The June quarter results of Sintex Industries Ltd show that the pressure owing to the economic slowdown has continued to impact it. The company’s revenues declined by 9% year-on-year and operating profit fell by 5.3%, with marginal cost savings.
The company earns around 85% of its revenues from selling plastic products in the building materials industry and through custom moulding for original equipment manufacturers. Low capacity utilization haunted the company throughout the quarter.
A large part of the drop in revenues is owing to the steep fall in commodity prices, which the company has had to pass on, to a large extent, to its customers. But even volume growth remains muted. And unlike the March quarter, where the company managed a steep rise in operating margin because of savings on raw material costs, its profitability rose by just 50 basis points during the June quarter. While the plastics segment managed significant cost savings, these gains were offset by a sharp drop in the profit of the textiles unit. One basis point is one-hundredth of a percentage point.
The slowdown in the lifestyle retail segment has evidently hit the company’s textiles business. Although revenues fell by only around 8%, the segment’s profit fell by at least 40%.
The plastics segment, meanwhile, saw revenues falling by around 9%, but managed to curtail the drop in profit at less than 2%. The company’s various subsidiaries also helped overall performance, although the management said that the bankruptcy of its subsidiary Geiger Technik would result in a write-off of €7 million (around Rs48 crore).
Stand-alone sales fell by around 14%, but consolidated revenues fell by around 9%. Net profit grew by 7% thanks to higher other income and a lower tax rate, which stands reduced because of an increased proportion of revenues coming from tax-free zones.
The Sintex stock has corrected by at least 20% since the Budget, underperforming the market since last week. But then, before the Budget, the stock had also risen by around 235% from its March lows and needed to correct.
At current levels of Rs190, valuations seem inexpensive at less than eight times estimated earnings for 2009-10, but considering that fundamentals have barely improved the way sentiment for the stock has, further upside may be limited. The company, though, has guided for an 8-10% increase in revenues and 20-25% increase in net profit for the current year, provided commodity prices remain at current levels.
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