 "Sintex")
Once a legendary mill, Sintex Industries is insolvent. It is hoping to catch the eye of Reliance Industries or another buyer. How it ended up with the National Company Law Tribunal is a story of mistimed decisions and missed buses.
Set up in the 1930s as Bharat Vijay Mills (BVM), a composite textile mill in Kalol, Gujarat, the company was rebranded as Sintex Industries in the 1970s, a cotton yarn and fabric maker. BMV stood head and shoulders above the competition. Buyers of its fabric were top names, such as Armani, Hugo Boss, Diesel and Burberry.
By the mid-90s, Sintex decided to get into some backward integration by adding a cotton yarn spinning capacity to complement its composite mill producing the quality fabric. On the other side was the plastics’ division, led by its ubiquitous water tanks, that was making Sintex a household name. According to industry sources, when Sintex forayed into spinning, there were not many players in the market, neither in Gujarat nor elsewhere in the country.
For a while, Sintex continued to replicate its quality manufacturing standards of fabric to spinning yarn, again commanding a premium in the market. But by 2014, which many believe is the origin of the current collapse, Sintex became aggressive on spinning. From a 20,000 or so spindle capacity at its Kalol factory, it set itself a target of one million spindles.
“First, Sintex didn't have enough spinning experience as it was a predominantly fabric player. Second, there were very few firms which had taken less than three to four decades to reach one million spindle capacity. Sintex wanted to do it in less than a decade," said a person close to the developments. Third, he added, with such a huge capacity, Sintex was also faced with the question of cotton yarn absorption from the continual expansion of spinning capacity.
Multiple attempts to reach out to Amit Patel, group managing director of Sintex, did not elicit any response.
According to industry experts, spinning, like other segments of the textile value chain, is cyclical in business. “Every four years consists of one year of good business and three years of poor to average. Those who are able to buy and hold cotton at the most competitive prices sail through the downturns. In the case of Sintex, while its yarn was of a good quality, the company not only overspent on capacity expansion but was also highly leveraged since buying cotton requires working capital,” said the person quoted earlier.
By 2017, Sintex had demerged its plastic business into Sintex Plastics Technology, while it continued to focus on fabric and yarn. Roughly Rs 6000 crore worth of capex was planned for one million spindles, although finally ‘only’ 600,000-700,000 spindles were installed (though at the cost of very high leverage).
As luck would have it, that was when the textile industry, especially yarn, went into a tailspin. Many more players added spinning capacity. This impacted demand and sales which fell and remained low till around mid-2020.
When the upswing in yarn came, it came at the wrong time. It came at a time when Sintex was so leveraged that it had begun defaulting and couldn’t afford any more working capital to buy cotton — which was at rock bottom — or sell yarn at higher prices.
“Post-first lockdown in early 2020, China, which was the biggest importer of cotton, was closed, along with Bangladesh. So cotton traders were desperate to liquidate their inventory, thereby selling at huge discounts. Those yarn makers who had the working capital, despite operations being shut down due to covid, bought cotton and held on to it until yarn prices increased by 50-70 per cent by July-August 2020. As a result, as against a typical margin of 14-15 per cent, yarn makers earned unprecedented margins of 30-35 per cent, a bus that Sintex missed due to over-leverage and defaults,” said another industry source.
In April 2021, the Ahmedabad bench of the NCLT admitted the insolvency process plea filed by Invesco Asset Management (India) over a default in payment of the principal and interest of non-convertible bonds worth Rs 15.4 crore. The NCLT has appointed resolution professional Pinakin Shah to oversee the operations and insolvency process. To date, claims worth over Rs 7,500 crore from 27 financial creditors have been admitted. The creditors include HDFC Bank, Axis Bank, Aditya Birla Finance, LIC, and SBI.
Apart from a Reliance-led consortium which has submitted an expression of interest for Sintex, Shah has received over 15 expressions of intent including from ARC, Edelweiss Alternative Assets Advisors, Nitin Spinners and GHCL.
