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Supreme Industries - Beat on all counts - ICICI Securities

Posted On: 2020-10-29 05:45:55


Supreme Industries (SIL) reported strong beat on all counts: a) impressive (8% YoY growth) sales recovery; b) 18.6% EBITDA margin (+500bps YoY) driven by inventory gains in plastic pipe segment, superior product mix, cost optimisation and operating efficiencies; and c) 75.6% YoY growth in PBT at Rs2.01bn (I-Sec: Rs1.45bn) led by strong operational performance and lower interest costs. With the company sustaining its capex drive by way of setting up incremental greenfield plants and further expanding its reach by widening its distribution network, we expect SIL to gain sizeable market share in a post Covid environment in its plastic piping and packaging segments in particular. Maintain BUY.

- Valuation and outlook: Factoring-in the Q2FY21 performance, we increase our revenue and PAT estimates by 2.8% / 0.3% and 13.9% / 5% for FY21E / FY22E respectively. We now expect the company to report revenue and core PAT CAGRs of 7% and 17.7% respectively over FY20-FY22E. We maintain BUY on the stock with a revised SoTP-based target price of Rs1,690 (earlier: Rs1,640), valuing the core business at 35x FY22E earnings.

- Revenues grow 8.2% YoY to Rs13.8bn (I-Sec: Rs12.6bn): SIL reported 8.2% YoY growth in revenues to Rs13.8bn driven by 1.4% / 6.6% YoY increase in volumes / realisation respectively. With sharp recovery seen in Sep'20 across segments, the company reported YoY volume growth of -1.8% / 10.6% / 13.4% / 0.6% in plastic piping / packaging / industrial / consumer segments respectively. VAP revenues too increased 8.6% YoY. Management commentary remained optimistic with regards to Oct'20-TD volumes - which are higher across all segments. We expect SIL to report 7% revenue CAGR over FY20-FY22E driven by market share gains in plastic piping and SILPAULIN in particular.

- EBIDTA margin surprises positively at 18.6% (I-Sec: 16.2%): SIL reported a beat in EBITDA margin at 18.6% (I-Sec: 16.2%), up 500bps YoY and 750bps QoQ. The beat was driven mainly by inventory gains in plastic piping segment in particular, higher share of VAPs and cost control. Management expects inventory gains to reverse in Q4FY21 with PVC prices likely to start correcting post-Dec'20. Going forward, we expect SIL's overall EBITDA margin to improve structurally over the next 2-3 years driven by higher contribution from its plastic piping and packaging product segments, higher sales of VAPs and sustained cost control measures undertaken by the company.

- Core PBT up by a strong 75.6% YoY to Rs2bn (I-Sec: Rs1.5bn): Better than expected operational performance led to a beat in core PBT at Rs2bn (I-Sec: Rs1.5n). Core PAT was up 15% YoY to Rs1.5bn (I-Sec: Rs1.1bn) led by tax reversal in the base quarter. Going forward, we expect SIL to report core PAT CAGR of 17.7% over FY20-FY22E.

Shares of SUPREME INDUSTRIES LTD. was last trading in BSE at Rs.1470 as compared to the previous close of Rs. 1459.2. The total number of shares traded during the day was 1573 in over 478 trades.

The stock hit an intraday high of Rs. 1475.05 and intraday low of 1435.35. The net turnover during the day was Rs. 2299281.


Source: Equity Bulls

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