Sintex Industries’ (Sintex) consolidated net sales de-grew 9.1% to Rs662.4 crore (Rs728.6cr) in Q1FY2010.
The fall in revenue during the quarter was primarily on account of the decline in commodity prices since Q3FY2009, which, in turn, has resulted in a reduction in the prices of the output.
To an extent, the reduction in the company’s topline was also on account of the overall economic slowdown, which resulted in a de-growth in the revenue of its foreign subsidiaries.
Q1FY2010 consolidated operating profits stood at Rs87.4 crore. The OPM for the quarter stood at 13.2%, increasing by 50bp on a y-o-y basis.
However, the company’s margins were down by 440bp on a qoq basis; in 4QFY2009, Sintex’s OPMs were higher at 17.6% due to the absence of inventory losses and a lower reduction in output prices, as well as a fall in the cost of raw materials.
During the quarter, the EBIT Margin of the Textile segment stood at 9% (14.6%), while the Plastic segment clocked an EBIT Margin of 11.3% (10.4%).
Going ahead, we expect the company’s business to be primarily driven by its building construction division.
We like Sintex on account of its high revenue visibility in the monolithic and prefab business, where it has an order book position of around Rs1,600 crore, with another Rs190 crore of fresh orders from Rural housing in the pipeline.
Despite the slowdown in the auto industry, the company’s custom molding segment is expected to deliver a strong performance in the future, due to robust demand from the electrical segment.
Based on the lower guidance given by management, we have lowered our Top-line estimates for the Monolithic division to Rs700 crore from Rs840 crore and pruned our topline estimates for the other divisions as well.
Post factoring this, we estimate Sintex’s overall topline and bottomline to grow by 21.7% and 21.8% respectively, over FY2009-11E. On the Operating front, we expect Sintex’s OPM to expand by 140bp in FY2010E on account of low volatility in the commodity prices.
We believe that Sintex is well equipped to manage the current challenging business environment. Further, on account of cash of Rs1,500 crore on its books, we believe the company is well-funded to achieve organic as well as inorganic growth.
At Rs195, the stock is trading at 6.5x and 5.5x its FY2010E and FY2011E Earnings, respectively. We maintain a BUY on the stock, with a revised target price of Rs248 (Rs265).