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%.
- As per AR2018, there is still 2K Cr+ of CWIP even though all 600K spindles are live.
- 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?
- 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.
- 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 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.