Sintex: Geiger under water

Unless Geiger turns around, Sintex stands to lose Rs 46 crore.

The Sintex stock tanked 17 per cent on Monday to Rs 160 because its German subsidiary, Geiger Technik, is on the verge of bankruptcy. Sintex, which makes plastic equipment for a host of sectors, had started the process of acquiring the company in August 2008 and so far it has paid around Euro seven million ( around Rs 46 crore). In the event that Geiger, which makes moulded plastics for the auto sector, is declared bankrupt, Sintex stands to lose the entire amount that it has invested. However, if the unit revives, Sintex can pick up a 90 per cent stake in the company at a valuation lower than the Euro 35.6 million finalised earlier.

Meanwhile, the Sintex management says it is seeing some slow down in volumes especially in the telecom, electrical and auto spaces. In the December 2008 quarter, consolidated revenues were up 33 per cent y-o-y to Rs 820 crore, but operating profit margins slipped 130 basis points y-o-y to 15.6 per cent due to inventory losses. The net profit rose 20 per cent, the lowest growth seen in the current year so far. The net profit posted in 2007-08 was Rs 230 crore. The management believes that with commodity prices coming off, margins could improve and that it is on course to post a revenue growth of 40-45 per cent in 2008-09 over the Rs 2,298 crore seen in 2007-08.

That’s because demand from industries such as aerospace and defence remains strong. Also, the monolithic housing construction business, which accounts for about 9 per cent of revenues, continues to do well; the order book stands at around Rs 1,500 crore and includes a Rs 750 crore project for building homes in Gujarat. Analysts believe the contribution of this division, to revenues, could increase to around 17-18 per cent by 2010-11. That would help push up operating margins for the company because this division enjoys better margins of close to 19 per cent than the rest of the firm.