Sintex stock sheds 7% on lacklustre guidance
The main disappointment for investors could well have stemmed from lower guidance
Sintex Industries Ltd, which is engaged in the plastics and textiles businesses, saw its stock shed nearly 7% on Monday. The company’s December quarter financial results announced on Saturday were nothing to write home about, with a 39 basis point decline in consolidated operating profit margin on a sequential basis to 16.8%. A basis point is 0.01%.
But the main disappointment could well have stemmed from lower guidance. With just another quarter left in this fiscal year, Sintex now expects consolidated revenue growth of 15% for FY16 compared with its earlier guidance of 20% growth. Motilal Oswal Securities Ltd expects the company’s revenue growth to be 12%.
Secondly, full commercial production of Sintex’s spinning project is expected by April. The company expects it will take nine months to achieve optimal utilization and some more months to stabilize the project. Revenue from the project is expected to be in the range of ₹ 800-1,000 crore for the next fiscal year. This was pegged earlier at over ₹ 1,000 crore and the lower expectations factor in softer yarn prices. Investors would do well to follow the impact of the Chinese economic slowdown on prices in future, considering that China is a major yarn consumer.
Coming back to the December quarter results, Sintex’s revenue and operating profit, both increased 12% on a year-on-year basis to ₹ 2,050 crore and ₹ 344 crore, respectively. During the quarter, while the domestic custom molding business performed well, the overseas custom molding business was disappointing. As a result, overall custom molding (comprising products customized for specialized applications) revenue accounted for a bit more than two-fifths of the total and declined by 1%. That offset 21% revenue growth in the building materials segment and 38% revenue growth in textiles division to some extent. Commenting on the building materials segment, the company said government spending has picked up momentum, which will entail smooth flow of orders. Growth in the textiles business was helped by launch of innovative designs and varied product mix.
Sintex’s net profit increased 11% over the same period last year to ₹ 180 crore. “Delay in recovery cycle in B2G (business-to-government) projects, adversity in commodity prices and moderation in guidance of spinning project might post near-term overhangs," pointed out the Motilal Oswal report. However, the brokerage firm is positive on the company’s long-term outlook. Currently, the stock trades at an undemanding valuation of 5.5 times its estimated earnings for FY17. Sintex’s shares have underperformed the benchmark S&P BSE Sensex so far this fiscal year.
The writer does not own shares in the above-mentioned companies.
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