Debt-equity ratio excluding FCCBs is at 0.4x: Sintex Ind

In an interview with CNBC-TV18, Sunil Kanojia, group president of Sintex Industries talks about the latest happenings in his company and sector.

Below is the edited transcript of the interview. Also watch the accompanying video.

Q: There have been a lot of corporate governance concerns because of the EPC order that Sintex subsidiary got from a promoter owned entity called Shirpur Power and how long you took to disclose it to the market. Take us through what is going on there with the power business?

A: Earlier Sintex Power was part of Sintex Industries Limited. It was a concern that Sintex Power could be part of a business that we could do in Sintex. Our investors sentiments were against it and we offloaded the Sintex power business from Sintex Industries Limited.

But the promoters remained interested. Promoters are not only the people who are associated but a larger group. They wanted to pursue the power business.

In some states there is deficiency in availability and the cost of electricity is very high. Sintex Industries can become self sufficient over a period of time in the availability of power across the country.

The order has been placed between Shirpur Power and Sintex Infra Limited in about 10 days and we are not wrong in disclosing it.

Q: The Sintex Power subsidiary which will execute the EPC contract has no experience of doing such a contract. It has bid aggressively to achieve it. Is it possible that because of group linkages the pricing has been very low? On the job, will it operate on a very low margin?

A: That is not the case. We appreciate that some of the promoters are the sponsors. We will never take an order at a low price. Sintex Infra was formed to enhance further the monolithic construction capability and we have been able to do it now.

We acquired 30% stake in Durha Constructions which has experience doing BOP and BTG businesses for BHEL last year. Sintex Infra is trying to derive synergies from this business. We have taken one order for a joint venture (JV) where promoters are involved.

Q: Can you explain the capital engagement between Sintex and this power vertical? How much money have promoters put? Does Sintex have a holding in it?

A: Sintex has no holding. There is no cross holding between Sintex Infra and Shirpur Power or Sintex Infra and Sintex Power.

Q: What is the total debt level right now for Sintex? What is the plan to scale it down and how much do you think interest cost will come down by because of that?

A: Debt today is about Rs 2,800 crore but that includes the FCCB debt. The debt equity ratio excluding the FCCB is 0.4:1.Our leverage is very low.

Q: What is the plan with the FCCB because companies which have FCCB exposure seem to be getting very badly penalized by the market. Have you worked out on how you want to deal with this USD 225 million debt?

A: It is too early to point how we should handle it. Our first objective is to concentrate on our operations and continue showing that our business is strong and robust. We have demand for the products that we are in.

In the last six quarters, quarter-on-quarter we have delivered good results. We will meet our guidance that we gave for the financial year 2012.

For FCCB, RBI does not allow anything before six months of the due date and we have a lot of time available at our disposal up to March 2013.

With regard to the options available the first is it gets converted. Second - we should be prepared for redemption if it comes for the same.

Q: On operations the market is quite concerned about the 20% exposure that you have to the European Union through some of the subsidiaries on the custom molding front. Do you see business getting impacted there because of the turbulence in that region?

A: We will definitely experience slowness over a period of time if this problem continues. However going by the precedence that we had in the year 2008-2009 the whole of 2008 we did not suffer. In fact we registered a good growth.

We had a growth in spite of the worst period in 2009 for Europe and US. In spite of the very conservative economy in France, I do not see that this business has gone down.

Once we get forecast from our customers around February 2013, we will take a call on our business France. The year 2012 seems to be going on track.

Q: There are concerns about your high your interest costs this quarter? Part of it could be because of rise in your working capital debt. At this point what plan do you have scale down your interest cost, which has been denting your bottom-line performance?

A: This was of the concern previous year when our working capital cycle was about 190 days. Last year we bought it down to 110 days. This is one of the areas of focus for the management team not to allow our working capital operating cycles enlarge. And we are working on it.

When you expand your business for monolithic orders and from one state to another there is kind of anti-cost, but it is up to you to meet with it.

When you penetrate in the present states where business is and at the same time expand your footprint, there are little deviations in payment or margin.

Rs 3,000 crore of order book may not have the same standard terms. There will be some on the lower and higher margins. We have made our presence in about 16 states. Now we are not trying to maximize our penetration.

We will concentrate on our existing states and we have to keep adding on the new states to be ahead of the competition.

Q: At this point what is the promoter holding in Sintex? Is there any shelf of the promoter holding that lies pledged?

A: Promoters have 35.2% holding in Sintex Industries. At the moment 35% of their holding is pledged.