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Sintex Plastics Technology's Q4FY18 results (Outperformer) - P&L continues to disappoint; Balance sheet in line…

Q4FY18 results highlights

• SINTEX cons. rev. declined by 3% qoq to ~Rs12.9bn (~10.4% miss).
• The miss was because of 12% qoq fall in custom moulding (CM) segment (~21% lower than est.) even as prefab & infra segment grew rev. by 21% qoq (beat of 28%). However, the management clarified that CM segment continues to do well and there is some re-grouping between the two segments (no further details were provided).
• In terms of strategy management maintained that they are de-focusing aggressively from Govt. led prefab & infra segment as it will help reduce working capital needs and improve balance sheet.
• Weak rev. performance weighed down on EBITDA, which declined 11% qoq to ~Rs1.65bn (~23% miss), margin fell by 110bp qoq to 12.8%.
• PBT (before one-offs) fell by 26% qoq to Rs483m and was a miss of 50% led by EBITDA miss and higher than exp. interest expense.
• One-offs included Rs450m write-off towards shutting down of US subsidiary and another Rs470m towards pre-payment charges (on KKR re-financing), tax on mortgage creation etc.
• Reported net loss of Rs125m; however, adjusting for one-offs, PAT came in at Rs804m (note this is without adjusting for tax payouts).
• On the positive side, SINTEX has reduced its net debt by ~Rs4.6bn through internal accruals and promoter infusing Rs2.9bn in FY18. Current net debt stands at ~Rs31.6bn (4.1x net-debt/EBITDA).

Key positives: Debt reduction on track, low capex intensity.

Key negatives: Profitability continues to disappoint.

Change in financials: Cut FY19E/20E EPS by 11.3%/10.3%.

Valuation & view

FY18 results were below muted expectations because of change in management strategy of completely defocussing on the high margin prefab/infra segment. This has led to significant cut in FY19E/20E estimates as well. However, improvement in balance sheet is on track and management announced re-financing of Rs12.8bn of debt by KKR, a marquee private equity entity. KKR’s representative has also been given a board seat at the CM subsidiary and this should improve corporate governance perception as well. We expect the street to re-rate SINTEX once revenue growth revives from H2FY19E onwards. We retain our Outperformer call with a revised price target of Rs80 (13.5x FY20E fully diluted EPS).