Infra entry, plan for 300-MW power plant add to working capital burden
Plastic goods maker Sintex’s December ’11 quarter results were dismal in line with market expectations. However, it wasn’t the forex loss that had impacted its September ’11 quarter numbers. The company is facing a slowdown in its core businesses while a delay in government payments has put pressure on working capital.
In the September ’11 quarter, a . 60-crore writeoff towards the forex loss had pulled the company’s profits lower. However, for the December quarter, it changed its accounting policy to amortise the forex loss over the balance period of the loan. This enabled it to write back . 13.5 crore of the amount as a one-time gain.
In spite of this extraordinary gain, the company posted a 27.6% fall in profits for the quarter that came from a slowdown in its monolithics business which saw a 24% fall in revenues and 200 bps weakness in margins.
The company’s custommoulding business also faced a lower capacity utilisation in the US and Europe due to the economic slowdown. Still, the segment was able to post a 13% growth in revenues for the quarter, but this was with reduced margins. “Custom-moulding margin in the overseas subsidiary was down by around 320 bps QoQ while the domestic business margin decreased by 150 bps QoQ,” mentioned a Nomura research report. Pre-fabricated building materials and textiles were the only segment to continue doing well. “Pre-fab business continues to be robust with a 13% YoY growth while textile revenues were steady, with margins expanding around 200 bps YoY,” said a research report by JP Morgan. The company’s entry into the infrastructure space and bagging a . 1,300-crore order to set up 300-MW power plant appear to be a diversification at a wrong time. The company’s main business is already burdened with high working capital and the additional capex needed for this project means it will have to go slow on expansions in its main business.
The company clarified that clearance delays, site allocation and receivables in government contracts were temporary. And the next quarter onwards, things will be back to normal. However,the company remains exposed to the risks of deteriorating working capital, exposure to non-related capital-intensive projects and a further slowdown in Europe, the US and even Indian markets.
In the September ’11 quarter, a . 60-crore writeoff towards the forex loss had pulled the company’s profits lower. However, for the December quarter, it changed its accounting policy to amortise the forex loss over the balance period of the loan. This enabled it to write back . 13.5 crore of the amount as a one-time gain.
In spite of this extraordinary gain, the company posted a 27.6% fall in profits for the quarter that came from a slowdown in its monolithics business which saw a 24% fall in revenues and 200 bps weakness in margins.
The company’s custommoulding business also faced a lower capacity utilisation in the US and Europe due to the economic slowdown. Still, the segment was able to post a 13% growth in revenues for the quarter, but this was with reduced margins. “Custom-moulding margin in the overseas subsidiary was down by around 320 bps QoQ while the domestic business margin decreased by 150 bps QoQ,” mentioned a Nomura research report. Pre-fabricated building materials and textiles were the only segment to continue doing well. “Pre-fab business continues to be robust with a 13% YoY growth while textile revenues were steady, with margins expanding around 200 bps YoY,” said a research report by JP Morgan. The company’s entry into the infrastructure space and bagging a . 1,300-crore order to set up 300-MW power plant appear to be a diversification at a wrong time. The company’s main business is already burdened with high working capital and the additional capex needed for this project means it will have to go slow on expansions in its main business.
The company clarified that clearance delays, site allocation and receivables in government contracts were temporary. And the next quarter onwards, things will be back to normal. However,the company remains exposed to the risks of deteriorating working capital, exposure to non-related capital-intensive projects and a further slowdown in Europe, the US and even Indian markets.
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