Saturday, March 31, 2018

Fundamental Stock Analysis: Sintex Plastics

Sintex is a household name. It was a synonym for the water tanks. They expanded their portfolio by venturing into PVC doors, pre-fab housing and also into automotive plastic components. After listing as a separate company, its stock is on a slide. In the last one year, this stock has lost 50% in the price.

Credit: Google Finance

The main reason for the fall can be attributed to negative revenue growth (though not very significant) over the last two quarters. If we assume last quarter’s earnings holds good (Rs. 0.88) as proxy for the entire year (0.88 x 4 = Rs. 3.52 yearly earning), it is trading at 16 P/E multiples and getting close to its book value of Rs. 51.


Credit: Trendlyne

Credit: India Infoline
If we look at balance sheet, we can notice that the company’s borrowings are at 40% of balance sheet size. It is not too high for the engineering sector companies. It seems reasonably healthy.

Trigger for re-rating:

What attracted me to this stock is the news of promoters increasing their holdings in the company. (Link: )

Promoters will pump in around Rs. 600 crores in the form of convertible debentures which will be converted into equity at the conversion price of Rs.90 a share. They have already paid 25% of the funds upfront. Company wants to use these funds to reduce debt.

This is a good news which I expect will trigger re-rating of the stock. Let us run our numbers to assess the impact.
  • Current Borrowings= Rs. 2,593 crores (Long term) + Rs. 894 crores (Short term)
  • Interest payment during last quarter = Rs. 73.47 crores (Avg. interest rate = 8.4%)
  •  Debt reduction = Rs. 600 crores
  • Yearly earnings increase due to reduced interest payment after debt reduction = Rs. 600 crores x 8.4% = Rs. 51 crores
  • Current outstanding shares = 58 crores
  • Increase in share base with warrants conversion = 6.6 crores
  • Total outstanding shares = 58 + 6.6 = 64.6 crores
  • Expected earnings per share = Rs.4.5 (approx. Rs. 1 increase due to debt reduction)


Promoters increasing stake and that money being used to reduce debt will add Rs.1 per share to the earnings. At current P/E multiple of 16, it adds a value of Rs. 16 to each share. But there is an improvement to quality of balance sheet as debt levels will come down. That would demand a higher P/E multiple. Though industry P/E multiple is at 35, we can conservatively expect it to raise to 20.

Estimated future value per share = 4.5 (EPS) x 20 (P/E) = Rs. 90

Interestingly our estimate coincides with conversion price of debentures too. That gives a sense that our estimate is realistic. This means there is upside potential of 50% to this stock. It may take an year or so to realize that benefit.

Down Risks to estimate:

We have not assumed any further deterioration to revenue as business seems to be stable as per the management commentary and order book position. If our assumptions are challenged, so will be our estimate too.

Potential upside to estimate:

There could be further upside to our estimate if business comes out stronger than last quarter which looks more probable. And the company is venturing into automotive sector which has higher potential to increase earning further. That estimate is considered out of scope for this post.

Edit: July 07, 2018
The downward fall continues with this stock. Last quarter (Q4' 18) showed negative results while there was no big impact to revenue/sales, loss was incurred (most likely it is one time write-off but could not get any explanation by management for it). Need to see the latest quarter's results. Disclaimer: I am invested in this stock (I have skin in the game).

Tuesday, March 20, 2018

5 Cultural Stages (TED Talk: Tribal Leadership by David Logan)

I have recently changed my job and was noticing the cultural differences between the organization I had worked for before and the one serving now. I was thinking what causes the difference in culture? Of course, it is it's people. But I wanted to get a better understanding how those people shape up the culture? This TED talk by David Logan gave the answers I was looking for. I found it impressive and interesting so I wanted to mention it on my blog.

David Logan shows how the tribes (a group of around 20 to 150 people) form and adopt a culture suiting their outlook towards life. He shows most organizations operate at Stage 3 which is incidentally the larger population too.
Having this knowledge allows us to identify what kind of tribe we are part of and why there are  cultural differences across the groups operating at different cultural stages and how to evolve and move forward. And this understanding also makes us more tolerant towards the groups in the lower stages of culture.

Friday, March 2, 2018

Book Review: Portrait of a Serial Killer by Khushwant Singh

This is a collection of 58 short essays written by Khushwant Singh over many decades published in various newspapers and magazines but not in a book form before. This book is divided into four sections, grouping the essays by People, Places, Indian Way and Politics.

In the first section about people, author writes about his meetings with Lata Mangeshkar at her home and a dinner with Dev Anand. There is a chapter on author's perspectives on Nehru as a writer and in another chapter he describes the life Amir Khusrau had lived being a courtier and being close to a saint at the same time. Book’s title ‘Portrait of a serial killer’ is a chapter in this section where in author constructs the life story and looks into how the mind of a serial killer works based on the information available about him.

Second section is about places. Here author gives summary of his experiences in visiting the places across India and the fascinating stories behind them. It has an interesting story of sudden appearance of numerous snakes in a village and how they find what had caused it. This section has chapters on Hyderabad, Agra, Amritsar, Haridwar, Delhi and villages in Madhya Pradesh.

Third section is about the way Indians think and behave. And the last section is about the political dramas and the stories as seen by the author. Here author dons the role of a journalist and the language becomes critical and he suggests how we should see things differently and act.

I thoroughly enjoyed reading the first two sections of this book. This book was on my night stand for a week as a warm companion to relax and put me to good sleep.

Khushwant Singh had many hats to wear – that of author, lawyer, diplomat, journalist and politician. He read and wrote voraciously and has numerous books to his credit. He died in 1994 at the age of 99. This book was a compilation of his works by his daughter and was published in 2015 on the hundredth anniversary of author’s birth.