Critique of Sintex Industries

...

Key Takeaways

- Sintex Industries Limited has a much higher financial leverage than the competitors in the industry which in turn increases the risk for common shareholders and interest payments and thereby negatively affecting the bottom line.

- The asset turnover ratio has a value lower than the industry benchmark which clearly indicates that the company is not using its assets efficiently and might be facing management or production problems.

- The company has a profit margin higher than the industry benchmark which is a positive sign but the net profit margin for the company has been on a decline due to a surge in the competition in the industry.

YIELD GAP ANALYSIS

Yield gap analysis

Mar '15

Price per share(NSE)

103.600

Risk free rate (10 year govt bonds)

7.970

EPS diluted (2014-15)

11.640

P/E ratio

8.900

ROE

11.236

Yield gap

0.709

Invest in equity

- This analysis shows us whether we should invest in equity or in debt. For debt, we have made an assumption of 10 year government bond which has a yield of 7.97% and for equity, we have taken the P/E ratio of Sintex Industries Limited.

- A yield gap of less than 1 indicates that one should invest more in equity than in debt in order to reap higher returns.

Income statement Analysis:

[pic 6]

[pic 7]

[pic 8][pic 9]

Balance Sheet Analysis

[pic 10]

[pic 11]

[pic 12]

[pic 13]

The balance sheet gives us the overview of the assets and liabilities of the organization. The ratio of non-current assets to current assets has increased over the last five years. This implies that the liquidity ratio has declined whereas the asset utilization level has increased for the organization. Also, the current liabilities constitute a major chunk of the net worth of the company. Since the short term debt comes with a higher cost, it is not a good sign for the organization as it has led to increase in expenses. The overall equity has increased but the ratio of equity to net worth has reduced. This means that overall contribution from the shareholders to the net worth of the organization is low and the organization is high on debt. This provides tax benefit to the organization but it incurs higher expenses as well. While considering for investment in the organization, we check the growth opportunities for further analysis.

Growth Opportunities Galore and Future Projections

- The revenue of the company is expected to grow at a CAGR of 14.9% in FY15-17. This growth in the company is expected on the account of entry into two new business segments and acquisitions overseas.

- The spinning mills business is expected to start manufacturing spindles from September 2015 with further expansion. The estimated CAPEX incurred is to the tune of 1800cr in debt equity ratio of 75:25. This is reflected in the balance sheet with increase in debt of the company and reduction in the cash in hand form around 700cr to just 98 cr.

- The company expects its share price to increase to Rs 122 from the current CMP of Rs 103 due to the robust business opportunities in the traditional as well as the new business segments. The heavy CAPEX in textile segment and the pending FCCB conversion are two key obstacles to this growth.

Q4FY15

Q2FY15E

Q4FY14

YoY(%)

Q3FY15

QoQ(%)

Net Sales

2168.2

2118.5

1983.0

9.3

1826

18.7

Prefab and custom moulding division led to a healthy topline growth during the quarter while monolithic segment remained a dragger during the quarter

EBITDA

408.5

359.8

357.4

14.3

306.9

33.1

Strong margin traction in prefab, storage tanks, custom molding and textiles led to 82bps margin expansion during the quarter

EBITDA margin

18.8

17

18

82bps

16.8

204 bps

Interest

86.1

64.8

105.8

-18.6

64.8

32.9

Adjusted PAT

201.9

159.1

161.1

25.3

168

20.2

With better