Sintex Analysis

SINTEX INDUSTRIES: BSE: 502742 ; ISIN: INE429C01035

Scope of work:

Ajay Kumar (1411211), Gokulram (1411229) Naseef K.P.O. (1411246), and Amit

Kumar Sah (1411280), Group 7, Sec-D students of IIM Bangalore undertook the

study of 2013-14 financials of Sintex Industries. The scope of the study is restricted to

Strategic Analysis, Ratio Analysis, Accounting Analysis and Cash Flow Statement

Analysis. The report was prepared as part of project-II for Financial Accounting taught

by Padmini Srinivasan at Indian Institute of Management Bangalore. The financial

reports for years ranging from 2011 to 2014 have been taken up from bseindia.com.

The views and analysis presented here belong to individuals of the groups and they are

no way responsible for losses arising from the interpretation of the document.


Contents 1. Strategy Analysis: .............................................................................................................. 3

1.1 Risks and vulnerabilities: ................................................................................................. 3

1.2 Future Prospects:............................................................................................................. 3

2. Major Accounting Standards and Policies followed: ............................................................. 4

3. Financial Analysis............................................................................................................... 4

3.1 Horizontal Analysis: .................................................................................................... 4

3.2 Vertical analysis:......................................................................................................... 5

3.3 Ratio Analysis: ............................................................................................................ 5

4. Cash Flow Analysis ............................................................................................................. 7

5. Conclusion: ....................................................................................................................... 7

6. References: ....................................................................................................................... 8

7. Annexures ......................................................................................................................... 9

Annexure 1: Balance Sheet and Profit and Loss Statement 2013-2014 ...................................... 9

Annexure 2: Horizontal Analysis ........................................................................................... 11

Annexure 3: Vertical Analysis: .............................................................................................. 12

Annexure 4 Profitability Ratios: ............................................................................................ 13

Annexure 5: Operating Figures ............................................................................................. 14

Annexure 6 Liquidity Ratios.................................................................................................. 16

Annexure 7: Valuation Ratios ............................................................................................... 17

Annexure 8: Solvency Ratios: ............................................................................................... 17


1. Strategy Analysis: a) Plastic Industry: Plastic Industry has positive and growing outlook for upcoming years.

It is expected to more than double by 2020i, ie, an annual average growth of 17%.

b) Company Analysis: It supplies plastic products for infrastructure purposes such as

tanks, doors and sheds; it supplies customized plastic industrial products ranging from

for electrical equipments, aerospace, automobiles defence, telecommunication etc.

c) Mergers and Acquisitions related: July 2014: Sintex Industries successfully acquired

France based SIMONIN Group3 which manufactures technical components and metal-

plastic sub-assemblies. August 2014: Sintex Wausaukee Composites Inc., owned by

Sintex, is bringing its light resin transfer moulding expertise to India. 4

d) Company Growth vs. Industry growth: 1.The plastic industry grew by a healthy 10-12%

%1. Revenue from plastic industry grew by only 6.77% however; the Operating Profit

has increased by 21.2%. 2. The textile revenues grew by a healthy 15.7% as compared

to an industry average of 11%5

e) Company export vs. Industry Export: Company Export grew at meagre 5.3 %. Indian

plastics exports have grown at a rate of 16.56% 2

1.1 Risks and vulnerabilities:

1. Pre-fabricated and monolithic segment which accounts for over quarter of their

revenues is entirely dependent on government projects.

2. China has near about the same population as India and is 3 to 20 times better

positioned in volumes of plastic manufacturing.

3. Despite having 29% share in cotton production, China houses 46% of world spinning

capacity and 45% of global trade.

1.2 Future Prospects:

1. The per capita income has increased by a percentage of 10.4% as compared to 2012-13.

Innovative demands for Water management, Nursery Management, Surface cover

Cultivation, Controlled Environment Agriculture and Innovative Packaging Solutions

are some of the new market potentials.

2. Govt thrust on social spending to drive the Prefab and Monolithic business: The new

government at centre came to power with promised focus on rural/urban housing.

Monolithic and Prefab business will receive a boost on this account.

3. SIMMON gives Sintex capabilities of metal stamping as well as plastic moulding on

metals7. Addition of customers like Valio, Vignal Systems, SKF to portfolio in future.

4. India as a global hub for small cars, revival of transportation and car segment,

packaging industries robust growth estimates and rapid urbanisation creates demand.

5. SIL is planning to setup a spinning unit with a capacity of producing 4.06 crore Kg of

yarn per annum at Amreli, Gujarat6. This will be commercialized from April 1, 2016.

6.


2. Major Accounting Standards and Policies followed:

Type of account Accounting Policy used

1. Depreciation Depreciation on Buildings, Plant and

Machinery is provided on straight line method; Furniture, Fixtures, Office Equipments, Borewell and Vehicles is

written down value method. Method is same for peer companies.

Amortisation Intangible assets are amortised over a period of five years.

Inventory Inventories are carried at lower of cost or

net realizable value; COGS is accounted on Weighted Average Method

The cost of fixed assets is based on the purchase price and the expenses incurred to

bring it to its intended use. Borrowing of funds not directly related to the acquisition of

qualifying assets are expensed or else they are capitalised.

Current Investments are stated at lower of cost or fair value.

Current tax is based on companys analysis of tax to be paid, and deferred tax is

accounted on account of timing difference between Income Tax department and

company accounts.

The accounting methodologies have remained the same for the past 3 years, and there

has been no deviation from the used methods.

The financial information of subsidiaries reflecting total assets (net) of 1,280.65 crore

as at 31st March, 2014, total revenues of 1,520.72 crore and net cash inflows amounting to 25.97 crore for the year ended on that date have not been prepared by the

same auditors. This information has been furnished to Deloitte who prepared the rest of the report.

3. Financial Analysis

3.1 Horizontal Analysis:

a) Shareholders Funds: There has been healthy growth of reserves and surplus over

the last three years. The growth in year 2011-12 and 2013-14 was not that

substantial and was meagre 7.4%. The reason was substantial dependence on

monolithic sector which is highly dependent on government projects. 2011-12 was

the zenith of policy

paralysis.

b) Borrowings: Over the last

three years the %age of

debt over total assets has

remained pretty constant at

0

500

1000

1500

2000

2500

3000

2011-2012 2012-2013 201-2014

Long Term borrowings

Borrowings

(Crore)


46%. Loans have been steadily rising at the rate of 13% per annum, and total assets

have been posting a similar growth. So loans are not being used to repay interest

cost, and pay dividends. They are being used to build assets.

c) Trade Receivables and

payables: Trade receivable

is a sizeable amount of sales

for every year. The average

collection period is high and

remains in 140 days range.

Government projects,

subsidies all amount. On the

contrary Sintex is good in

terms of payment to its

suppliers.

d) Inventory: The ratio of assets to inventory has fallen by 8% from 30% to 22.8% in

2013-14. The reasons are better management of inventory by Sintex.

e) Profit year on year: Year 2011-12 saw a drop in profit after tax on account of

reduced sales. However, they managed quite well not to be ever in red. Monolithic

sector gave them nightmares that year. However, the year on year returns have been

good.

3.2 Vertical analysis:

a) Profit after Tax as percentage of Revenue: The profit for the year 20013-2014 has

been a healthy 10%. It has increased from 8.7% in 2012-2013 to 10.11% present

value. The cause of this has been increase in sales, also to a certain extent better

containment of costs.

b) EBITA of Revenue: EBITA has been good for year 2013-14 at 25%. It has shown a

positive improvement from 21.88% in 2012-2013.

c) Fixed Assets of Revenue: Fixed Assets have been healthy and form close to 1/3rd of

total assets.

d) Finance Cost of Revenue: Financial cost as part of Revenues has increased to 7%.

3.3 Ratio Analysis:

3.3.1 Liquidity Ratios:

a) Current Ratio: The current ratio of 1.53 shows capability of Sintex to pay its

liabilities. The industry is asset intensive industry and all competitors have current

ratios greater than 1.

b) Operating Cycle: The operating cycle has been reducing however still it is at a high

level of 168 days. The major contributor in the huge operating cycle is average

0

100

200

300

400

Trade Payable

Trade Payable

(Crore)


collection period, which itself is 143 days. Government projects, and infrastructure

projects is a major source of this lateness of payment.

3.3.2 Profitability Ratios:

a) Profit Margin: Profit Margin has been improving since last three years marginally.

Presently the profit margin is 10.36%. Operating Profit Margin stood at 22.14%. So

22.14% of total revenue generated was profit and had been generated from operating

activities. The reason for this has been higher %age increase in sales and lower

%age increase in expenses leading to higher operating profit.

b) Return on Asset: The return on asset,

was at 4.54% as compared to 4.09% of

last year. The ROA of industry has been

near about 5%, so the number is not bad.

However, operating ROA has been

showing good numbers of close to 10%.

c) Return on Equity: Return on Equity

has marginally increased from 10.49%

to 11.47%. This was mainly because

of higher increase in PAT.

3.3.3 Market Ratio:

a) Earnings Per Share: Earnings per share been increasing for the company because of

enhanced profits after tax. Presently Basic EPS stands at 10.77. SupremeInd and

FinolexInd have better EPS, hinting towards their shareholders getting better value

per rupee invested.

3.5 4

4.5 5

Return on Asset(%)

Return on asset(%)

0

500

1000

1500

2011-2012 2012-2013 201-2014

Return on Equity(%)

Return on Equity(%)


b) P/E ratio: The people in market are ready to pay 6.8 times the income on one share.

The industries P/E of competitors are in the range of 22 to 26. This either means the

buyers are not much optimistic of the share, or the share is undervalued.

c) Price-book ratio: The price-book ratio of Sintex is 0.748. The companies balance

sheets is fine, and business is continuous so Sintex is undervalued.

3.3.4 Solvency Ratios:

a) Debt Equity Ratio: The debt to equity ratio of Sintex is 1.12. It is in the same range

of FinolexInd 1.36.

b) Interest-cover ratio: The interest cover ratio is 2.85, and is a good value as the

profit before interest and tax is fully capable of paying of interest on debts.

4. Cash Flow Analysis

a) Cash generated from operations is 803.96 Crore , and the Profit Before Tax was 438 Crore.

So the earning quality of Sintex is indeed good. The amount of collection is 98% of total

sales for this year. A good part of the cash generated from Operations and 664 crore from

cash and cash equivalents was used to i) buy assets worth 1293.62 crore

b) A long term loan of 757 crore was taken to pay interest, dividends, and reduce other high

interest rate borrowings by 382 crore.

c) There is a healthy cash flow from operations and the increase of long term borrowings is

not a strain on the company. In the end of 2013 the company was sitting on a cash balance

of over 700 crore. The utilisation of this money in purchasing of assets is a sound decision.

d) Cash Flow from operations covered interest payment by a factor of 2.6 times, meaning

even if there is a downfall in the operations still the company will be in a position to

honour its debtors.

e) The free cash flow of Sintex is negative, and it has been rapidly expanding itself through

modernization and acquisitions.

f) The firm enjoys a current ratio of 1.53 which is good enough to help it sail through

unfortunate times without risking operations.

5. Conclusion: a)

i) Strong areas is economic development of the nation will lead to more purchase of plastics

in both urban areas and development areas.

ii) Sintex is focussed on both organic growth, and acquisitions which leads to more customers

and more market penetration.

iii) The operating cash flow is good making the business sustainable in terms of payments and

other fulfilment of obligations.

iv) The weak area is monolithic sector which is heavily dependent of government policies such

as JnNURM.


v) 65% of shares owned by owners has been pledged8.

b)

i) Where to find which item in Financial Statement.

ii) Understanding the financial health of a company. In case I want to buy a share I can at-least

realise how is the company doing; what is the source of dividend payments; historically

what have been the dividends corresponding to earnings.

iii) Is the business cyclic, in case it is cyclic what makes it cyclic. For instance, the monolithic

sector if Sintex is heavily dependent on Government projects.

6. References:

1.http://www.plasticsnews.com/article/20140123/NEWS/140129959/indian- industry-

looks-to-double-plastics-use-by-2020#

2. http://www.ficci.com/spdocument/20396/Knowledge-Paper-ps.pdf

3. http://commerce.nic.in/eidb/ecomq.asp (specific commodity: 39)

4.http://www.vccircle.com/news/engineering/2014/07/25/sintex-buys-out- french-

plastic-products-maker-groupe-simonin-242m

5.http://www.plasticsnews.com/article/20140812/NEWS/140819976/sintex-wausaukee-

composites-opens-manufacturing-plant-in- india

6.http://www.commodityonline.com/news/indian-textile-industry-to-grow-11-annually-

to-$220-bn-by-2020-57558-3-57559.html

7.http://www.careratings.com/upload/CompanyFiles/RR/Sintex%20Industries%20Limi

ted-03-21-2014.pdf

8. http://content.icicidirect.com/mailimages/IDirect_Pledgedshares_Q3FY14.pdf


7. Annexures

Annexure 1: Balance Sheet and Profit and Loss Statement 2013-2014


Annexure 2: Horizontal Analysis

Description %age change 14-13

%age change 13-12

%age change 12-11

A. BALANCE SHEET

Total Assets: 12.1 % 11.42 % 8.03 %

Fixed Assets (Net) 23.22 % 6.99 % 13.07 %

Investments 7.64 % 7.72 % -22.2 %

Total Liabilities: 12.1 % 11.42 % 8.03 %

Net Worth 8.67 % 19.94 % 7.43 %

Loan Funds 13.12 % 12.92 % 10.37 %

Deferred Tax Liability (Net) 14.91 % 18.14 % 18.97 %

B. STATEMENT OF PROFIT & LOSS

Gross Sales 8.14 % 16.55 % -1.67 %

Earning before interest, tax and depreciation 23.76 % 15.86 % -10.77 %

Finance Costs 64.29 % 30.77 % 27.26 %

Depreciation 12.3 % 25.63 % 9.86 %

Profit before Exceptional Items 12.73 % 8.83 % -21.66 %

Exceptional Items -82.22 % 93.72 % 647.44 %

Profit Before Tax 40.18 % -3.41 % -32.42 %

Taxation 137.96 % -53.88 % -22.57 %

Profit After Tax 24.47 % 17.19 % -35.76 %

Dividend (including dividend distribute tax) 0.63 % 23.57 % 8.24 %

Retained Earnings 26.96 % 16.56 % -38.24 %

Export Growth 5.34 % 6.72 % -11.18 %

Inventory -16.27 % 14.34 % 0.62 %


Annexure 3: Vertical Analysis:

Description 31.03.2014 31.03.2013 31.03.2012

A. BALANCE SHEET

Total Assets: 100% 100% 100%

Fixed Assets (Net) 37.25% 33.89% 35.3%

Investments 13.73% 14.3% 14.79%

Total Liabilities: 100% 100% 100%

Net Worth 41.21% 42.51% 39.49%

Loan Funds 46.14% 45.73% 45.12%

Deferred Tax Liability (Net) 4.22% 4.12% 3.88%

B. STATEMENT OF PROFIT & LOSS

Gross Sales 100% 100% 100%

Earning before interest, tax and depreciation 25.03% 21.88% 22.01%

Finance Costs 7.16% 4.71% 4.2%

Depreciation 4.17% 4.02% 3.73%

Profit before Exceptional Items 13.7% 13.14% 14.08%

Exceptional Items 0.48% 2.95% 1.77%

Profit Before Tax 13.21% 10.19% 12.3%

Taxation 3.11% 1.41% 3.57%

Profit After Tax 10.11% 8.78% 8.74%

Dividend (including dividend distribute tax) 0.77% 0.83% 0.78%

Retained Earnings 9.34% 7.95% 7.95%


Annexure 4 Profitability Ratios:

Profitability Ratios 31-03-2014 31-03-2013 31-03-2012

Profit Margin 10.36 % 9.07 % 8.96 %

PAT 335.060 269.190 229.7

Sales 3233.120 2,969.26 2,562.59

Asset Turnover 0.44 times 0.45 times 0.43 times

Sales 3233.120 2,969.26 2,562.59

Total Assets 7,381.58 6,584.82 5,909.69

Return on assets 4.54 % 4.09 % 3.89 %

Profit 335.060 269.190 229.7

Assets 7,381.58 6,584.82 5,909.69

Return on Equity 11.47% 10.49% 10.19%

PAT 335.060 269.190 229.7

Equity 2920.735 2566.605 2253.145

Earning Per Share 10.767 8.650 8.473

PAT 335.060 269.190 229.7

Number of Shares 31.120 31.120 27.110

Operating Profit Margin 22.14 % 19.81 % 19.66 %

Operating Profit before Tax 715.90 588.26 517.12

Sales 3233.120 2,969.26 2,629.65

Asset Turnover 0.72 times 0.66 times 0.61 times

Sales 3233.120 2,969.26 2,629.65

Operating Assets 4,465.13 4508.69 4,280.54

Return on assets 9.97 % 8.66 % 5.46 %

Operating Profit 444.99 390.42 233.66

Operating Assets 4,465.13 4508.69 4,280.54

Return on Financial Assets 2.87 % 2.23 % 2.15 %

Net financial Income 89.479046 64.600618 48.36599

Financial Assets 3,117.01 2892 2,252.38


Annexure 5: Operating Figures

31-03-

2014 31-03-

2013 31-03-2014

Sales 3233.12 2969.26 2562.59

Raw Material Consumption 2056.52 1961.19 1657.98

Net change in inventory(Opening Invenetory- Closing Inventory) 23.37 -28.85 -4.32 spares consumption 131.62 134.91 105.37

Employee Cost 112.99 106.4 94.46 Miscellenous and administrative cost 192.72 207.35 191.98

Total Expense 2517.22 2381 2045.47

Operating Profit 715.9 588.26 517.12

Depreciation 138.33 123.18 167.82

Tax as reported 102.94 43.26 90.96

Deduct tax on other income -24.36818 -17.593

-14.4028

Add Tax on interest expense 50.79932 30.9209 29.0948

Deduct Tax on exceptional Items 3.212 18.07 9.99029

Tax on operating profit 132.58314 74.6579 115.642

Net Operating Profit after Tax 444.98686 390.42208 233.657734

Financing Cost -237.38 -144.49 -135.83

Tax @21.42% 50.846796 30.949758 29.094786

Exceptional Items -16.06 -90.35 -46.64

Tax @21.42% 3.440052 19.35297 9.990288

Net Operating Profit after tax 245.83371 205.88481 90.272808


Total Assets 7381.58 6584.82 5909.69

Non-current Investment 1013.66 941.71 841.71

Long term loans and advances 1800.03 877.61 157.82

Current Investments 15.58 24.84 32.52 Short-term loans and advancements 87.18 231.97 597.1

Operating Assets 4465.13 4508.69 4280.54

Financial Income 89.479046 64.600618 48.366

Other Income 113.87 82.21 61.55

Deduct Income [email protected] 24.390954 17.609382 13.184

Financial Asset 3117.01 2892 2252.38

Non-current investments 1013.66 941.71 841.71

Long-term loans and advances 1800.03 877.61 157.82

Current investments 15.58 24.84 32.52

Cash and bank balances 102.7 781.29 605.63

Short-term loans and advances 87.18 231.97 597.1

Other current Asset 97.86 34.58 17.6


Annexure 6 Liquidity Ratios

Liquidity Ratios 31-03-2014 31-03-

2013 31-03-

2012

Current Ratio 1.530 1.765 1.136

Current Asset 1771.240 2510.280 2561.540

Current Liabilities 1157.870 1422.020 2254.970

Quick Ratio 1.384 1.624 1.058

Current Assets- Inventories 1602.960 2309.310 2385.770

Current Liabilities 1157.870 1422.020 2254.970

Accounts Receivable Turnover 2.550 2.492 2.583

Sales 3233.120 2969.260 2562.590

Average Accounts Receivable 1268.135 1191.350 992.095

Accounts Payable Turnover 8.338 10.772 9.481

COGS 2655.550 2504.180 2143.520

Average Accounts Payable 318.495 232.480 226.095

Inventory Turnover Ratio 14.383 13.294 12.233

COGS 2655.550 2504.180 2143.520

Inventories 184.625 188.370 175.230

Average Collection Period 143.165 146.448 141.308

Days 365.000 365.000 365.000

Accounts Receivable Turnover 2.550 2.492 2.583

Inventory Holding Period 25.376 27.456 29.838

Days 365.000 365.000 365.000

Inventory Turnover Ratio 14.383 13.294 12.233

Operating Cycle Days 168.541 173.904 171.146


Annexure 7: Valuation Ratios

Valuation Ratios 31-03-2014 31-03-2013 31-03-

2012

Dividend Payout Rates 0.065 0.081 0.077

Dividend 21.920 21.920 17.740

Net Income 335.060 269.190 229.700

P/E Ratio 6.789

Market Price 73.100

Earning Per Share 10.767

Book-ratio 97.755 89.953 74.996

Net-worth 3042.130 2799.340 2333.870

Number of share 31.120 31.120 31.120

P/Book Ratio 0.748

Market Price 73.100

Book-ratio 97.755

Annexure 8: Solvency Ratios:

Debt-Equity Ratio 1.12 1.08

Debt 3406.01 3011.00

Equity 3042.13 2799.34

Liabilities-Equity Ratio 1.43 1.35

Liabilities 4,339.45 3,785.48

Equity 3042.13 2799.34

Interest-Cover 2.85 times 3.79 times

Profit-before-interest and tax 675.38 547.29

Interest expense 237.38 144.49

Total Debt 3,406.01 3,011.00

Long-term borrowings 2,856.06 2,078.94

Short-term borrowings 549.95 932.06

Other-current Liabilities 202.95 200.22

Liabilities 4,339.45 3,785.48

Non-current liabilities 3,181.58 2,363.46

Current liabilities 1,157.87 1,422.02

Documents

Sintex Analysis