, we have grown to a company with 1,200 permanent employees and more than 8,000 workers with projects spread across India.

Other 202 Cr generated by Foreign subsidies invested in Foreign MFs .

Cash in Hand

Geographical Revenue Split -

The Risk / Things to watch out -

Debt overhang - No new CAPEX, So going forward Debt should go down.
Management Focus - Should increase as its now separate entity compared to past.
Demand - As they do lots of Government projects , it’s a good proxy play to Government spending, Hope is Government would be going to spending more considering elections are on FY19.

Disc: Invested.


(Savishesh) #2

Yes. Mainly Management history of frequent dilution and raising excessive debt and some corporate mis-governance.

However going forward if they do not do anything stupid and use free cash flows to reduce debt it can get re-rated meaningfully. Their operational metrics are quite good, client base is quite strong and are rated second (next to motherson sumi) in custom molding of auto ancillary parts.


(Raminder) #3

It’s misplaced understanding about the management as management has delivered fantastic growth of turnover & profits in new ventures, over the last few years by raising funds both in the form of FCD & loans. They have successfully taken forward their vision and proven their capabilities, very soon market is going to notice it.
Disclosure Invested.


(Varun) #4

I am not a big fan of the management either. They have recognised brand value as an asset @ Rs 1500 cr in this year balance sheet. It is just a book entry and not an earned reserve. Personally, I take such entries very negatively.

If you ignore this book entry their actual debt-equity ratio is north of 2.5 which is very uncomfortable.

Disc: Not invested


(Manish Vachhani) #5

(Manish Vachhani) #6

(Mute Spectator.) #7

Thats a good observation but how this affects the Debt/ Equity ratio ?


(Varun) #8

You generally increase reserves which is a part of equity when building such assets… so debt remains stable but equity (base) increases. net net Debt Equity ratio declines…


(suhagpatel) #9

Did anyone got a chance to attend the post earnings concall yesterday? Please share the details if any.

Regards,
Suhag


(Mute Spectator.) #10

I believe its a good buy around Rs 70 - Rs 80 per share , FY18 EPS will be around 7. Street was expecting around 9.
// Here my 2 cents on other link.

Only good thing is they are in the process of reducing Debt, They were again Cash flow positive and most of it went to Debt repayment, I believe this to continue for a while.

So they have around 3,833 Cr of debt and lets say they continue to re pay it (203 cr half year) Rs 400 Cr (10% of debt) every year, Then also it will take some time to repay all of it.

but good news it as they will repay, the interest cost - which was huge 4 times of profits FY17, will also start coming down. So, they will have more and more cash flow and they will be able to pay it out faster.
06 AM

I don’t want to quantify it all by using DCF, I don’t believe in it. Nobody can estimate future cash flow. Back of the envelop works good for me.

My only worry was FCCB (you never know when again INR could go for a toss ) , which i want to see how much got converted into equity already . Some of it has happened already -
http://www.bseindia.com/xml-data/corpfiling/AttachHis/69399f9e-1226-4a33-8796-aa8089eb530f.pdf

I do see lots of green shoots, I have some tracking position in the stock.

I would love to buy it at 10 times earning with my FY18 EPS estimate of around 7-8.

Thanks,
Dhruva


(Saurabh) #11

Some excerpts from con call:

  1. Sales reveneue : 3000 cr
  2. EBITDA margins : 440 cr
  3. Headwinds for H1 were demerger, GST implementation.
  4. In custom moulding division, there is a growth of 400 crore. Good growth in europe but not very visible due to exchange rates.
  5. Growth in India was in automotive sector, retail (water tanks, doors and windows) as well as environmental products.
  6. Pre fab division was a drag. Drop in both topline as well as bottom line.
  7. Capex < 95 cr and achieved positive cash flow including debt reduction by 200 cr.
  8. Receivable days gone down to 75 which is good.

Future outlook and focus areas:

Growth to be led by custom moulding division. Very bullish on retail segment. Would like to reach 85 percent capacity utilization before thinking of capex.

Like to improve balance sheet, ROCE, ROE and reduce debt substantially by FY2020.


(Mute Spectator.) #12

Anywhere i can find the transcript ?


(Saurabh) #13

Download research bytes app and create a profile. There you can find investor presentation and audio for all con calls / meetings.


(suhagpatel) #14

Thanks for such valuable information @saurabhricha


(suhagpatel) #15

Looks like some more FCCB converted into equity. Details below. Can informed VP members please advise how much FCCB conversion is left post this?

http://www.bseindia.com/xml-data/corpfiling/AttachLive/d75c146c-adab-4efb-bce9-c2778f07ad75.pdf

Regards,
Suhag


(jajushobhit) #16

This is conversion of another US$ 6.1 mn FCCBs. Now the outstanding FCCBs balance is US$ 28.4 mn.

Regards
SJ


#17

Need help to understand how FCCB conversion would impact the stock price in short term and long term.

While I understand, it will lead to equity dilution and hence EPS reduction, however, should FCCB conversion be taken as a vote of confidence in the company fundamentals and stock price undervaluation?


(Mute Spectator.) #18

It will also lead to debt going off the balance sheet with Equity dilution . So, You have to calculated the over all effect in short term by seeing how much equity dilution has a impact on EPS and how much debt (interest rates) going down has an positive impact on EPS.
In long run Debt going off the balance sheet is always good. Specially FCCB has proved out to be huge risk in past due to INR depreciation.


(suhagpatel) #19

Pardon my lack of knowledge in understanding here.

How does INR depreciation of appreciation will affect FCCB conversion or to that matter the risk you mentioned? The holder of FCCB is getting equity in both cases.

Regards,
Suhag


(Savishesh) #20

Not really !! Say I don’t want to convert my FCCBs then at time of redemption (2022) depending on exchange rate then company will be impacted. And the past history of INR depreciation has made many companies burn themselves with this.