In the recent past, investors have punished shares of Sintex Industries Ltd on concerns over the impact of rupee depreciation and global slowdown. In fact, the Sintex stock has declined 23% since mid-September to Rs 115 compared with a 2% fall in the benchmark Sensex during the same period.
The company’s September quarter numbers reflect the adverse impact of rupee depreciation against the dollar. Sintex had to incur a notional mark-to-market loss of about Rs 60 crore on the utilized portion of its foreign currency convertible bonds maturing in March 2013. That led to sharp 61% year-on-year decline in the reported consolidated net profit of the company to Rs 39 crore.
Of course, if the rupee appreciates against the dollar going forward, then the losses will be reversed in line with that. According to Sintex’s press statement, adjusting for the exceptional loss, the net profit shows 23% growth from a year earlier.
While analysts have accounted for the currency impact in their September quarter estimates, the reported net profit numbers are still a bit lower than expectations.
Nevertheless, on other parameters, the company has performed well. For instance, total revenue has increased by 25%, better than the June quarter revenue growth. Revenue growth across all businesses—building materials, custom moulding and textiles—was good. The custom moulding segment, which accounted for 46% of the total revenue, grew at a comparatively stronger rate of 29%.
The next major contributor was the building materials segment, contributing almost 44% to revenue and reporting 23% growth. The monolithic construction segment (part of the building materials business) has an order book of Rs 3,000 crore to be executed over the next two years, which offers good revenue visibility.
Operating profit growth was relatively lower at 19%, mainly on account of higher raw material costs. Operating profit margin declined by 93 basis points to 17.6%, still 64 basis points higher than that in the June quarter. One basis point is one-hundredth of a percentage point.
The company has not revised its revenue growth forecast and maintains it at 25% for fiscal 2012, which should offer some comfort to worried investors. Though, a revision is possible if there are unpleasant surprises from foreign subsidiaries by the end of the current quarter. Investors are worried about the performance of overseas subsidiaries, but the current valuations seem to be factoring most of the negatives.
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