SECTOR:
PLASTIC PRODUCTS
The Supreme Industries Ltd.
STOCK INFO.
BLOOMBERG
BSE Sensex: 19158
S&P CNX: 5814
SI.IN
REUTERS CODE
19 June 2013
Initiating Coverage
(Rs CRORES)
Accumulate
Rs330
SUPI.BO
Y/E JUNE
FY12
FY13E
FY14E
We recommend to Accumulate Supreme Industries with a target
of
Rs
415.
SUPREME INDUSTRIES - INTRODUCTION TO:Supreme
Industries operates across all product segments in the plastics space
in India. It manufactures plastic pipes, furniture, Pallets for
manufacturing and retailing Industries, Flexible\ protective\ Cross-
laminated films and Composites. The company operates throughout
the country with more than 23 plants in India and a wide dealer network.
Supreme in the plastics space:
With a turnover of ~Rs3000cr,
Supreme is one of largest player in the plastics space. It has grown at
double digit rates over the last 10 years (17.5% CAGR) in revenue
terms and is likely to do so for the next few years.
Value added products to aid margin improvement:
The company
has over the years focussed on the value-added space increasing sales
of value added products from 26% of sales in FY10 to almost 1/3rd of
revenue as of 3QFY13 end. CPVC pipes has seen a 60% rise in
revenues in FY12 with a further 30% rise likely in FY13E. Value-
added products have operating margin 1% higher than non-value-added
products. Hence, this rise in value added revenues should
improve margins.
Strong balance sheet and return ratios:
Supreme Industries had a
D/E of 0.5x at FY12 end and this level is likely to be mainted despite
capex of
Rs1100cr
upto FY15. This is despite
Rs800cr
of capex over the
last 6 years. Further, debtor days have been less than a month for the
last 5 years. Return ratios have risen with ROE up to 40% from 16%
in FY07. Payout continues to remain a healthy 37% despite high capex.
RISKS to our Investment Recommendation
(1) USD/INR
volatility brings in uncertainty in raw material costs since plastics are
priced on an import-parity basis resulting in inventory gains \ losses
(2) Delay in capacity addition could push earnings growth by a quarter
or two and could impact investor sentiments
Valuations & View:
Revenues are likely to rise over FY12-FY15E
at 16% CAGR with earnings growth of 17% CAGR. We estimate
ROE to be in the region of 37-40% during this period of heavy capex,
which should be funded primarily by internal accruals. The stock trades
at a 20-22% premium to 5 year average valuations given that ROE is
at a 10% premium to the 5 year average.
We recommend to Accumulate Supreme Industries for a target of
Rs410
- 15xFy14E EPS and
Rs14/share
for Supreme Petrochem.
Net sales
EBITDA
RPAT
BV/Share (Rs)
Adj. EPS (Rs)
EPS growth (%)
P/E (x)
P/BV (x)
EV/EBITDA (x)
Div yld (%)
ROE (%)
RoCE (%)
KEY FINANCIALS
Shares Outstanding (cr)
Market Cap. (Rscr)
Market Cap. (US$ m)
2,965
486
241
50.5
18.8
39%
17.6
6.5
9.3
1.8%
42%
38%
3,355
546
280
64.3
22.0
17%
15.0
5.1
8.5
2.1%
38%
38%
3,999
652
343
81.9
27.0
23%
12.2
4.0
7.2
2.4%
37%
37%
12.7
4193
714
21%
35%
Past 3 yrs Sales Growth (%)
Past 3 yrs NP Growth (%)
STOCK DATA
52-W High/Low Range (Rs)
Major Shareholders (as of Mar 2013)
Promoter
Institutional Holding
Public & Others
Average Daily Turnover(6 months)
Volume
Value (Rscr)
1/6/12 Month Rel. Performance (%)
1/6/12 Month Abs. Performance (%)
378/203
49.6
21.5
28.9
63596
2.03
-3/13/46
-8/12/61
Maximum Buy Price :
Rs
Rs340
Ravi Shenoy
(ravi.shenoy@motilaloswal.com);Tel:+912230896865