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Sintex Industries Limited is a dominant player in the plastic and textile business segments. The Company manufactures a range of plastic products at its 8 plants across India ? these broadly fall under the categories of water storage tanks, pre fabricated structures and industrial custom molding. In the textile segment the Company is focused on niche offerings, possessing specialization in men?s structured shirting in the very premium fashion category wherein it enjoys leadership position in India. Sintex is also Asia?s largest manufacturer of corduroy fabrics.
Amit Patel, Managing Director, Sintex Industries, has a Bachelor's Degree in Commerce and additional qualifications of WPS, WPT and MT from U.S.A. He
possesses over 16 years of experience in the textile, chemicals and plastics industries. He says there are several ingredients that are necessary to establish a dominant position in these segments and also act as entry barriers for any new entrant. In plastics, innovation and identifying new usage opportunities is key.
Replying to Anil Mascarenhas of India Infoline, Amit Patel says Sintex is present in the mass market while Zepplin is more of a specialized player.
What synergies does Zepplin Mobile Systems India bring? Going ahead in which area would you be looking at for collaborations?
While we are present in the mass market, Zepplin is more of a specialized player. We will acquire a 74% stake in Zeppelin Mobile System India Ltd. (ZMI) in tranches. It manufactures various shelters including those for:
Refrigerated bodies for perishables
Mobile field hospitals
Accommodation for civilians and troops in extremely cold areas
Hence, besides enhancing our market share in the segment, the acquisition of Zepplin has enabled us widen our portfolio of offerings and cater to both the mass as well as niche market.
You have a couple of market solutions in your plastics segment. Tell us more about it.
In the Plastics segment, we have pioneered several offerings that we prefer to call market solutions - these are enabling significant changes in people?s lives. One of the key categories in this segment is pre-fabricated structures, which are beginning to be used extensively in housing, sanitation and education projects and also towards the making of Base Terminal (BT) Shelters whose demand is growing in line with the mobile phone segment. The cost and time taken to manufacture any of these is a fraction of the cost or time involved in normal construction while the durability and life span is comparable.
Custom molding is another fast growing business, which is part of our plastics portfolio. Here, products are designed based specifically on client requirements. This business leverages on a range of production processes to produce customized solutions for several leading global industry leaders. Due to the client?s sharing of internal specifications, it is characterized by a significant lead-time before agreement wherein it is incumbent on the vendor to demonstrate its ability to deliver across various parameters. However, for the same reasons, these client vendor relationships tend to be for very long durations with increasing contributions over time. Power transmission is a key and fast growing part of our Custom molding business. We are manufacturing equipment, which includes electrical enclosures and accessories in quite a few states in the country.
Amongst our first introductions, though, was the all-pervasive water tank, which has given us excellent brand equity and a strong networking base.
What about textiles?
In the textile segment, on the other hand, our focus is on the niche and high value added segments. Ours is not a purely quota story. Our thrust is less on volumes and more on customization and creativity in niche structured fabrics - the penultimate stage prior to garmenting in the production of premium fashion shirting. We work with some of the leading top tier European brands including Armani and Versace and have also entered into a marketing and design tie up with Canclini Tessile Spa, Europe?s leading fashion and design player. This collaboration gives us access to 9,000 of the latest fashion designs a season. We are also the leading corduroy shirting manufacturer in India. Our strengths in creativity and our emphasis on high margins and low volume offerings face limited competition if any, from other major textile nations including China.
What does it take to be a leader in these industries?
There are several ingredients that are necessary to establish a dominant position in these segments and also act as entry barriers for any new entrant.
In plastics, innovation and identifying new usage opportunities is key. Logistics too needs to be strong. Especially in the prefab business, transportation and logistics is the single most important cost. With seven manufacturing facilities spread across the country we are able to minimize set up time as well as costs. In the case of most offerings it is also imperative to obtain key regulatory approvals that establish your credentials and enable you to work both globally and domestically and obtain larger orders ? these are both stringent and very time consuming For example, in bidding for domestic contracts, a company has to be enrolled with the local municipality and registered with the Public Works Department. To bid for international contracts (NGOs, WHO, Red Cross, UNICEF, etc.) it is mandatory to procure certifications from the American Architecture Association too. Possessing all these ingredients is a key to be a dominant player in the businesses we are present in.
In textiles, given our focus on high value structured yarn fabrics, we are catering to a niche clientele. It is hence imperative to consistently introduce new designs, weaves and finishes. Our association with Canclini gives us access to 9000 designs per season, which we are later permitted to introduce in India. This is a clear advantage. Besides, possessing the best infrastructure is another imperative. Sintex has the latest Jacquard looms that are preferred by both the international and Indian fashion industries.
What is the update on your demerger plans?
The proposal is presently being evaluated and we are to take a decision in this regard.
Give us an update of your capacity utilization at your various manufacturing facilities?
Our manufacturing facility at Kalol is operating at close to 85% capacity utilisation. The Kolkata, Bangalore, Nagpur and Daman units are operating at over 70% capacity utilization.
The utilization levels at our new facilities at Bhachau, Baddi and Salem respectively 30%, 5% and 30% respectively.
What is your market share in Fibre Reinforced Plastic (FRP) and household tank market? In the household segment are you witnessing severe competition from similar sounding brands?
FRP tanks have only just begun being used in India.
In the household tank segment our market share is around 55%. Yes, this segment is becoming increasingly commoditized especially at the household level. However, for larger tanks Sintex is still the preferred option largely because of its strict focus on hygiene and its durability.
You were looking out for some international acquisitions. Would this be more for the technology?
We are looking at acquisitions internationally mainly in the pre fab business both for technology and marketing. Besides acquiring know how, we believe these acquisitions will give us a foothold in several international markets wherein we believe we will have a cost effective proposition.
What is the break-up between your institutional customers and the rest?
Over 80% of our sales are to institutional customers.
To what extent are you hit by the rising crude prices? What steps have you taken to mitigate the same?
High prices of energy cost and raw material costs do have some impact on our margins. However, despite prices of energy and raw material cost our margins will continue to be firm, primarily for three reasons.
As a greater proportion of our business is comprised of pre fabs and custom molding products, other parameters like logistics and manpower form a larger proportion of our expenditure, making us less dependent on petrochemicals.
Secondly, enhanced operational efficiencies, improved procurement and inventory management are also helping to combat raw material price increases.
Thirdly, while the petrochemical cycle continues to be related to movement in crude prices, the correlation is less today. This is because ethylene, which is the key raw material for plastics, is derived from naphtha and with many industries shifting from naphtha to cheaper and more efficient fuels like natural gas, manufacturers are compelled to forward integrate and manufacture various petrochemicals. Ethylene can alternately be produced from natural gas. The recent large gas finds especially in the Middle East and Asia can also be expected to result in low cost production of ethylene.
What are your power and fuel costs? Any attempts to lower this?
Power and fuel do comprise a significant percentage of sales. At our Kalol facility we propose to acquire a gas turbine from Turbomach (Switzerland), which will enable us to convert the feedstock from furnace oil to natural gas. The advantage of this turbine is that it can be run on multi-fuels ensuring operational continuity in the event of any planned / unplanned disruption in fuel linkage.
Are you moving focus to more value added products?
Yes we are. In Plastics our pre fabricated and custom molded businesses, which deliver higher margins, are gradually increasing as a percentage of total sales. Today, the former comprises close to 50% of our sales while custom molded contributes around 23%.
In textiles too, we are consistently exploring new product offerings wherein there is higher value addition. Already our structured fabrics sell at around 4 - 5 times that of other fabric offerings. We have now begun marketing coated fabrics, which have mosquito repellent and fragrant properties. This is targeted at a niche market but the value addition is significant.
What kind of growth in top line and bottom line are you looking forward to in the coming years?
As a policy, we do not give any quantitative guidance. However I will say that we expect to maintain or improve on the growth momentum we have delivered over the last 2-3 years.
Any concerns you see for both the segments?
No specific concerns. Our businesses cater to amongst others the education, healthcare, power and sanitation segments, which are going to be the key growth segments for our country. While the market is large enough, as discussed earlier there are considerable entry barriers for new players. We are also consistently identifying new opportunities.
Any apprehensions will be more generic in nature i.e. like prices of crude or cotton rising sharply ? but these will impact the industry on the whole and not just Sintex.
In 2004-05, the Company's textiles division accounted for 29% while the plastics division accounted for 69% of gross revenues, compared to 27% and 72% respectively in 2003-04. Going ahead what kind of mix would be ideal for the company?
Depending on business initiatives the ratio might change a bit. However, in the near term, plastics will continue to comprise a larger proportion of our business.
What are your key raw materials? Where do you source the same? Any plans for backward integration?
In the textile segment cotton is our key raw material. Most of the cotton we consume is high quality US Pima Cotton. Domestically we procure Gujarat Shankar, which is used for up to 40s English count.
We procure polyethylene for manufacture of our plastics from petroleum companies in India.
What is your current Debt-equity ratio? Any plans to bring this down? What are your capex plans for the next couple of years?
Our debt equity ratio as on March 31, 2006 is 1.28:1, which includes the FCCB borrowing of USD 50mn. We do not propose to raise any more debt in the near to medium term. All our capex has already been funded.
Plastic business? CAPEX was fully funded in December 2004. We have raised close to Rs2.10bn, which is completely earmarked for plastic growth, plastic new projects, especially for Prefabs. Four units were to be set up. Salem, Baddi and Bhachau have already been completed. Our Sikanderabad plant will be operational next year. We are also expanding our Kolkata and Nagpur units.
In textiles, we are expanding our capacity from 18 to 24 million meters, which is going to take us one more year and the total CAPEX plan for this expansion is about Rs800 to 900mn. Around Rs450 to 550mn is to be invested towards the power plant, which is also for the textile business. So the total textiles CAPEX would be Rs1.35bn to 1.45bn, but the capacity expansion would be about Rs800mn.
Are promoters planning to dilute any stake? What is your Dividend policy?
No. The promoters believe in the long-term growth prospects of the Company and do not plan any dilution. Since listing i.e. for the last 75 years we have consistently paid dividends. We believe in sharing our growth with our shareholders.
India Infoline Research Team / 14:59, May 20, 2015
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