Sintex Must Rein in Financial Costs for a Better Show

Company can bank on a stronger rupee to boost operating margins

The September quarter results of Sintex Industries reveals a number of woes the company is facing, both operationally and otherwise. Although fluctuations in foreign exchange was the chief reason behind its dismal quarterly numbers, the poor show is also due to the impact of falling margins and rising interest costs. 
A depreciating rupee hurt Sintex the most as it wrote off nearly . 60 crore towards unpaid borrowings in foreign currency (FCCBs) during the September ’11 quarter. As compared to this it had booked . 20 crore gain in the year ago period. Thus, the currency movement alone knocked off nearly . 80 crore of profits compared with the yearago period.
Still, excluding the impact, the scenario was not much exciting either. The company’s pre-tax profits from the business activities were just 8% higher on y-o-y at . 125.8 crore. This was low compared to 49.2% PBT growth in FY11 and 31.8% in the June ’11 quarter.
The lower growth in profits excluding the impact of extraordinary items was reflective of an increasingly difficult business environment. Although it could growth revenues by 25% during the quarter, the company’s operating profit margin fell by 90 basis points to 17.7%. Similarly, the 56% jump in interest costs due to higher interest rates was on a higher side considering it grew at 49% during FY11 and 41% in the June ’11 quarter.
The company had already lost the market’s favour in the weeks leading to the results. The scrip lost 23% in past 13 trading sessions as against a mere 3.2% drop in BSE Sensex.
The net consolidated debt on the company’s books rose marginally to . 1,991 crore as at end September ’11 from . 1,788 crore at end March ’11. The net debt-to-equity ratio inched up to 0.78 from 0.74 in this period. Net debt refers to debt net of cash and bank balance.
Its building materials business is doing well with a 22.5% revenue growth in the September quarter and an unexecuted order book of . 3,000 crore. Similarly, it has set up a new plant at Chennai for custommoulding products. It will need to manage its operational performance well while reining in the financial costs and hope for a stronger rupee to post better numbers in coming quarters.