MTM losses on weak rupee hurt profits, but analysts positive on stock after price correction.
Sintex Industries touched a 52-week low on October 4, and was down 18 per cent in a fortnight due to mounting concerns over the impact of mark-to-market (MTM) losses on its profitability, given the 10 per cent rupee depreciation in the September quarter. Also, worries about the impact of the slowdown in developed economies on its overseas subsidiaries (26 per cent of total revenues) magnified.
While its MTM losses of Rs 60 crore in Q2 FY12 were higher than expectations of Rs 50 crore, it managed to maintain its overall profitability on the back of a 25 per cent growth in sales. Custom moulding, the largest business, jumped 29 per cent to Rs 534 crore, followed by a 22.5 per cent growth in building material (which includes monolithic construction and pre-fabricated structures) segment and 20 per cent in textiles.
Despite concerns of higher input costs for plastics (linked to crude oil prices), the company’s consolidated operating profit margin dipped marginally to 18 per cent. A significant decline in standalone margin was compensated by a substantial jump in subsidiaries’ margins. Adjusted net profit margin also remained stable at 8.6 per cent despite a significant jump in interest and depreciation, and decline in other income. However, due to the MTM loss, consolidated net profit fell 61 per cent to Rs 39 crore.
The management has maintained its FY12 guidance of 25-30 per cent top line growth followed by a slight improvement in operating profit margin. Monolithic, the key revenue driver, is sitting on a robust order book position of Rs 3,000 crore (2.2 times FY11 segment sales) and order traction is buoyant. Analysts have turned positive as the stock, which is trading at trough valuation of 5.2 times FY13 estimated earnings factoring in the concerns. Large order wins from the government (47 per cent of overall revenues and around 75 per cent of building material division), inorganic expansion in custom moulding and increased synergies with acquired companies are positive catalysts. However, prolonged slowdown in developed economies would affect performance in FY13.