Is Sintex Plastics really a Multibagger stock?

Sintex Plastics Technology Ltd

         In 2017 Diwali, Sintex Plastics Technology Ltd (SPTL) stock was recommended by many experts in their ‘Muhurat Picks’. It was trading above 90 that time. One year target in SPTL was given in the range of 120-180 by different analysts. Retail Investors invested in it hoping it will become a ‘Multibagger Stock’ in a year. Nifty started correcting from 10200 and consensus selling triggered great fall in Midcap companies. Sintex Plastics Technology Ltd. share price too corrected in this fall. SPTL was recently demerged from the Sintex Industries Ltd that year and therefore no Technical Data was available to predict the extent of fall in Share Price of SPTL. This made people think that 70-75 is the right level to accumulate more stocks of SPTL, which resulted in ‘ good money following the bad money‘. SPTL formed temporary bottom near 56 and now trading near 61. The question remains the same – Is Sintex Plastics Technology Ltd. really a Multibagger Or is it just a ‘black hole’ sucking money of Investors? In this post we will try to find it out.

      Company Info:  Sintex Industries was incorporated as Bharat Vijay Mills Ltd. in 1931. It started its composite textile business in Kalol, Gujarat same year. In 1995, it was renamed as Sintex Industries Ltd. It was listed on BSE in 2000. In September 2016, Board of Sintex Industries approved demerger of its ‘custom moulding business’ and ‘prefab business’ from Sintex Industries to Sintex-BAPL and Sintex-Infra Projects, respectively as wholly owned subsidiaries of Sintex Plastics Technology Ltd. In May 2017, Sintex Industries Ltd. started trading ex-scheme as purely Textile business while all its non-textile businesses were listed under Sintex Plastics Technology Ltd. SPTL is India’s largest water tanks manufacturer. Apart from providing water management solutions, SPTL provides Structural, Electrical, Environmental, Energy, Interior, Material handling, Telecom and Industrial solutions. Sintex Plastics has strong presence in Asia, Africa, Europe and America.

  Fundamentals of SPTL:

Market Capitalization3736.33 CrBook Value50.80
Sales Turnover0.40 CrIndustry P/E36.96
Net Profit-0.79 CrP/E10.8
Total Assets414.20 CrP/B1.19
Delieverables42.02%Face Value1
Dec'17Sep'17Jun'17
Total Income3.733.602.75
Net P/L0.090.432.06

 

Let’s discuss these numbers one by one.

  1. Market Capital of Sintex Plastics Technology Ltd. (SPTL) decreased significantly after this fall in Share Price. Current Market Capital is 3736.33 Cr. Management is expecting that once the newly listed business gets settled properly and starts making positive cash-flows, it will improve their debt structure too. As company is operating in India and abroad, it has to deal with different loan interest rates and therefore company will take two more quarters to streamline it’s Cash Flow Structure. Management is targeting for Market Capitalization of 10 Cr within 4 yrs.
  2. Sales Turnover last quarter was 0.42 Cr. Sintex Plastics Technologies Ltd. reported muted results as there was de-growth of 7% QoQ in revenues. 33% decline in Pre-Fab and Monolithic business affected company performance.
  3. If you will see the Second table properly, you will come to know that total income from operations and net sales is increasing quarter to quarter. Then why there is decline in net Profit? Yes, you guessed it right. Taxes, Interests and Depreciation has been adjusted on quarterly basis to streamline the newly listed company which is hardly 1 yr old now (demerged entity). Taxes of 13.3 Cr paid after this quarter. If you remember, one-time legal expenses of demerger process were paid last quarter. Total de-merger cost of 45 Cr reduced net profit last quarter. This quarter GST amount will affect the final calculations again. Company already faced 15 non-working days thanks to GST.
  4. Total Assets of the company is 414.20 Cr while net debt is 3330 Cr. Company has reduced debt of Rs. 82 Cr this quarter. Please note, the FCCBs which they converted in equities to reduce the debt has added additional equities of 1.5 Cr in Market. This lead to heavy supply in Market which resulted in profit booking by FIIs who hedged their positions. This was the prime reason behind the share price fall from October. We can say company has managing it’s debt very well which is good news for Investors. No doubt promoters have confidence in company and so they are aiming to increase their stake by more 10% gradually to reach 40%
  5. Book Value of the company is 50.80. Current Market Price is 60.80. Share is fairly valued and available at cheap valuations. Downside is limited and upside is 100% considering 1 yr conservative target of 120 given by expert analysts. So clearly, it is attractive opportunity for short to long-term investors.
  6. Industry P/E is 36.96. Peers of SPTL are trading at very higher P/Es. This is one more reason why it is the right time to start accumulating the stock.
  7. Face value is 1. Company is not giving any dividends to investors as it is recently de-merged entity. F.V is low, so those who invest only for Dividend income should look for better opportunities in Market.
  8. Company is not only reducing the debt but also reducing the cost of borrowing, which is good thing.
  9. SPTL is not getting any new order from Government but it has 6 months of Govt. projects in their pipeline. SPTL is expecting that before elections of 2019, Govt. will definitely try to do something for Rural population. Govt. Expenditure on affordable housing, Swachcha Bharat (hygiene/plastic toilets), irrigation, water storage and rain water harvesting etc projects will increase, which means more business to SPTL.
  10.  Company is not relying completely on Govt. projects. It is focusing more on retail segment. Instead of reaching customers directly, it will focus on creating strong network of agents and distributors.
  11. SPTL will focus on CSR related activities to support Govt. in it’s missions. Good for its Prefab business.
  12.  Foreign business of SPTL is doing good. European business is on strong footing. SPTL is gaining good market in Africa. In Asia it is among the leaders of the Plastic Industry. So clearly future looks bright too.
  13. SPTL has great reputation of providing accurately calibrated water tanks. The quality of Water tanks is so good that one tank can last longer than life of the buyer. SPTL will continue to lead this segment and stay synonymous to water tank for more decades to come.
  14. The most important and futuristic market which SPTL is eyeing right now is that of Car and Metro train bodies. We all know that sooner or later we will see Electric Cars running on road of India and many metro, mono train routes starting one by one. Not only this but also some parts of the Aeroplanes needs bodies of composite plastics. SPTL is innovating and becoming ready to serve these segments too.
  15. Finally, the most important point to note here is – Company has decided not to do any acquisition soon. It means whatever profit it will earn will be ploughed back into business. This will improve its financials soon.

To conclude, we can say that Sintex Plastics Technology Ltd. is good company with equally good scope in future. The management of company is taking right decisions to retire the debt of the company and improve their numbers. Promoters are highly positive about the company. FIIs and DIIs will start accumulating the shares once they find one good quarterly result from the company side. Retail investors are already bombarded by Analysts with the opinion that Sintex Plastic Technology Ltd. is the right stock to invest for long term.

I personally feel that stock can go below its Book Value of 50.80 soon due to heavy selling in Market before the upcoming elections. At such dirt-cheap valuations, we should definitely accumulate the shares of Sintex Plastics Technology Ltd. and wait for at least 6 more quarters to get good returns from the stock. One year is very small period for revival of companies in sector like ‘Plastics’. But yes in two years time, you will definitely see this stock trading near 110-120.

Final words of wisdom from my side – There are many better opportunities available in the market. Money stuck in some stocks for longer is equivalent to blood-clot in the veins. You must always search for companies which have visible growth potential instead of waiting for some company to turn-around and become Multibagger.

Now I leave it up-to you decide whether to call ‘Sintex Plastics Technology Ltd.’ a ‘Multibagger Stock Idea’ or not?

 

( Disclaimer: This post is for educational purpose. I am not responsible for any of your losses. I have not advised or recommended anything in this post. I have done some very basic fundamental analysis and expressed my views based on it. You must consult your Financial Advisor before taking any investment decision. Thank you.)

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