Sintex Industries eyes 8-10% profit growth in FY13

Sintex Industries' consolidated net profit for the first quarter of FY13 fell more than 51% year-on-year to Rs 47 crore owing to drop in sales and mark-to-market (MTM) loss. The company's consolidated net sales dropped 3% to Rs 1,076.4 crore.

In an interview with CNBC-TV18, Sunil Kanojia, Group President of Sintex Industries said the monolithic business was a major drag this quarter since the environment was not conducive for this segment. However, he is hopeful of an improvement in the second half of this fiscal. The textile business was also hurt due to energy and chemical costs, he explained. He is also not very optimistic about growth in Q2 due to sluggishness in the monolithic business.

Kanojia believes the company will witness strong growth from the pre-fab and domestic custom moulding segment. The company has been able to maintain revenue growth over Q1 last year and is looking at 8-10% profit growth in FY13, he added. Sintex is also eyeing H2FY13 for arriving at a decision regarding their Foreign Currency Convertible Bonds (FCCB). Accordingly, the company is in talks with several lending institutions.

Below is the edited transcript of the interview on CNBC-TV18.

Q: Before we get to the details of this quarter are you more comfortable now in laying out a trajectory for the rest of the year? What do you think you are comfortable with in terms of a revenue target and if you could break that up between categories?

A: If we look at the performance for Q1 and compare it with Q1 of last fiscal, we have to keep it in mind that it was an exemplary quarter. We for the first time had a very good first quarter in previous year and therefore, I look at it as a very good performance in this year as well. We have been more or less able to keep the revenue same.

Looking at these segments, other than monolithic and overseas custom moulding, which are under pressure for several reasons, other segments have done well. For example, prefabs have done well, textile has done well, tanks have done well as well as custom moulding in India has done well. They all have registered growth other than the monolithic business which is right now a little sticky because the economy is not doing so well.
 
If you are asking me how we look forward in terms of performance for the year, I think Q2 may also remain flattish. But we will bounce back in Q3 and Q4 and as a year we should look for 8-10% growth in revenue and profits.

Q: In this 8-10% growth that you are talking about for the full year, would monolithic still be a drag or are you building in some kind of growth in the monolithic business from a full year perspective as it begins to stabilize Q3 onwards?

A: Well we have a reason to believe that this particular segment which is largely affecting the lives of people for good cannot remain subdued. The government will have to do something considering the elections are also due. This segment will get its due attention.

In the long term, we never feel that the monolithic segment is going to be dragged or something like that. Yes, it has been up almost 3 quarters and we can expect that at most for a quarter. After that in quarter 3 and quarter 4, we have all the reasons to believe that things will be set in order. The business will start rolling. It has to happen. I don't think the country can afford to keep on dragging the economic conditions the way it is today.

Q: What about textiles where margins have come off in the current quarter? Is the European problem beginning to tell on your margins or do you expect a bounce back in that segment as well from a profitability perspective in the second half?

A: In textile we were hit mainly by the energy and chemicals cost. There was a jump in the cost of both inputs. That is one of the reasons for the drag. Otherwise, the textile business is doing well. We don't see much of a problem in terms of price realization. It is the cost which has shot up.

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Q: How is the order book stacking up for this year particularly with reference to monolithic and prefab because on prefab you recently won two big orders as well?

A: Unfortunately, in monolithic we are experiencing delays. It is not that we are loosing orders, it is not that competition is taking orders from us, it is not that orders are getting finalized and going somewhere. Rather, the orders are standstill.

As far as we are concerned, I think having moderated the growth in monolithic because it's a business where your debtors also get sticky, we are trying to add as much as we are executing. In a way, the order books stand still. You can say we have added orders to the extent that we executed during the year.

Q: You know that a big concern for your investors is what's happening on the FCCBs (Foreign Currency Convertible Bond). Have you decided what you want to do, are you going for refinancing, how you are going to do it?

A: I don't think there should be any concern for FCCB. We cannot take any decision today. The decision for FCCB can only be taken between September to March. We have been talking to different lending institutions to an extent that even the people who are holding or the banks who are holding our bonds, are also in a position to refinance them.

We have been receiving term sheets and we have been waiting for the right time. Any time from September to March, we will take a call on it. I guess we have to take about USD 110 million or so for ECB (external commercial borrowing). Rupee loan is never a problem but, I think we will go for an ECB because it is cheaper and with an AA rating, we should be able to get it on Libor plus 300-350 bps.

Q: So you will use up much of your cash reserves as well because I believe, you have guided that your capex for this year will be much lower, leaving much more cash on your books in any case if you want to deploy it for the FCCBs?

A: Yes you are right. We have to conserve our cash. Therefore, the cash that we have in hand as well as the line of credits remaining unutilized across the subsidiaries will be utilized to the maximum. And USD 110 million is lying overseas. The remaining, which is calculated to be close to USD 110 million or so will have to be raised. We do not see any problem in raising that.

Q: This 8-10% growth that you are talking about, does it build in smart recovery in monolithic or you have not built that in the projection you are giving and is more dependent on prefab and textiles, making up for the slack in monolithic?

A: We expect monolithic to remain flattish till the end of the year. But other segments will grow. Custom moulding in India will grow. Europe will revive. That's the kind of feeling I am getting and after Q2, Q3 and Q4 they will see some visibility.

US business also should revive and other businesses like custom moulding in India is doing well and we have registered 25% growth there. For prefabs we have done 16%. So quarter after quarter we have been doing well. I don't see any problem on segments other than monolithic which may go flattish till the end of the year and overseas business might show growth of about 3-4% annually.

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Q: You have talked in the past about a recovery coming in the second half. You would expect to see this sluggishness continue into Q2 or how do you think it is going to pan out in terms of a quarterly performance?

A: No we expect quarter 2 to be flattish. Yes there will be sluggishness in Q2 as well.

Q: And you are confident of that second half recovery because a lot of people are expecting to see that get pushed back into next year and some of this weakness to continue into the second half too?

A: No there are reasons for us to believe that there are some ground realities which we are looking at and on the basis of that I am able to say, in Q3 and Q4 we will be able to come back. We will be able to show positive growth over last year. And let's not forget that last year was a lone without any drone. We have to register some growth going forward in this year.