Sintex: Business as usual

Operating profit margins for plastics fabricator Sintex rebounded sharply on a sequential basis to 16.7 per cent, a jump of over 565 basis points.

They were, however, down 350 basis points compared with those in the September 2007 quarter, with expenses on employees shooting up by 283 per cent and the purchase of traded goods costing much more than they did a year back. The Rs 2,274 crore firm, however, posted higher consolidated revenues, up 85 per cent and a consolidated net profit of Rs 84 crore, up 87 per cent.

The key plastics segment--- custom moulding, prefabricated and monolithic structures---was the main growth driver in Q2FY09, growing at 110 per cent y-o-y to Rs 645 crore. What’s more, the firm’s monolithic construction division, which now accounts for less than 10 per cent of revenues, has orders worth Rs 1,400 crore. That’s nearly seven times the revenues posted by this segment last year. Sintex has a near monopoly in the space and should benefit from state government initiatives on low cost housing-- it’s now working on a Rs 750 crore project to build 50,000 houses in Gujarat.

Margins are the firm’s overseas units --Sintex has made 5 acquisitions since June 2007 in the custom moulding space, investing around Rs 990 crore---having been improving. However, the units in the US and Europe could see a slowdown given that these economies may be slipping into a recession.

Other pressure points include Zeppelin Mobile Systems where revenues aren’t gathering pace because clients, including a large telecom firm, has delayed its rollout. Analysts believe the firm’s strengths lie in its good execution capabilities and the ability to identify new product lines. Moreover, the balance sheet is fairly strong with about Rs 1600 crore in cash and equivalents. At the current price of Rs 219, the stock trades at 8.7 times estimated FY09 earnings.