Sintex running out of St option

At PE Multiple Of 10.8, The Stock Of Water Tanks Player Appears To Be Fully Valued

ON A day when the markets cheered strong economic numbers and the Sensex gained 2.3%, the stock of Sintex Industries shed 1.4% to close at Rs 248.6, following dampened quarterly numbers.

The scrip is now trading at a price-toearnings multiple of 10.8, at which it appears fully valued considering its future growth prospects. The company has underperformed the broad market since the start of 2009 registering just 27.7% gain till date against a 71.9% jump in the Sensex. In 2007, the scrip had substantially outpaced gains in the Sensex. However, the market meltdown of 2008 saw it lose sheen.

Well-known for manufacturing water tanks, the company has over the past few years entered into an array of businesses through a series of acquisitions. Its subsidiary Zeppelin Mobile Systems acquired a mobile tower company Digvijay for Rs 64.5 crore to emerge as a total solution provider in the telecom space. Zeppelin clocked a turnover of Rs 66.7 crore in the first half of FY2010, representing 7.2% of the company’s consolidated turnover.

For quite some time, the company has encountered problems. It had raised close to Rs 1,800 crore in FY09 through issue of FCCBs, QIP and preferential allotment for an acquisition, which did not happen due to the market meltdown. Its acquisition of Geiger Tech in Germany a year ago ran into trouble, when the company filed for bankruptcy. Sintex’s other overseas subsidiaries Wausaukee Composites in the US and Nief Plastics in France, too, have been hit by the global economic slowdown.

The company, which invested Rs 500 crore in its organic growth in FY09, carried a cash balance of Rs 1,168.5 crore as of end-March 2009. In fact, the other income earned on this surplus cash balance at Rs 156.3 crore in FY09 represented nearly 48% of the company’s consolidated net profit. A drop in other income was the main reason behind a fall in its profitability during September 2009 quarter.

Investors of Sintex Industries can take heart from the fact that despite a fall in profits, the company has maintained its operating profit margin at the past year’s level. The company’s domestic business continues to do well with rising capacity utilisation. However, the company is likely to report a dismal profit growth in the December 2009 quarter considering the high level of other income in the corresponding quarter of the previous year. An economic revival in the US and Europe next year and a well-timed acquisition could see the company grow its profits substantially in FY11.