FY14 growth around 15-16%; better sales in H2: Sintex

Sintex Industries surprised the street by posting a 0.7 percent rise in its net profits year-on-year (YoY). The prefabrication segment grew 31 percent YoY, while monolithic segment grew at 8.7 percent against street’s expectations of a 25 percent fall.

Its management is hopeful of posting a better sectoral performance in the coming quarters. Sunil Kanojia, its group president says that government usage of prefabrication products has risen due to various initiatives such as the mid-day meal scheme and so on. The company is also confident of maintaining positive growth in the monolithic segment, he tells CNBC-TV18. The plastic products manufacturer’s margins showed an upward trend after a few low margins earlier. Capital expenditure continued despite the slowdown, which may have lead to the fall, which may see an improvement ahead when the government steps yield results, Kanojia says. The company’s revenues also is higher in the second half (H2) than the H1. Going forward, the company is likely to end FY14 with a growth in the range of 15-16 percent, he says. Also read: Sintex surprises street, Q2 net profit up 0.7% at Rs 73 cr Below is the edited transcript of his interview to CNBC-TV18. Q: The segmental performance since that was excellent. Give us an idea of how the prefab (prefabrication) business turned around? The performance was better than expected. What went right and how do you see this segment in the next two quarters? A: The prefab business is one where government definitely wants to create lot of shelters from different applications like school, primary health centers as well as mid-day meal kitchens. Many governments have been using for prefabricated structures especially in Maharashtra and Madhya Pradesh. The elections are coming up for the states and it has aided a lot of orders to come from prefab. The company keeps on finding new applications and keeps approaching new customers. This is one business where our working capital cycle is not really stressed out. We are able to collect payments very fast. We are focusing on it considering that monolithic is being moderated. It is really giving us very good results that quarter-on-quarter basis or on year-on-year basis, we have been registering 30 percent plus kind of a growth on this business. We are looking forward to have a very good segmental growth on a full year basis. Q: What will be your margin for the second half in this business? A: We have done 23 percent in this quarter and I think this has to be 21-22 percent. It is good business right now. Q: The stock has seen a big improvement in the last three days of around 15 percent or so purely because after so many quarters your overall margins have seen a growth to about 15.5 percent. Will this trajectory will continue? What are your margin expectations by the end of the year? Which is the segment that will actually facilitate that? A: If you see the reasons why the margin got little on the lower side was also that we have been investing capital on regular basis. If the sales growth do not happen exactly as what we were doing in the previous years like 25-30 percent on Compound Annual Growth Rate (CAGR) basis, the margins will get impacted. However, we do not like to unnecessarily stop our capex cycle as economy is bottoming out and sooner or later the government action will start happening. Private sector will also come back and we are going to definitely see a positive impact of economy booming back. We should be always ready to be able to deliver the result. Trajectory of improvement of margin will continue to happen. _PAGEBREAK_ Q: Your monolithic division actually the street expectation was for a 25 percent fall, a contraction and you delivered a growth of 8.7 percent. What went so right and will this be the run rate for the second half as well? A: Yes. We would like to maintain as long as we do not get into executing orders where payment gets stuck. You would have noticed that actually our working capital cycle or operating cycle has improved by about 13 days, 144 days against 157 but that is a positive sign. We want to bring it down to about 130 days. However, if we just keep on adding orders on monolithic, we run into the risk of unnecessary expanding our working capital cycle which we don't want to do. So, there is an opportunity that exists. It is one segment that we need to be very bullish in the long run and once the elections are over, new government takes its position they will have to look at social sector infrastructure spending. Housing is one of the areas which are neglected. They are talking about some rehabilitation, providing houses for the economically weaker sections and it cannot happen unless government plays a very proactive role. The moment that starts happening, this segment is going to really deliver very good results. Till such time, we are very comfortable in terms of execution and getting our payments on time. We will not unnecessarily jump on it, we will wait and watch, we will remain in this segment and continue to deliver at margins around 15-16 percent plus. Growth wise, I would say yes 8-10 percent growth can be expected but that depends on how things pan out in the second half. Q: You had earlier guided for a 15 percent consolidated top line growth. Because you have seen improvement in many of these businesses, custom moldings have seen an improvement, the overseas business along with a whole others that you spoke about. Do you think you may have to scale up your revenue guidance for FY14? A: Generally, our second half sales are always higher than the first half. Having done already 15 percent growth YoY and about 25 percent plus on sequential basis, there can be a chance of delivering better results than 15 percent. We do not want to unnecessarily take a number now and not being able to meet for whatever reasons. Let us keep the guidance at about 15 percent plus and that is something, which we will surely deliver.