Here's why you should stay away from Sintex Industries

The Sintex Group, which is well known for its name-brand water tanks, spun off its flagship textiles and plastics companies to maximise shareholder value. After a few years, investors have lost practically all of their wealth.

Founded in 1931 at Kalol in Gujarat, Sintex Industries (formerly known as The Bharat Vijay Mills Ltd) is a diversified company. Its textile segment offers fabric and yarn.

The plastic segment offers water tanks, doors, windows, prefab, custom moulding, and others. Its infrastructure segment undertakes engineering, procurement and construction contracts.

Shares of the parent Sintex Industries Ltd. have plunged more than 95 percent since its peak in 2017, just before the restructuring of the group. Sintex Plastic Technologies Ltd. has tumbled 96 percent since it started trading separately.

In September 2016, the group carved out its custom moulding and prefab unit to streamline operations, cut costs and ensure better management control. Sintex Industries remained a pure-play textile company, making yarn and fabric. Both segments ran into headwinds.

That came a year after its purchase cost of fabric nearly doubled to ₹962 crore because of higher cotton prices and an increase in the minimum support price of the crop in FY18.

Debt Burden

As on March-end 2021, the total financial indebtedness including short-term and long-term debt stood at ₹7,802 crore.

The lenders to the company include Punjab National Bank, Bank of India, Bank of Baroda, Export-Import Bank of India, HDFC Bank and Axis Bank.

Sintex Industries’ debt rose during the period as the cost of infrastructure and automation increased despite its efforts to strengthen financials and deleverage the balance sheet.

In June 2019, Care Ratings Ltd. and Brickwork Ratings Ltd. had cut the ratings of Sintex Industries to default, Citing delays in repaying bank loans and debentures.

In Sep 2019, An insolvency tribunal has admitted fraud-hit textile and yarn manufacturer Sintex Industries on a plea by Invesco Asset Management (India) Pvt Ltd over a ₹15.4 crore default.

The plea was filed after Sintex Industries made a disclosure in June 2019 about a ₹90 crore default on bonds in which the fund had invested.

Lenders also rejected to Sintex industries plea against a debt restructuring plan, and intend to push it into bankruptcy code.

Resolution Plan

Reliance Industries- Assets Care & Reconstruction Enterprise (ACRE) team, a Welspun entity, Himatsingka Ventures and GHCL Ltd have submitted resolution plans in January.

Reliance Industries-ACRE team has offered ₹2363 crore which includes ₹2280 crore to financial creditors and the remaining to trade creditors and employees. In addition to this, they also offer 10% equity to the financial creditors and ₹500 crore for working capital requirements.

Welspun’s Easygo Textile offered ₹2300 crore to financial creditors, of which ₹2200 crore is for financial creditors and the remaining is for trade creditors and employees.

The resolution plan from Himatsingka Ventures is ₹2210 crore of which ₹2200 crore is for financial creditors

while GHCL offered ₹2040 crore of which ₹2000 crore is for financial creditors.

The Resolution professional has admitted that ₹7,534.6 crore of claims from 27 financial creditors.

Stock price on the rise

The stocks of Sintex Industries has been rising ever since Reliance Industries emerged as one of the bidders who showed interest to acquire the bankrupt firm.

The company's shares had risen 172 percent in 2021, as exchange data showed.

Retail investors have been buying most of the stocks going into such resolution proceedings, in the hope to find the next Ruchi Soya. But most resolutions are leading to equity write off such as DHFL (Dewan Housing Finance Corporation Ltd).

The latest shareholder data showed that individual investors with up to Rs2 lakh capital are holding a 74.02% stake in the company.

In 2019, RIL and partner JM Financial Asset Reconstruction Co. Ltd acquired insolvent textiles player Alok Industries Ltd. The RIL-JM Financial ARC combine bid ₹5,000 crore for Alok Industries, which owed over ₹30,000 crore to 27 banks led by State Bank of India, Axis Bank, Corporation Bank and UCO Bank, among others.

RIL-ACRE wins bid

Sintex Industries Ltd (SIL) has approved a resolution plan submitted by Reliance Industries Ltd (RIL) jointly with Assets Care & Reconstruction Enterprise Ltd (ACRE).

The plan (RIL-ACRE) has been duly approved by the 100 per cent members of the Committee of Creditors (CoC) as the successful resolution plan subject to the approval of National Company Law Tribunal (NCLT), the company informed BSE.

Sintex industries said all four compliant Resolution Plans submitted by four Resolution Applicants were put for e-voting for approval by the CoC members in accordance with the Insolvency and Bankruptcy Code, 2016 (Code) and regulations. The e-voting concluded On March 19, 2022, at 10.00 p.m.

The company will be delisted from the stock exchanges i.e. BSE and NSE.

What happens when a company gets delisted from stock exchanges

Reliance - Acre have proposed that post the acquisition, they will delist the shares of Sintex industries.

This means shares of a listed company will be removed from the stock exchanges permanently for buying and selling purposes.

Delisted shares will no longer be traded on the stock exchanges.

If a company is delisted, you are still a shareholder, to the extent of a number of shares held. And yet, you cannot sell those shares on any exchange.

However, investors had an option to sell it on the Over-the-counter market. This means the investor has to look for a buyer outside the stock exchange.

For example, if Sintex Industries gets delisted and you still own the shares in the company, you may find a buyer on the Over-the-counter market.

In a financial sense, each type of delisting of shares- Voluntary and involuntary delisting will impact the investor who owns the shares.

Why are Sintex shares going to zero

Investors are continuing to buy Sintex Industries' stock despite the fact that they may lose all of their money under the acquirers' proposed resolution plan.

Sintex's insolvency resolution was approved, and the equity is being written off, shares are being delisted, and equity is being reduced to zero.

On BSE, 8 lakh Sintex shares worth ₹63 lakh exchanged hands on Monday, as the counter tanked 5 per cent to ₹7.81. On NSE, 44 shares worth ₹3.39 crore have exchanged hands so far today.