Investors should be wary of Sintex Plastics: Analysts

MUMBAI: The turnaround initiative at the KKR-funded Sintex Plastics Technology appears to have taken a difficult turn. The promoters did not exercise their right of conversion of warrants, and defaulted in meeting repayment commitments at their other listed company, Sintex Industries, earlier this week.

Analysts, therefore, are advising investors to be circumspect. The stock, which has lost 93% from its listing on August 8, 2017, declined 10% to ?9.05 on Friday.

“The promoters have conveyed their inability to further exercise their right of conversion of warrants, which manifests a lack of confidence in the business and its turnaround,” said Vikram Suryavanshi, analyst, PhillipCapital. “We fail to understand the dynamics of the pre-fab business and its future prospects, which used to be major revenue contributor in the past.”

The company was listed separately in August 2017 after a scheme of demerger of the custom moulding and prefab business from Sintex Industries. After the demerger, Sintex Industries was managing the spinning and textiles business, and Sintex Plastics Technology the plastics operations.

Revenue from prefab has declined to ?740 crore in FY19 from ?2,000 crore in FY17, with EBIT falling to ?27.4 crore from ?375 crroe. The EBITDA margin declined to 10% from a peak of 22-26%. Sintex Plastics had total debt of ?3,872 crore as on March 31, 2018.

The management expects to bring down debt/EBITDA to comfortable levels of 2.5x by FY 2021 from 5.7x in FY 2019. But analysts are not that confident.

“Declining cash flow and high debt levels have increased business risks,” said Suryavanshi.

Last year, KKR invested ?1,250 crore in Sintex-BAPL, a subsidiary of Sintex Plastics. The money was used to refinance debt and finance growth in the B2C business in retail plastics and auto and defence plastics.

“Sintex as a group with high debt is not well managed and it’s not making much sense to stay invested in their stocks” said A K Prabhakar, head of research, IDBI Capital.

In March last year, the company allotted 66.7 million fully convertible warrants to promoters which would be converted into equity shares at any time within 18 months for cash at ?90 per warrant. However, last month, the promoters decided not to opt for the conversion of the warrants due to a sharp fall in the stock price.

The company is currently exploring the sale of its auto division to de-leverage the balance sheet but considering the auto sector challenges, bankers are doubtful about getting a good valuation.

Sintex Industries on Wednesday said it has defaulted on repayments linked to non-convertible debentures (NCD) worth ?86 crore, a day after a rating downgrade by CARE Ratings.