Sintex Industries: Racing ahead

Strong top-line growth can be attributed to low base and a sharp rise in revenues from subsidiaries.

Sintex Industries has beaten analysts’ expectations with a 29 per cent year-on-year jump in consolidated sales at Rs 923 crore in the September quarter. However, the growth has been attributed to a lower base, when sales had declined 2.6 per cent. A 42 per cent rise in revenues from its subsidiaries, predominantly the custom moulding segment, also boosted the top-line growth.

Operating profit margin increased 40 basis points (bps) to 18.6 per cent, as higher crude oil prices pushed up raw material costs. However, net profit margin grew an impressive 290 bps to nearly 11 per cent due to better control over depreciation and interest costs.

The visibility in the monolithic business is strong, with an order book of Rs 2,600 crore. The company is also mulling acquisitions. In pre-fabs, it will expand its geographical coverage and encompass new sectors through new products and innovations. Monolithic and pre-fabricated construction businesses, which contribute about 35 per cent to the company’s consolidated sales and have high entry barriers, will continue to be the biggest growth drivers due to robust social sector spending by the government. Besides, the textile business is also seeing some revival, while the custom moulding segment will do well due to an uptick in the auto and electrical industries.

Analysts have recently revised the target price upwards to an average of Rs 484, as they expect Sintex’s earnings to grow at 24 per cent till 2011-12. Between 2007-08 and 2009-10, its earnings grew an impressive 34 per cent. However, the stock that recently touched its 52-week has limited upside potential over the medium term, as it already trades close to the analysts’ average target multiple of 12-13 times estimated 2011-12 earnings.