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Sintex Plastics Technology's Q4FY19 results (Dropping Coverage) - The illusive promise of a recovery…

Q4FY19 results highlights

• SINTEX’s disappointing quarterly streak continued with rev. falling ~15% yoy to ~Rs11.1bn (8% miss). While CM rev. was largely in-line (+1.6% yoy), the prefab/infra business plunged ~78% yoy to ~Rs573m (62% miss). Domestic CM rev. was affected on account of automotive slowdown, but International CM took up the slag. Weakness in industrial capex led to sluggish prefab/infra performance.
• EBITDA margins fell 250 bps yoy to 9.0% on weak top-line performance (IDFCe: 13.2%). EBITDA fell ~34% yoy to ~Rs988m (38% miss). CM margins came in at 17.3% (vs 13.3% yoy). Prefab EBITDA loss margin stood at 13.8% (vs EBITDAM loss of 1.3% yoy).
• Depreciation fell ~25% yoy. Finance cost surprisingly grew ~6% yoy (24% higher than est. as cost of debt has gone up), although Other Income too was higher at ~Rs283m (-35% yoy; 89% beat). Weak EBITDA and higher int. costs led to it posting a loss of ~Rs96m (vs expectation of ~Rs237m profit) at the net-level.
• Net debt was static at ~Rs33.4bn (vs ~Rs33.9 bn in Q3 and ~Rs33bn in Q2). FY19 Capex stood at ~Rs1.7bn. FY19 FCF stood at ~Rs1.6bn.

Key negatives: Top-line continues to be under pressure / Loss at PBT.

Valuation & view

SINTEX continues to disappoint on financial performance ever since its demerger from the parent entity. It was also not able to keep its one promise of lowering debt yoy (Net-debt at Rs33.4bn in FY19 vs Rs31.6bn in FY18). After earlier pivoting away from the Govt. prefab/infra business (which led to disruption in rev./profitability), it now plans to sell its auto CM division (both of EU & India; Rev./EBITDA of Rs27bn/Rs3bn), as this is probably the only option left to lower debt. It hangs by a thread before the company goes into oblivion unless the debt crisis is settled, in a timely manner (it is already in breach of certain debenture covenants). Thus the decision to sell auto CM assets; but we remain sceptical of whether it would get healthy value for these assets, especially in the current automotive slump and this might not be enough to tackle the issue at hand. Moreover, its strategy of targeting economically weaker sections in its consumer division could be counterproductive given significant competition from unorganised players, leading to below par value creation. We, thus, drop coverage on SINTEX given these potential headwinds and its repeated misses on its promises. Our last published rating on the stock was ‘NEUTRAL’ with a 12-month target price of Rs20 (8x FY20E EPS). Our estimates have not been updated for Q4FY19 realities and should not be used for making any investment decision.