Sintex Industries - Fallen Angel

Sintex Industries has corrected significantly over the last few quarters.


The main reason it has corrected is the currency overhang on their FCCB borrowing of $225 million. The market is assuming that since Sintex took on the loan at a rate of Rs 40.53 and the rupee has depreciated to Rs 50-51, there is a large impending forex loss.

Here is where I think the market is wrong. If you look at this year's annual report and read through the details of the FCCB, here are some of the facts you will get.

1. In respect of US$ 225 million zero coupons foreign currency convertible bonds (FCCBs) raised by the Company on March 12, 2008 during 2010-11, no FCCBs were converted into equity shares. The bondholders are entitled to apply for equity shares at a reseted price of `246.50 per share with a fixed rate of exchange on conversion of `40.53 to US$ 1. On full conversion of FCCBs paid up capital of the Company will increase by 36994928 equity shares of `1 each amounting to `3.70 crore.

2. Premium payable on redemption of FCCB conversion is 263.17 cr is already put in as Provisions in this years Balance Sheet.

3. Total Rs 986.11 cr Fixed Deposits. Rs. 507.11 cr are lying as unutilized amount of FCCB as part of the FD.

The 3rd point is the most critical one here. Out of $225 mn, nearly $100mn is lying unused in the bank as an FD. The company has a total of about $190 mn in Fixed Deposits on Mar 31, 2011. So, it should have no problems at all in paying back the FCCB. I am assuming they would not be converted as the price of Rs 246.50 will be tough to get to by Mar 31, 2013 when the FCCBs come up for redemption.

Sintex is also a company which has paid a dividend consistently for the last 78 years!!

Valuation
The Consolidated EPS for FY11 was 16.97. The management has guided a 20% revenue growth this year. Even if we take a conservative view and take a flat growth, at a consolidated Rs. 17 EPS, the stock is currently available at a PE of 5.1. This is less than half of the last 5 year's average PE of 11.

If someone can hold on for 2 years from now, the expected 2014 EPS is likely to be upwards of Rs 25. At a PE of 8-10, the possible price range is Rs 200-250. That is more than a 100% appreciation in 2 years.

Note: I am invested in Sintex and may be biased. For all investment decisions, please consult your financial planner.

Guru Speak: Warren Buffet's Partnership letters from 1957-1970

Warren Buffet's early days as an investment manager is documented in these letters. This was before the Berkshire Hathaway days when he managed money of friends, relatives and other known people.

For his Berkshire partnership letters, you can go to the Berkshire Hathaway website. You can also read "The Essays of Warren Buffet" by Lawrence Cunningham for a topic-by-topic coverage of the annual letter contents. Incidentally, this is one book that Warren Buffet himself recommends reading.

Buffett Partnership Letters 1957-1970

Guru Speak:Michael Mauboussin

Michael Mauboussin Long Term Investing in a Short Term World
Mauboussin is a extremely successful value manager and thought leader. He has three written excellent books:
Think Twice: Harnessing The Power Of Counterintuition
More Than You Know
Expectations Investing: Reading Stock Prices For Better Returns
 

Supreme Industries - Notes from Annual Report'2011

 Here are my notes on the 2010-11 annual report for Supreme Industries:-

* The Company is currently putting plants at two new locations. i.e in Halol (Gujarat) for composite cylinders and Hosur for Protective Packaging Products. Both these plants to be ready in Dec 2011 – Mar 2012 period.

* The Company invested a sum of RS 258 crores to augment capacities and to start a new
unit at Sriperumbudur in Tamilnadu. The company expects to invest Rs 200 crores in 2012.

PLASTIC PIPING SYSTEMS
* Growth was highly impacted due to high cost of raw material.
* Aqua Gold grew more than 40%.
* Lifeline CPVC grew more than 100%
* Fittings grew by over 40%
* After 3 years of degrowth, the exports grew this year by 14%

FURNITURE
* Overall segment grew by 25% by value and 13% by volume. This implies higher sale of high-margin products.
* The company is closing down the mats business. It has a annual revenue of only Rs 15 crores.

INDUSTRIAL PRODUCTS
* Strong growth of 30% overall
* Automotive products grew by 39% and appliances by 69%. Consumer electronics segment was weak.
* Company had bagged order for development of interior parts for new version of trucks from Tata Motors, which included completely assembled Instrument Panel, i.e. Cockpit.
* The Company has also bagged order for development of plastic parts for prestigious ‘Two Wheeler’, to be launched by Piaggio, sometime during early 2012.
* Expecting sustained growth of 25% to 30% year on year for next 3 to 5 years

MATERIAL HANDLING PRODUCTS
* Overall segment grew by 27% by value and 20% by volume. This implies higher sale of high-margin products.

PACKAGING PRODUCTS
* Packaging Films sales were stagnant. Company is trying to move into new areas of applications and reduce its dependency on oil packaging.
* Protective Packaging products grew by 26% by value and 13% by volume. This implies higher sale of high-margin products.

FINANCIALS
* The average rate of Interest has gone up to 9.72% from 7.93%.
* The Company has chalked out Capex of Rs 1000 crores over a period of five years from 2010-11 to 2014-15 across all the products to tap the growth opportunities and to keep the pace of growth momentum so as to achieve desired CAGR of around 20% on y-o-y basis.
* Crisil has upgraded the rating outlook to "AA-/Stable" from "A+/Positive"
* The Company would try to bring the interest cost below 1% of Total Turnover by the end of next year.

Expected EPS for June 2012 : 15-16
PE range : 12-15
Expected price range : 180-240

Guru Speak: Charlie Munger

A couple of old videos of Munger, but worth watching over and over.


University of Michingan-2010



Talk at Caltech-2008 

 

Guru Speak: Interview with Bill Ackman

Astral Polyteknik - A Closer Look

Astral Poly Technik Ltd. (Astral) is a pioneer & market leader of CPVC pipes & fittings in India. Astral is a  licensee of Lubrizol, USA, to manufacture & market its world class plumbing products in  India.

GI  pipes were  in  existence  in  domestic  plumbing  industry  but  now  CPVC  pipes  are gaining ground as they don’t corrode over time which is a major concern with the GI pipes. Also, due to lighter weight, it’s easier to transport and install CPVC pipes. CPVC pipes also offer cost benefits as they are 20-25% cheaper than the GI pipes and have a  longer  life span of around 30-35 years compared to around 10-15 years for GI pipes. The strength of these CPVC pipes make them better substitutes of GI pipes for many residential and industrial applications.

Astral has an exclusive license to manufacture Lubrizol’s global top-seller Blazemaster FireSprinkler Systems, based on CPVC platform. The company has also picked up 85% stake in
Advance Adhesives Pvt. Ltd. to produce Cement Solvent (solution for joining pipes) via technology developed by global Adhesives major, IPS, USA. This has a good potential for Astral.

The advantage for Astral is that the raw material is restricted and not easily available. In addition, Lubrizol is in talks with Astral management to setup a joint venture in India. Astral is  aggressively expanding its capacity to meet the robust demand and is expected to more than double to 100,000 TPA by end of FY13 from the current capacity of 48400 TPA.

The company is also spreading its wings in Africa and has opened a manufacturing unit in Nairobi, Kenya.

The  Company  has  reputed  clientele  which  includes  major  construction  houses  like  Hiranandani Construction, Raheja Group, Tata Housing, Nagarjuna Construction, The Oberoi Group, Taj  Group  of  hotels, Le Meridian and  other major  clients  like NTPC,  TISCO,  Reliance  Industries,  Tata  Chemicals  etc.

FINANCIALS

	FY11	FY10	FY09	FY08	FY07
Sales	436.76	304.52	204.99	144.53	104.46
Other Income	4.21	4.24	-4.78	4.68	1.44
Op Profit	53.29	42.01	29.42	20.7	13.39
EBDIT	57.5	46.25	24.64	25.38	14.83
PBT	41.54	33.63	15.85	19.42	10.75
PAT	33.6	28.03	14.19	17.08	9.11
EPS	14.95	24.94	12.63	15.2	8.11
Depreciation	10.72	8.6	6.17	3.26	2.2
Interest	4.59	4.84	5.31	2.69	1.88
Effective Interest Rate(%)	11.27%	11.98%	8.52%	8.39%	7.71%
Tax	7.95	5.57	1.65	2.34	1.65
Effective Tax rate (%)	19.14%	16.56%	10.41%	12.05%	15.35%

Dupont Analysis
OPM(%)	12.20%	13.80%	14.35%	14.32%	12.82%
NPM(%) -- (A)	7.69%	9.20%	6.92%	11.82%	8.72%
Asset turnover(avg) -- (B)	2.30	1.92	1.32	1.29	1.14
RoA(%)	17.73%	17.68%	9.15%	15.26%	9.91%
Financial Leverage -- ( C)	1.27	1.34	1.67	1.40	1.36
RoE(%) -- (=A*B*C)	22.58%	23.73%	15.30%	21.39%	13.48%
RoA(%)	17.73%	17.68%	9.15%	15.26%	9.91%

VALUATION
At the CMP of 198, the stock is trading at a PE of 13.24.

My conservative FY14 expected EPS is about 26. But, it is likely to do reasonably better as the new capacity comes online by FY13-14. If the capacity additions work out as planned, then EPS can be in the range of 30-32.

Expected price is around 330-360 in the next 2-3 years.

This is a stock with excellent long-term prospects and is good for buying.

Note: I am invested in this stock and investors need to do their own due diligence or refer to their investment advisor before making an investment decision.