Stock Review: Sintex Industries

THE Ahmedabad-based plastic goods manufacturer, Sintex Industries, came out with another strong result on the back of improving performance of its subsidiaries. The consolidated net profit for the December 2010 quarter jumped 55% to . 112.8 crore, as its subsidiaries more than doubled their profits to . 35 crore. For the first time, the subsidiaries contribution to the company's net profit was more than 30%.

   The company mainly operates in three business verticals — building products, custom moulding and textiles. The building products business, a relatively new segment, represents monolithic and pre-fabricated structures and is proving to be a great revenue growth driver for the company. During the quarter, the segment became the company's single-largest revenue generating centre with 76% jump to . 609.5 crore against the year-ago period.

   The custom-moulding business, which caters to industries such as automobiles, pharmaceuticals and packaging, posted a 15% revenue growth to . 459.4 crore. The margins of the plastic products — custom moulded as well as building products — widened during the quarter, as the segment's profit rose 67%. The company's textiles business also did well to record a 148% jump in its preinterest-and-tax profits to . 16.1 crore.

   For future growth, the company is betting heavily on its plastics business. In the building products segment it is carrying an order book of . 2,600 crore, which is nearly a whole year's revenue for the segment. The company is expanding geographically and introducing new products. It recently acquired 30% stake in a construction company to benefit from the execution skills in building activities.

   The company had faced stagnation in profit growth during FY10 as its overseas subsidiaries as well as textiles business suffered. But with these businesses back on track and the building products business achieving a sizeable position, the company has done increasingly well during the first three quarters of FY11. The company's net profit in the nine-month period ended December 2010 has jumped 52%. Despite this, the scrip has, so far in FY11, failed to match the kind of returns it gave in FY10. The scrip had doubled between April 2009 and March 2010, but has hardly gained since then. In fact, the Thursday's closing price of . 167 is just 3% higher than its April 2010 level.

   The scrip's recent underperformance on bourses has lowered its valuations considerably. Its current priceto-earnings multiple of 10.6 appears low on a historical basis, considering the company's consolidated profits for the past four quarters.

SUM OF ITS PARTS

The building products business, a relatively new segment, is proving to be a great revenue growth driver for the company.

In the December

quarter, the segment became the company's singlelargest revenue generating centre with a 76% jump