Sintex draws flak for ‘late’ order disclosure

Gujarat-based Sintex Industries is facing criticism from analysts over ‘late’ disclosure of a power-plant EPC order bagged by its subsidiary.

The `700 crore order was for engineering, procurement and construction (EPC) work of a 300 mw plant of Shirpur Power, in which promoters of Sintex Industries have a stake.
Sintex Industries said it was planning to announce the deal bagged by Sintex Infra, its construction arm, in its December quarter financial disclosures.

Analysts, however, have said that the company should have announced the order in July when it was won.

“We note that Sintex Industries management ought to have disclosed the power EPC orders when they were received in July 11. This is not the first such instance involving nondisclosures (oil and gas subsidiary being another example) and we expect management to be more proactive, going forward,” said Princy Singh and Dinesh Harchandani, analysts with brokerage JP Morgan in their note on the company published on November 18.
However, the company said the issue has been blown out of proportion.

“We were in talks for the project, but the order got finalised only in October. We had plans to inform our shareholders at the end of the quarter,” said Sunil Kanojia, group president, Sintex Industries, adding, that there have been misleading reports on the power plant, too.

“There is no cross equity in Shirpur Power of Sintex. The power plant is also not solely sponsored by Sintex promoters. The promoters were looking out to invest in power independently and several players got together and made the investment,” he said.

However, the company and researchers say not all is wrong with the company and situations could be a bit over-hyped. Analysts with JP Morgan, in their report, said a scenario where its balance sheet could get compromised on account of working capital and pressure on margins due to this issue, though not unfounded, is unlikely.

The company said Sintex Infra bagged the order via competitive bidding for `37 per mw.

Sageraj Bariya, an analyst with Equitorials, an independent research house, said, “Sintex had been in the market for a long time and has a strong management. It has slowly diversified into various verticals and delivered regular profits. Therefore, even if the bidding price was less, it will surely look at marginal profits through the order.”

Analysts also feel that the company has a complicated business model which is keeping the shares down.

“The company is getting into a lot of non-core activities which might hang heavy on the balance sheet in the times to come. This is the major concern with Sintex,” said Manoj Alimchandani, market expert and a prominent shareholder in several companies.
In the last one week, the company’s stock has seen a high of Rs101.75 per share and a low of `83.65. At Tuesday’s close, the company’s share was trading at `93.40.

Kanojia said due to Eurozone crisis, Sintex’s FCCB exposure and misleading reports of corporate governance issues have impacted the share price.

“Barring external issues, the company is on a firm footing with a debt of Rs2,800 crore and equity of `2,600 crore, which is manageable,” he said.