Sintex Industries Ltd

Indian economy

India’s (1.16 billion people) GDP at purchasing power parity was around US$3,548billion in 2009, making it the world’s fourth largest economy after the United Statesof America, China and Japan in purchasing power parity terms [Source: CIA World FactBook].

The country’s gross domestic product (GDP) grew 7.4% in 2009-10 against 6.7% in2008-09 (Source: CSO). During 2009-10, Indian GDP grew in all quarters by 6.13%, 8.83%,6.00% and 8.57%, respectively, over the previous quarters.

The cumulative value of imports from April 2009 to February 2010 declined 13.5% indollar terms and 8.5% in rupee terms to US$284.4 billion against US$288 billion over thecorresponding period in the last fiscal. However, exports during April-February declined11.3% in dollar terms and 6.1% in rupee terms from US$172.3 billion to US$153 billion overthe same period last fiscal (Source: The Hindu).

India’s foreign exchange reserves

Investments and savings

India’s per capita income and consumption

India’s per capita income, an economic growth indicator, increased 5.3% to Rs40,745 in 2009-10 from Rs 38,695 last year.

India’s per capita income and consumption at 2004-05 prices

Source: CSO.

Plastic industry: Encompasses polymer materials manufacture (natural and syntheticcompounds), building construction, packaging and transportation; varied industryapplication comprises aerospace, automobiles, electronics, household applications,polymer, chemicals, petrochemicals and ceramics.

Indian plastic industry: Pegged at around US$6.6 bn, the industry possesses around55,000 units, employs over 3.6 mn people and attracts further investments.

Exports: Contributes 2.17% of India’s total exports, valued at US$3,513 mn andidentified as government’s thrust area

India’s per capita consumption vis--vis the world

India’s finished plastic products: Comprises over 30,000 units and produces anextensive product range through various sequential processes (injection moulding, blowmoulding, extrusion and calendaring)

End user products: Plastic balls, plastic bags, polypropylene bags, polyethylene bags,plastic barrels, plastic caps, plastic bottles, plastic baskets, plastic basins andplastic bowls

Appliances: Plastic bearings, plastic bellows and plastic belting, among others

Outlook

India’s per capita plastic consumption is likely to double by 2011, propelled bygrowing per capita income and changing demographic profile. The result: By 2012, India isexpected to emerge as the world’s third largest plastic consumer after the US andChina, consuming 12.5 mn tonnes annually and attracting US$80 bn fresh investments.

Strategic developments, 2009-10

• Invested Rs 137.89 crores in its standalone operations to enhance production andoperational efficiency

• Established a new plant in Nalagarh while Nagpur and Namakal plants are underconstruction

• Nief Plastics acquired two companies named SICMO and SIMOP, increasing theEuropean customer base; these companies are specialised in making and testing metallicmoulds for plastic injection and light metal alloys

• Incorporated a wholly-owned subsidiary, Sintex Infra Projects Ltd to capitaliseon the growing domestic infrastructural developments

• Acquired Esveegee Steel (Gujarat) Pvt. Ltd (100% equity stake) and renamed itSintex Oil and Gas Pvt. Ltd

Developments in plastic business

Driven by MCC and custom moulding, the Company’s plastics business grew 10% andcontributed 83% to the gross turnover in 2009-10 against 81% in 2008-09.

Building materials division: Accounted for about 65.26% of net sales in 2009-10 andcomprised monolithic concrete housing solutions, prefabricated structures, liquidmanagement solutions and waste management systems

- Monolithic concrete constructions: Sintex extended footprint to southern Indiafollowing a northern and western focus. During 2009-10, Sintex delivered low-costaffordable houses, extended to monolithic boundary walls and even moved over to MIG(middle income group) houses. Even upgraded skills to improve formwork quality and thevariations emerging from formwork.

- Prefabricated structures: The Company’s prefab business operates in 15 statesacross India. It pioneered the manufacture of a range of panels used as roofing and wallmaterials in different sizes. The Company carried out awareness and promotional campaignsto educate people about insulated and energy saving sandwich panels, a relatively newproduct with a vast potential market (suitable substitute for GI and tins for roofing).Energy Conservation Building Code (ECBC) 2007 is expected to drive energy-efficiencydiscipline in future, increasing sandwich-panel demand.

The Company graduated from small prefabricated structures to factory heads, warehouseshelters, schools, site offices and bungalows, among others.

- Water tanks (flagship brand): The Company’s took the following measures to driveofftake:

• Strengthened the pan-India retailer chain and restructured the incentive schemefor retailers and distributors

• Launched white ‘triple wall tank’ for the premium market and tanks invarious other colours to cater to a wider market

• Established itself in the underground tank segment, supplying to IOCL andreceiving approval from HPCL and ESSAR

• Supplied around 5 lakh tanks at various locations under the Indira Gandhi WaterSupply Programme

• Developed special tanks (removes 98% of the iron) with filters for villages inKarnataka having rich iron content

- Interiors: The Company entered the specialised interior segment to carve out a marketniche.

• Evolved products for special applications with unique finishes

• Supplied doors and windows for low-cost projects like the Rajiv Gruha KalpYojana in Hyderabad and MAP (Married Accommodation Programme) for the army, among others.

• Initiated cross-promotional offers and product bundling to widen market

• Supplied to high-end constructors and builders in 2009-10

• Built capacity and enhanced focus on energy efficient products like uPVC/PVCwindows and energy-saving insulated doors.

Waste management system: Sintex realised the importance of managing wastes dischargedfrom residential and commercial complexes and buildings and increased focus ondecentralised waste water treatment systems. These systems are superior to centralisedcounterparts in terms of energy consumption and efficiency. The Company offereddecentralised wastewater treatment system (DEWATS) in collaboration with Aqua NishiharaCorporation of Thailand and Japan to recycle wastewater. Sintex supplied rainwaterharvesting systems for drinking water and biogas plants and for the first time in thecountry, successfully addressed the problem of wet waste by introducing compost bins.

• Custom moulding division: Reconciles a low-volume but a margin-accretivebusiness as products are customised to suit client requirements. The client base compriseslarge global and domestic corporations – the mind to market cycle for each product isstretched. Hence the division grows at a mature pace.

Core custom moulded products: During 2009-10, Sintex initiated a project with Rafael,an Israel-based Company, supplying carrier cases for missile components – a highlytechnical product owing to the huge size (1.5m x 1.5m) and extensive testing requirement.Also, supplied bus seats to Ashok Leyland, Cummins, Vijay Jyoti, Alma Motors and Heriff.The Company secured orders for multiple products for Kirloskar Engines and pumps. Itspride-enhancing clientele comprises John Deere, Nissan, Mahindra Bolero, Escorts, NewHolland and Poly John.

For Prodelin, General Dynamic’s Indian concern Sintex manufactures microwave dishantennae (60 mm-120 mm), which involves complex moulding.

Sheet moulded compound products (SMC): The Company’s presence is spread acrossGujarat, Maharashtra, Tamil Nadu, Andhra Pradesh and Uttar Pradesh. In 2009-10, Sintexexpanded its presence to Delhi, Haryana and Orissa, and undertook the followinginitiatives:

• Enhanced focus on the market for meter boxes and distribution; supplied iceboxes with unique finish to Australia; developed easy-to-install and corrosion-proofpolymeric manholes enjoying higher durability than conventional manholes

• Supplied signboards made of FRP under the Rajiv Gandhi Gramin VidyutikaranYojana; this segment is expected to derive enormous volumes once NHAI gives approval asnearly 50 signboards are installed for every kilometre

• Developed corrosion-proof moulded cross arms for coastal areas; received supplyorders from Haryana

• Positioned itself as a competent ECB contractor in electric distribution; likelyto emerge as a significant player with the growing opportunities in the area ofrenovation, improvement and installation of distribution lines

• Developed pultruded cable trays for refinery projects, catering to prestigiousclients like ONGC

• Provided transmission boxes for auditing power transmission and distributionunder RAPDP (Restructured Accelerated Power Development Programme)

The Company anticipates huge opportunities in the feeder pillar box segment owing tothe growing popularity of underground cabling.

Others: Sintex is increasing focus on FRP transformer fencing, which is expected togenerate enormous returns and volumes (received approvals in Gujarat and is likely toenter Uttar Pradesh). Besides, in 2009-10, Sintex worked with various agencies onsuper-tough plastic pallets, a segment with high growth potential owing to risingenvironmental consciousness, which is declining preference for conventional woodenpallets.

Operational performance, 2009-10: Revenue from the plastic division stood at Rs1,666.93 crore against Rs 1,515.32 crore in 2008-09, reflecting 10% growth. Itscontribution to the Company’s turnover increased to 83% in 2009-10 against 81% in2008-09. The EBIDTA margin for this division strengthened 41 basis points to 24.47% in2009-10, fuelled by the growth in the monolithic concrete construction and buildingproduct division.

Strategic blueprint

• Evolve new business models and install cutting-edge, high-output machines toenhance operational efficiency

• Strengthen distribution network to develop presence across India

• Increase focus on global markets through new and existing business verticals

Textile industry

The US$52-bn Indian textile industry affects 80 million lives (directly employs 35 mn,indirectly 45 mn), contributes 14% to industrial production, 4% to the GDP and 16.63% toexport earnings. Around 40% of the textile produced in the country is exported.

The government announced a US$533.87-million subsidy for the textile industry under theTechnology Upgradation Fund scheme (TUFs). It extends 10% capital subsidy and 5% interestsubsidy on installation of machinery and for processing machinery under the TUFS. A41-member working group has also been announced to be set up with a National Fibre Policy,ensuring self-sufficiency in domestic fibre consumption and export requirements.

Under the Union Budget, 2010-11, a five-year extensive skill development programme forthe textile industry will be launched where around 3 million persons will be trained.Increase of excise duty from 8% to 10% is likely to adversely affect margins of textilecompanies, impacting the textile sector.

India’s cotton scenario: World’s second largest cotton producer; produced23.5 mn bales of 480 lbs each in 2009-10 cotton acreage; surpassed 10 mn hectares in 2009,despite poor monsoons

Domestic cotton production (million of 480 lbs bales)

[Source: USDA]

Technical textiles: Domestic market is expected to grow 11% annually, reaching Rs66,414 crore by 2012, which was about Rs 37,115 crore in November, 2009; global marketsize was US$107 billion in 2005, expected to touch US$127 billion by 2010.

Outlook for the Indian textile industry

The industry targets US$6 billion foreign direct investment (FDI) by 2015 to beinvested in greenfield units in textiles machinery, fabric and garment manufacturing, aswell as technical textiles. The industry is expected to create 12 million new jobs by2012.

India’s textile industry targets 15% annual growth for the domestic industry and20% annual growth for the exports markets to reach US$106 bn and US$66 bn by 2015respectively (Source: FICCI). India’s technical textile market is expected to reachUS$13 billion by 2012-13 [Source: ITTA].

Sintex’s textile business developments, 2009-10

• Diversified and ventured into new areas of textile like lycra, cotton viscoseand polyester mix, widening the product basket

• Added new products like cotton silk, cotton linen, lurax, cotton excel andcotton with water soluble yarn

• Added new business with Espirit, Target One Star, Ann Tyler, among others andalso established presence in ladies wear/women wear segments

• Developed new mechanical finishes like Peach, Brush and Airo Finishes and newchemical finishes including Nano car, anti micro biel, water repellents, stain resistance,no iron, etc

• Consolidated business with recently added customers (ESPIRIT and One Star) andestablished a strong base in Turkey

• Entered the furnishing fabric market with widely appreciated designs

• Emerged as a Certified Organic Cotton Product Producer and uses all certifiedproducts in its manufacturing process

• Ventured into the technical textile segment with tents, water proof and fireretardant fabrics for the defence segment

Operational performance

Despite lower consumer spending in the EU, the Company’s business volumesincreased; around 90% of the Company’s production is exported to the EU. Besides,Sintex enhanced its presence in the rural and semi-urban markets of India through itsready-to-stitch packages. Textile production grew 9% from 1.57 lacs mtrs in 2008-09 to1.71 lacs mtrs in 2009-10.

A combination of these factors maintained the textile business revenue at Rs 343.63crore in 2009-10. With its enhanced focus on value-added products, the per metre averagerealisation of the fabrics was maintained at Rs 135.66 in 2009-10. Even exports accountedfor 7.88% of the total sales against 5.72% last year owing to rupee appreciation.

Strategic blueprint

• Enhance efficiency, product improvement, quality compliance and timely-deliveryorder to retain customers

• Establish an extensive distribution network and supply chain to enhancerural-and-semi-urban market penetration in India

• Replace conventional equipment with state-of-the-art spinning machines

Risk management: Sintex’s integrated risk management framework comprises prudentnorms, structured reporting and control at each stage and reconciles withshareholder’s desired total returns, the Company’s credit rating and its desiredrisk appetite.

Human resources:

The Company’s enriched learning-and-action-oriented culture inspires its 3,466people. Employees are imparted functional and attitudinal training at each level. TheCompany’s inbuilt feedback mechanism and motivational programmes and events enhanceemployee morale. During 2009-10, Sintex hired Hewitt Associates to build a competencemodel to develop entirely new job descriptions and performance appraisal systems.

Internal controls and procedures: At Sintex, stringent internal control systems checkunauthorised use of products and procedures. To enhance operational and qualitycompliance, the Company conducted regular and extensive checks at every stage of itsproduction and dispatch in 2009-10. The Audit Committee, headed by a Non-ExecutiveIndependent Director, periodically reviewed the audit observation.