Key takeaways from Sintex Q3 according to JPMorgan

Brokerage house JP Morgan has further cut earnings estimates and price target for Sintex , on lower than expected third quarter earnings.

Textiles and plastics firm Sintex Industries reported its consolidated net profit declined by 27.13% to Rs 82.20 crore for the quarter ended December 31, 2011, primarily due to depreciating rupee and slow down in its building products business.

The Ahmedabad-based company had a net profit of Rs 112.81 crore in the quarter ended December 31, 2010.

JP Morgan now expects the company to report Rs 14.15 as EPS for this financial year, and Rs 15.15 for the next. Last month, the brokerage had cut price target for the stock to Rs 115 from Rs 208 earlier. The target has been further cut to Rs 105.

Following are JP Morgan’s key observations about Sintex’s third quarter numbers.

* Weak Q3, as expected, mainly on account of significant slowdown of monolithic business and weaker performance of custom moldings. EBITDA margins down 250 basis points year-on-year.

* Monolithic revenues declined 24% y-o-y partly by management design, as payments from government have slowed down.

* Prefabricated business continues to be robust, textile revenues steady.

* Receivables in the December quarter increased to Rs 1810 crore from Rs 1560 crore quarter-on-quarter. Receivables from UP government could deteriorate further in the near term because of state polls. Management is looking to preserve cash and going slow on execution of some working capital-intensive monolithic projects.

* FY12-FY14 EPS estimates cut by 5%-12% taking into account weaker margins and higher interest to fund working capital. Key risks include deteriorating working capital, non-related ventures and a further slowdown in the European business.