Technically Sintex remains weak, as on Friday 8th December '17
On Friday it fell with larger than average volumes below the support level of 23.75. This happened in a strong market. The scrip is trading near its bottom. Further entry into the stock is advisable, when it rises and sustains above 24 with good volumes. This rise may even happen on this Monday, or it may take weeks. Twenty three is another support for this stock. Let us see whether that level holds.
Dear Somitosh, those investing in share market need to be patient for the value to be reflected in market price. While during this uncertainty, we can hold our existing positions, if we have faith in our original decision. I agree that it is a value play, as very well documented by Sanjay above.
Disclosure: currently holding one share but will invest more.
downward movement is seen because of equity dilution and the result impact. as result is not bad if you hear their con-call management say Phase II 3 lakh spinndle capacity has started and as sales has rising but its not reflected on operating profit because the labor charges and advertisement expense has increased and new capacity is running at 50% utilization. management says that going forward capacity will rise which will directly improve their bottom line.
Last Few days the counter has seen increase in vols. Te price also has moved up in line with vols. Is your view changed technically.
Un-Audited Financial Results of the Company for the Third Quarter and Nine Months ended 31st December, 2017
http://www.bseindia.com/xml-data/corpfiling/AttachLive/004905b4-0f43-4e52-80bd-29bc8b7ae319.pdf …
Sintex Industries Q3Fy18
Revenue up 17&
Ebitda% @ 12% vs 19%
NPAT down 38%
Mixed bag but Margins take a hit, FY19 remains the key for recovery in high value Yarn segment
The company had elaborate plans for expanding capacity , which is somewhat reflecting in increase in income but is there some information regarding the progress of phase 3 which the company had said will have 4 lakh spindles as I read some statements that the expansion, the third phase of 4 lakh spindles is being stopped because the state government is not giving subsidy for third phase. Someone having some information in this regard please may clarify.
The last communication I have from the company says that they are focusing on utilisation of 3 lacs Spindles which will come up by April and no mention one the last 4 lacs Spindles. So I presume that the last part of CAPEX is on hold.
Cotton on the upmove, so Sintex is reacting. here is the chart of cotton futures on MCX.
Do they conduct con calls or come out with investor presentation?
Yes. They do both. You’ll find them on researchbytes.
Thanks, do you have a pdf copy, if yes pls post it here and I’ll check researchbytes as well.
I just checked. Researchbytes doesnt seem to have either. Found the presentation on BSE. Not sure about the concall now.
Sintex Ind 3q18.pdf (881.2 KB)
I guess they have not conducted yet for Q3. Thanks for the presentation.
Am attaching a sheet showing some workings on sintex industries (sorry that it looks cluttered).
Please see the yellow highlighted cells. Ebidta margin % has dropped in all three Qs this FY. PAT margin has dropped in q2 and q3 after rising in Q1 (all are in YOY comparison).
Please see the stock in trade numbers. In this FY, they have substantially increased and also increased as a % of sales. Also look at the growth in other expenses and employee expenses in the 3 quarters this year over the respective quarters PY.
Stock in trade seems to have had a disproportionate impact on profits. To get some idea of sales/profits generated from manufacturing activities, i excluded this item from both sales and ebidta. See the growth in sales excluding this item – far lower than the total sales growth. And ebidta is negative if I subtract this from overall ebidta.
If you look at RM cost as % of total sales, then it has reduced yoy for all the 3 quarters this year. However, if you exclude stock in trade from the sales, and calculate the RM cost as a % of this net sales (viz sales from manufacturing activity), it can be seen that the RM cost has fluctuated Q on Q but overall for the 9 months, its about 5% up.
(ofcourse, my assumption is too simplistic, that they are just selling the stock in trade at cost and not earning any profit on that – this could be wrong. But I guess margins would be very less on this element of sales).
Surprising is that depreciation hasnt increased this year inspite of the expansion. Net fixed assets including CWIP has increased by just 17% in the 6 months from mar17 to sep17. I would have assumed that this number would be far higher since they were increasing capacity substantially.
Debt equity has slightly increased in sep over mar. But seems ok. Debt has increased by about 16% in H1-fy18 (in line with increase in assets)
Can anyone help in understanding the stock in trade element please?
sintex ind Q wise breakup.xlsx (18.5 KB)
Be very careful with Sintex Industries as an investment bet. Just have a look at the total fixed asset and CWIP and compare it with the top line - its really absurd. The company’s financial statement says that the total investment into capital assets is about 8000 Cr while the topline of the company for the full year is a little more than 2000 Cr!! I would say from a layman’s point of view that a substantial part of the so call fixed assets just do not exist - and if the management can prove that these assets are actually existing then i would say they are substantially impaired - either way the audit committee and the statutory auditors are clearly not doing what they are expected the do.
I hope someone can correct me and prove me wrong.
AJ
Are you looking at the 2018 annual or 2017 annual?
Care ratings issues a Negative rating reason :
Issuer not cooperating
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.
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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Thanks. The depreciation related observation was based on Item 22, Page 76 of the 2018 AR. They have mentioned a liability of 567 Cr against difference between book and tax. They are hoping to settle that against 216 Cr of unabsorbed depreciation. Therefore my assumption is that they will have to declare this unabsorbed depreciation some time in the future which will reduce the PAT, though the Operating profit and cash will not be affected. Since their 2018 PAT was 136 Cr, it might take a few qtrs to get this through.
As I don’t have a formal accounting experience, I might be wrong; there might be a way to it tackle it outside of P&L.