BackSintex: revenue growth up, but margins weak
Higher raw material costs and higher other expenditure hurt operating profit margin
Premium(Sintex’s plastics business registered a growth of about 43% and contributed as much as 88% of the total revenue for the March quarter. )
The Sintex Industries Ltd stock rose 5% on Tuesday in reaction to the better-than-expected March quarter earnings; the benchmark Sensex gained about 1%. The company’s consolidated revenue last quarter stood at ₹ 1,400 crore, representing an increase of 37% on a year-on-year (y-o-y) basis. Revenue growth was led by the company’s plastics business, which includes the prefabricated building systems (housing and construction concepts), monolithic construction (low-cost, mass housing solutions) and custom molding segments.
Sintex’s plastics business registered a growth of about 43% and contributed as much as 88% of the total revenue for the March quarter. The company derives its remaining revenue from the textiles business, revenue from which remained largely unchanged. In the plastics business, the monolithic construction segment continues to play spoilsport. Monolithic revenue declined by 17% on a y-o-y basis for the quarter. For some time now, Sintex has taken a conscious decision to go slow in the monolithic segment and improve the receivables position. Typically, the monolithic business is lumpy in nature and payments happen with a lag, which puts pressure on the receivables situation.
Weak performance of the monolithic business meant that the custom molding and prefabricated segments have performed well. The prefabricated business has done well, thanks to Sintex ramping up execution across some states and selling in new regions. The custom molding business got a boost from better performance of electrical accessories, aerospace and defence segments.
Unfortunately, strong revenue growth did not result in better operating performance. Operating profit margin declined by two percentage points because of higher raw material costs and higher other expenditure. However, strong other income growth and negative tax outgo meant that Sintex’s net profit for the March quarter increased at a much faster pace of 65% to ₹ 151 crore. Bloomberg had pegged revenue at ₹ 1,249 crore and net profit at ₹ 96.29 crore.
For the full year as well, the monolithic business remained weak. In the year ended March, monolithic construction revenue declined by about 8%, while revenue from prefabricated building systems and custom molding increased by 35% and 22%, respectively.
The company expects the prefabricated building segment to perform well in this year and clock 30% revenue growth. Monolithic revenue growth is expected to be flat. On an overall basis, Sintex expects revenue to increase by 15% on a y-o-y basis. While investors cheered the numbers on Tuesday, since the beginning of this calendar year the Sintex stock has underperformed the S&P BSE 200 index and is currently trading at 4.4 times its estimated earnings for the current fiscal year. Valuations appear attractive at the current levels, but an improvement in the debt position would be one of the main triggers for the stock. On 31 March, Sintex’s consolidated debt stood at ₹ 3,050 crore and cash was ₹ 524 crore, while its market capitalization stands at ₹ 1,690 crore.
Investors will gain confidence once the company’s efforts to improve its balance sheet start showing a meaningful outcome.
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