Sintex Industries Ltd’s stock gained 3.3% to Rs 179 in the last two trading days in reaction to the company’s fourth quarter results announcement. During the same period, the Bombay Stock Exchange’s (BSE) benchmark Sensex fell 3%.
The company’s results were not only better than the Street estimates, but also reported a considerable improvement in working capital management. The net working capital days have reduced to 103 days in the year ended 31 March from 150 days in the previous year, Sintex said in a statement.
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On the business front, revenue increased 34% in the three months ended March from the year ago to Rs 1,464 crore. The company, whose brand is synonymous with storage tanks, derived 54% of its revenue from the building materials business, which performed well and its sales increased by about 47%.
The building materials business includes the monolithic construction business (low-cost housing solutions) and prefabs (housing concepts used to build temporary and permanent residences). The monolithic business currently has an order book of Rs 2,900 crore, to be executed over the next two years, offering revenue visibility to that extent.
Sintex derived 37% of the revenue from its custom moulding business (which makes plastic moulded products), which increased by about 27%. The remaining revenue came from the textile business and rose by 36%. The textile business performed well on account of better capacity utilization and improved global luxury spending.
Overall, operating profit margin improved to 21.1% from 17.6% last year. Operating profit, thus, increased at a much faster pace of 60% to Rs 310 crore. The company managed to deliver a strong operating performance despite higher raw material costs, as employee costs and other expenditure grew at a slower pace. However, net profit growth was slower at 21% to about Rs 170 crore, mainly because of higher tax outgo and a loss under the other income head (caused by mark-to-market loss on its foreign currency convertible bonds).
Since the beginning of this current fiscal, Sintex’s stock has outperformed the BSE-200 Index. Better working capital management augurs well for its financial health, but investors are likely to watch that metric closely, to see if the improvement is sustained in fiscal 2012.
“Though in the conference call management guided for marginal tightening of cycle, we believe working capital cycle will have upward pressure as monolithic (working capital-intensive business) is expected to be (the) largest contributor to future growth,” analysts from Emkay Global Financial Services Ltd wrote in their post-earnings note. The recent outperformance in its share price is likely to keep a check on near-term upsides in the stock.
Graphic by Yogesh Kumar/Mint
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