Sintex: Moderate show

Sintex Industries reported 10 per cent drop in revenues during the March 2009 quarter on subdued demand and lower realisations. Product prices were lower as commodity prices are below last year’s levels.

The key plastic division (86 per cent of revenues) helped the company improve its operating profit margin (OPM) 270 basis points to 20 per cent, even as the division reported 12 per cent year-on-year decline in revenues. This division, which makes pre-fabricated building systems, monolithic construction, and prefabs, benefited from the government’s rural infrastructure spending, though the private sector demand was sluggish.

The shift in focus on high growth and profitable segments and a change in business mix from products to services have improved PBIT margins by 380 basis points to 17.7 per cent. Analysts, however, indicate that the visibility in the telecom shelter business is low due to slower tower roll-out by telecom players. Also, given the subdued economic environment, the prospects for the custom moulding business are moderate.

Sintex has been leveraging the technological capabilities of its overseas subsidiaries (a fourth of total sales) to develop value-added products. The company management says the focus on shifting manufacturing to low-cost destinations and high-margin segments has helped improve the profit margins of its overseas subsidiaries.

The textile business (12 per cent of sales) reported 9 per cent sales growth, but its PBIT was flat at Rs 20.40 crore. Going ahead, analysts expect the company’s top line and net profit to grow 10-12 per cent in 2009-10. Sintex stock gained 27 per cent last week and at Rs 227, it trades at a price-earnings multiple of 9 times its estimated 2009-10 earnings.