Sintex Industries posted on Monday a good set of numbers for the June quarter, with significant contribution from all business segments and foreign subsidiaries. While the quarter’s performance was better than estimated, the management’s guidance of robust growth in 2010-11 also boosted the stock. After its conference call on Tuesday, the company’s stock closed 2.38 per cent higher at Rs 331.80, compared to a 0.27 per cent gain in the Sensex. While economic growth is picking up, the company’s moves to launch innovative new products and expand into untapped markets suggest that its longer-term prospects remain good.
All-round growth
Sintex, which derives a majority of its revenues from plastic-based products and solutions, has been steadily gaining from increased demand among customer segments. In building materials — which includes storage tanks, doors, pipes, windows and prefabricated (prefab) building systems for schools, housing, project site offices, portable toilets and many more – revenues jumped 42.6 per cent year-on-year to Rs 358.4 crore in the June quarter. While the increased housing demand has helped, a rise in government spending on social schemes have also contributed significantly to Sintex’s growth. Going ahead, Sintex is also enhancing its domestic presence in the prefab business.
While it currently has five plants covering about two-thirds of India’s geography, a sixth plant is slated to come up in Uttar Pradesh, which will help cater to newer markets. Within building materials, the monolithic construction business has been growing the fastest. This segment has a strong order book of Rs 2,300 crore, which is to be executed over 20-22 months, and provides good revenue visibility. With the Indian economy picking up, analysts expect an across-the-board improvement in demand for Sintex’s building materials business. The company’s ability to innovate new products to meet customer needs should ensure that it continues to capitalise on emerging growth opportunities and report healthy growth.
| IMPRESSIVE GROWTH | |||
| In Rs cr | FY10 | FY11E | FY12E |
| Sales | 3,319 | 3,885 | 4,510 |
| Ebitda | 538 | 656 | 775 |
| PAT | 338 | 403 | 498 |
| EPS (Rs) | 24.9 | 29.7 | 36.7 |
| P/E (x) | 13.3 | 11.2 | 9.0 |
| E: Analyst estimates | |||
The same looks true for its custom moulding business, which produces plastic-based components for various user industries, including auto, telecom, defence, power and electronics, among others, across India, the US and Europe. To give an example, since early 2007, when Sintex acquired the Europe-based Nief Plastic (which now accounts for over 60 per cent of subsidiary revenues), the share of revenues from the company’s auto sector customers has declined from over 55 per cent to 25 per cent at present — as it enhanced focus on other segments like aerospace, medical and electrical. Nief, along with India-based subsidiary Bright AutoPlast (latter helped by a robust demand from auto original equipment manufacturers), were largely responsible for the 39 per cent growth rate in custom moulding revenues to Rs 450.7 crore in the June quarter. Going ahead, this business, which has seen consistent rise in revenues in the last few quarters despite economic concerns in key foreign markets, should continue to report healthy growth, feel analysts.
Outlook
For the June 2010 quarter, Sintex posted a year-on-year 39 per cent growth in revenues at Rs 910 crore and a 190-basis-point rise in operating profit margins to 15.1 per cent. However, lower other income and higher interest outgo restricted net profit growth to 30 per cent (Rs 79 crore). Notably, albeit a small contributor, the company’s textile business has also shown improvement with rising revenues and better profitability, which should be sustainable.
Going ahead, analysts expect the company to clock average earnings growth of 22 per cent annually over the next two years. At Rs 331.80, based on an estimated 2011-12 earnings per share of Rs 36, the price-to-earnings ratio works out to 9.2. Given that the stock has run up in the recent past, investors can consider it on dips with a time-frame of one-two years.