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Sintex acquires Nief Plastic for 31 million euros


Sintex Industries has acquired Nief Plastics, a French Plastics manufacturer. This changes things for Sintex substantially, as it gives them a much needed European presence and brings them new injection moulding technology for the Indian markets as well.

The deal’s at 30.9 million euros, for a 100% equity stake. The deal also makes Sintex absord the 11 million euro debt that the company has, meaning the net investment is around 42 million euros (the loan has to be paid back!)

Nief makes stuff for a lot of very famous European brands, like Thryssenkrupp, Areva, Alstom, Renault etc. Not just that, Nief has manufacturing facilities in Eastern Europe and Africa, giving Sintex the ability to deliver faster in these markets.

Nief makes about 110 million euros in revenues, and EBIDTA is about 10-15 million euros. They must make about 7-10 million euros post interest and tax, making the deal about 5-6 P/E, which is reasonable.

Where’s the money coming from? 31 million euros is about 160 cr. which they can easily finance; their March 07 Cash flow statement shows over 574 cr. in cash. This is great, because a) they don’t need to take on debt for this acquisition and b) they can use the surplus cash.

You usually take P/E to value a company, and that is entirely based on earnings. Cash in the bank does not yield much in terms of earnings so that is usually not accounted for; when a company uses its cash to expand the business, it can yield much more than an equivalent bank deposit yield. In this case, let’s assume Nief makes 7 million euros in net profit = about 35 crores. (this is post tax, interest and all that) So Sintex has effectively invested 160 cr. of its cash, to get 35 cr. return per year, which is a 20%+ return, much more than it would have got for the money had it sat in a bank account or debt mutual fund.

The impact on financials: Sintex should make around 160 cr. this year, EPS being around the 14 Rs. mark. An additional 35 crores will bump up EPS by about Rs. 3 (maybe not fully this year but still), and in toto the EPS should be around 17 – not accounting for a very small Bright Brothers acquisition earlier this year. Even for an EPS of 15 the growth is around 40%, and with the current price is around Rs. 460 the P/E is around 30. Synergies will increase earnings, and I believe the stock will go up.

Disclosure: They announced this as an “impending acquisition” when they announced their results two weeks back and I bought some of their shares at Rs. 370. It’s now 460, and I purchased some more when they announced the acquisition yesterday, at 445. I am long on this stock. Also, this is not a recommendation to buy or a solicitation for this stock; this is only my opinion.


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