See 15-20% growth in plastic biz; Q4 to be better: Sintex

Post the demerger of its custom moulding and prefab business, the fabric and spinning business would remain in Sintex Industries. Sintex Plastics Technology Limited would be created having two subsidiaries – Sintex BAPL which would have entire custom holding basket and Sintex Infra Projects Limited, which would have the prefab business. However, he said the company is awaiting High Court approval for the demerger.

Joshipura is very optimistic of the plastic business growing at 15-20 percent post the demerger.Below is the verbatim transcript of Samir Joshipura’s interview to Latha Venkatesh, Sonia Shenoy and Anuj Singhal on CNBC-TV18. Latha: First let us tackle business and Q3 numbers. The total income as well as the net profit were disappointments although you made up on the margin front. Tell us about business, was this a demonetisation hit, was it one-off, how is business shaping up in the current quarter? A: As you mentioned, our topline has been flat. PAT has taken a dip, almost 39 percent and at the same time our EBITDA percentage has improved from 16.5 last year to 16.8 percentage this year. There has been two impacts, both temporary in nature. First is demonetisation, our plastic’s business got impacted especially the retail side and some of the pre-fab side has taken a hit. December was a bad month, January is shaping up to be a better month. We hope by February we should be business as usual and March definitely we should be on track. So, for Q4 numbers, we see minimal to no impact of demonetisation on our results. The second impact was the yarn project which have entirely costed. So, depreciation and interest has come in full whereas the revenue from revenue point of view, December has been the only month where we have resulted in full capacity utilisation. So, these two impacts are there; both are temporary. Q4 we expect them not to be there. So, we should be as usual. Latha: What kind of revenues in Q4, growth? A: So generally broadly speaking, Q4 last year we had clocked Rs 2,200 crore. So, we should be growing by 10-15 percent from there. So, we are talking about Rs 2,400-2,500 crore and our margins should be as usual, 17 percent plus, our EBITDA should be 17 percent plus. So, we expect to hit those. Anuj: Just to dwell more on the plastics business, how much of this impact, this 14 percent decline was on account of demonetisation and how much because of other headwinds? A: Our decline in revenue has been entirely flat. No growth in revenue has been entirely because of demonetisation. There has been no other major factor which has played in the quarter. So, what we have reported is a flat revenue, we would have grown by 10-15 percent which we have done in past. In fact if you see, in nine months, we are still growing by 10 percent. If you take first half, we are growing by almost 15 percent and our EBITDA has been up by 1 percentage point from what we were in last year nine months. So, the revenue impact is entirely because of demonetisation. Sonia: I wanted to ask also your rationale for the demerger because that is the big next trigger that the street is watching out for, the demerger of the non-textile business. Once that takes place, can you tell us what the two split entities will look like in terms of revenue growth, earnings potential, etc.? A: Just to recap the demerger we are doing, the textile business, including the fabric business as well as the spinning business would remain within Sintex Industries Limited. A new entity called Sintex Plastics Technology Limited (SPTL) would be created which would house two subsidiaries, Sintex BAPL which would have entire custom molding basket and Sintex Infraprojects Limited which would have pre-fab and monolithic business. From growth potential, revenue growth potential, obviously Sintex Industries Limited would grow significantly because it has the spinning capex which already has come in half of it. The rest of the half is going to come next year. So, from revenue point of view, it would grow significantly. From plastic side, we expect to generate quite a bit of cash and deleverage it significantly so that the balance sheet gets stronger on the plastic side and there we should expect anywhere between 15-20 percent growth which we have been reporting for few years now. Latha: So, how will your debt look like in the listed space? How will the split be in debt and what will be the debt in the current listed Sintex? A: Debt should get placed as per the business for which the debt has been raised. So most of our debt has been raised for purposes and there are specific securities given to it. So, it should line the respective balance sheet probably out of Rs 5,800 net debt which was there in September balance sheet and net debt of Rs 2,200 approximately should lie on the textile side. We are right now in the process of filing the petition to High Court. Our creditors, lenders, and shareholders has approved the scheme in front of the High Court judges. Latha: You had declared that you will want to reduce the debt so that is why I am asking you that question, what is the next step in debt reduction? A: On the plastic side, since we generated quite a bit of cash, we should be able deleverage very quickly. In fact in next two to three years, we should be at a debt equity of very comfortable -- when I say very comfortable, 0.5-0.7, and net debt to EBITDA should be less than 3, probably 2.5. So we should reach that state in next two to three years for plastic side. Anuj: What is the record date for demerger? A: It is not decided yet. Once High Court approves it – as a process we are going to file a petition to High Court now and the High Court has its own process in terms of giving a public notice and stuff like those. There is a little bit of uncertainty as of now because NCLT has come into picture but we are on the High Court side so let us see what is going to happen in future. Once, High Court approves, we will have a record date, probably couple of weeks after High Court approval. Sonia: You said that the 10-15 percent growth you are expecting in the demerged plastics business. However, what could the return on capital employed (ROCE) be because it has been quite modest so far at about 15-16 percent? How much do you think it could rise to say over the next two years or so? A: I will just correct the number here. We expect in plastics 15-20 percent growth especially because we are very bullish on the B2C segment. So, that is one. ROCE for this business should be 15 percent plus easily. Three years down the line when we would be pretty deleveraged, we should clock 18-20 percent comfortably.