Expect 16-16.5% margins ahead: Sintex Industries

Sintex Industries has declared its fourth quarter results. The company’s net profit stands at Rs 91 crore versus Rs 168 crore on year-on-year (YoY) basis.

Its consolidated net sales are at Rs 1,015 crore versus Rs 1,464 crore on YoY basis. In an interview to CNBC-TV18, Sunil Kanojia, group president of Sintex Industries says, the fourth quarter was negative in nature. “We might see the first quarter also slightly low. But overall, going forward, we should do atleast 10% growth in year 2013 and similar margins we should be able to maintain in year 2013,” he adds. He expects 16-16.50% margins ahead. He further says, the company is still bullish on monolithic segment. Below is the edited transcript of the interview with CNBC-TV18's Udayan Mukherjee and Mitali Mukherjee. Also watch the accompanying video. Q: Let’s start off by breaking up your revenues, especially the plastics revenue side. How much more downside do you see in terms of the revenue contribution from there? What is it that you expect to see on revenues from plastic in specific this year and for FY13, if you can lay it out for that far? A: The issue right now in terms of sales at is only coming from one segment - the monolithic segment. Rest of the segments are performing well. As far as custom molding is concerned, we are doing well in India. Whereas overseas economies because they are subdued, therefore the performance there is more of flattish in nature. Otherwise, there is no other concern with any of the department or division. If you look at segmental break-up now we are only down by 1%, considering that we were somewhere around 24% up upto quarter two and then about 40% up upto quarter three. Considering the situation that we are in and these are not micro problems of Sintex, these are more of a macro economic parameters resulting into company’s performance being hit. Euro zone crisis, then government decision making as well as FCCB (Foreign Currency Convertible Bond) hangover because of the dollar exchange rate, these three problems are actually hitting Sintex right now. But I don’t think anyone of them are so sever in nature that we have to take a long-term bearish feel at all. These are short to mid-term problems. The fourth quarter was negative in nature. We might see the first quarter also slightly low. But overall, going forward, we should do atleast 10% growth in year 2013 and similar margins we should be able to maintain in year 2013. This is considering the currency situation. If situation improves, we are definitely going to bounce back. We are still bullish on monolithic segment because the opportunity exists, the competition landscape is the same. So, I see no reason why we would not perform better. Q: What exactly is the problem with the monolithic business? Is it that the order flow has become stagnant, you are not getting orders from the government? Can you take us to specifically are the problems? By when do you see any turnaround in the monolithic business? A: Let’s explain this that the business is totally based on tenders. These are large ticket size orders. I mean order can stretch up to Rs 500-600 crore, in some cases, even the opportunity could be for a single order of Rs 1,000 crore. Now, the decision making from the bureaucracy has slowed down. For whatever reasons, I am not going into the reasons, but decisions are not been taken. What could have possibly been taken by an individual, the committees are formed and all kind of delayed tactics are happening. Now, if I have to analyse that there is an opportunity, there are tenders and then tenders are being finalised. The issue is nothing in terms of opportunity that still exists as we had talked about earlier. The competition landscape is still the same. So, therefore we have not been losing orders and I can't say therefore we are not getting enough orders. But the orders are not getting finalised. If the decisions are taken either this way or that way, atleast we will know where this stands. But right now the decisions are not being taken. That’s the issue. _PAGEBREAK_ Q: On your custom molding business as well there are concerns. The worry is that whatever recovery you are seeing in the domestic business is getting eaten up by your European acquisition. What is it that you expect to see on the custom moldings side? A: I think in custom molding, as far as overseas business is concerned, be it American or European, we may never be able to see a growth of more than 8-10% because there economies don’t grow so much. However, we have to relate it back in terms of how it helps the Indian business to grow across the value chain. That is in terms of what we can offer with the help of technology and customer knowhow we have from them. Therefore, synergies flow back to India and we become a bigger company in India and also we improve our margins. But once we become capable to be able to produce as per the standards of Europe and America then we will help in terms of producing it in India and supply it back to US and Europe. That is a second phase. Right now, we are already doing well, as far as phase one is concerned. We did our problem, when the recession hit, at that time nobody was interested in looking at any of the corporations between India-Europe or India-US. The customers were not keen on looking at it. But now the things have started already. Schneider business we are doing, we are looking at other electrical customers. Even Aerospace is going to make India as the aerospace hub, Nief Plastic does business in aerospace. So, we should also be able to participate in aerospace. Dassault Aviation, for example, who has been shortlisted for supplying the aircraft to India is also a customer to Nief Plastic. So, we’ll definitely relate these kind of opportunities back to India. And then once it becomes capable, we’ll supply back to Europe and US. Q: You exited this year with about 18% margin, though for the current quarter the margins were below 16%. Do you think you can hold on to margins till the business improves in the second quarter as you suggested? A: I think 16-16.5% is a margin that we can bet on.