After several quarters of lacklustre revenue growth, Sintex Industries Ltd has done well in the September quarter. The company reported a consolidated revenue growth of 3.6% to 1,200 crore from a year earlier. In comparison, revenue had declined by about 3% and 30% in the June and March quarters, respectively.

Sintex’s monolithic construction business (including low-cost housing) has been a problem area for a while now and unfortunately that didn’t change much in the September quarter. The company cut slow-moving sites to five during the last quarter from seven earlier in the monolithic segment. In the coming quarters, the slow-moving sites are expected to be reduced to three. In the September quarter, monolithic construction revenue declined by 14%.

The bright spot, though, has been the pre-fabricated building systems segment, which registered a robust 37% revenue growth helped by new orders from Maharashtra and Madhya Pradesh, and strong execution across geographies. Sintex is looking at 20% growth in the pre-fabricated building systems business for this fiscal year. The Indian custom moulding revenue growth at 9%, too, looks decent.

Even as revenue growth surprised positively, operating performance was a bit weak. For the September quarter, operating profit margin declined by 240 basis points to 15.2%. A basis point is one-hundredth of a percentage point. Operating performance was impacted on account of higher raw material costs and employee costs. Accordingly, operating profit fell by 10% and higher depreciation costs led to an 18% decline in profit before tax and exceptional items to 103 crore.

Nevertheless, better-than-expected financial performance led the Sintex stock to rise by 5% post the earnings announcement. However, over a longer time frame, the stock hasn’t delivered and has, in fact, underperformed the benchmark Sensex considerably in the past year. At 74.05, the stock trades at about six times its estimated earnings for this fiscal year.

Sure, current valuations are not demanding, but there are hardly any triggers for the stock to do well in the near future. The company has to redeem foreign currency convertible bonds worth $285 million (around 1,515 crore today) in March 2013 and has to raise $150-160 million. Investors would do well to track developments on that front. Other than that, analysts aren’t expecting many dramatic improvements in the near term in the monolithic business.

Close