The Sintex Industries Ltd stock has fallen by 20.5% to 146.20 since the company announced its June quarter financial results in early July. In comparison, the BSE-200 index has declined by about 11% during the same period. One reason for this underperformance could be the company’s exposure to the US and Europe through subsidiaries, an analyst points out.

The company, known for its storage tanks, had delivered a decent financial performance in the June quarter, with consolidated operating profit margin improving by nearly 2 percentage points year-on-year to 17%. Sequentially, operating margin was lower, but a sequential comparison would not be fair because March quarter is typically stronger for Sintex.

In fiscal 2011 (FY11), too, Sintex improved the operating profit margin by 200 basis points to 18.2%. One basis point is one-hundredth of a percentage point. That looks good considering the company faced raw material cost pressures; growth in raw material cost was higher than growth in revenue in FY11 as well as the June quarter.

Further, Sintex has also improved on the working capital position in FY11. “On a consolidated basis, net working capital days are down to 103 in FY11 compared with 150 days in FY10," the company had said when its FY11 financials were announced. Sintex attributed the improvement to a decline in loans and advances, and better inventory management.

As far as its leverage position is concerned, “on a consolidated basis, with 2,774 crore of debt on the books, the overall debt-to-equity ratio looks elevated at 1.15 times and has been hovering in the band of 1.1-1.35 times over the last five years from the time the zero-coupon convertible bonds were issued", points out an annual report review note from Sharekhan Ltd released last week.

The note further adds that adjusting for the foreign currency convertible bonds (that are kept in an escrow account), the leverage position is manageable at 0.64 times.

Currently, the stock trades at 7.3 times its estimated earnings for the current fiscal year based on Bloomberg consensus estimates. At these levels, the stock seems to be factoring in most of the negatives. Some analysts say, though, that higher debt levels could affect the company’s net profitability to some extent in the future.

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