Sintex Industries Surges After Morgan Stanley Buys Stake

Sintex surged 13 percent on Wednesday after a 35.7 lakh share block deal.

Rolls of coloured yarn sit on hangars at a knitting centre (Photographer: Lisi Niesner/Bloomberg)
Rolls of coloured yarn sit on hangars at a knitting centre (Photographer: Lisi Niesner/Bloomberg)

Sintex Industries Ltd. surged more than 12 percent on Wednesday, after a Morgan Stanley Group company bought shares worth Rs 10 crore on the National Stock Exchange. The block deal saw 0.66 percent stake change hands at Rs 28.95 per share. The stock was trading more than 11 percent higher on Thursday.

Here’s what may contribute to investor interest in the stock.

Here’s What’s New

  • The share is currently trading as a pureplay textile company. Sintex Plastics Technology Ltd. which was demerged will be listed at a later stage.
  • The company is transforming from a manufacturer of high-end fabric to compact yarn. Compact yarns have better margins, less wastage, and are preferred by high end fabric makers.
  • Capital expenditure of Rs 4,300 crore to transform the company to compact yarn and this was done in two phases.
  • Phase 1 is operational and phase 2 will start in August 2017. Once phase 2 kicks in, Sintex will have 6 lakh new spindles, making it the largest compact yarn player in India.
  • Management has indicated in a recent conference call that margins will improve post capex due to premiumisation.
  • Sintex is located in Gujarat, the heart of cotton market in India, which aids margins due to lower transportation cost.
  • Plant location is 10 km away from the Pipavav port, which aids exports as 38 percent of sales are from exports.
  • Low cost borrowings - at 2 percent - based on the government’s existing Technology Upgradation Fund Scheme (TUFS) scheme.
  • Only 10 percent of Rs 4,000 crore debt is short term, while long-term debt interest costs lower due to TUFS scheme.