For Q4FY2009 Sintex Industries (Sintex) has reported a 9.6% decline in its net income from operations to Rs853 crore. The income is lower than our expectations.
The decline in the sales was led by a drop in the sales realisations owing to a lower input cost. The benefit of the lower input cost was passed on to the customers.
The company has reported a 279-basis-point improvement in its operating profit margin (OPM) led by a decline in the raw material cost as a percentage of sales.
The decline in the raw material cost was primarily driven by a decline in the input cost of the plastic division. The earnings before interest and tax (EBIT) of the plastic division improved 384 basis points year-on-year (y-o-y).
The interest cost (down 19% sequentially) and the other income (down 48% sequentially) both fell quarter on quarter (q-o-q) as the company used its internal funds to finance its working capital requirements.
Sintex has also changed the depreciation policy for its subsidiaries to straight line from written down value basis to align the same with the group’s policy. Subsequently, it wrote back depreciation to the tune of Rs8 crore.
Consequently, the net profit (net of minority interest) of the company has come in at Rs114 crore, which is in line with our estimate of Rs113.4 crore.
The company has bagged fresh orders to the tune of Rs200 crore for the monolithic business. The orders have been obtained from the Maharashtra and Tamil Nadu state governments. The order book now stands at Rs1,300-1,400 crore.
Outlook and valuation
We have fine-tuned our FY2010 earnings estimate with no material change to our profit estimate.
We expect Sintex’ profits to grow at a compounded annual growth rate (CAGR) of 13.5% over FY2009-11E led by a 9.8% CAGR in its revenues over the same period.
We continue to like Sintex’ business model because its presence in some of the key growth areas (monolithic, prefabs etc) coupled with its strong balance sheet would help the company to post a decent 13.5% CAGR in its profits over FY2009-11E.
Further, a revival in telecom capital expenditure (capex) and the acceptance of monolithic construction (as the concept of low-cost housing gains popularity) could act as a key positive trigger for the stock.
We have removed the conversion of foreign currency convertable bonds (FCCBs) from our estimates, as the stock is currently trading at a deep discount (at a conversion price of Rs580).
Consequently, while we have not changed our profit estimates significantly the earnings per share (EPS) has increased to Rs27.6 from Rs23.3 earlier.
We maintain our BUY recommendation on the stock with a price target of Rs235 per share. At the current market price the stock trades at 5.6x FY2010E EPS.