Supreme Industries - Core segments deliver impressive performance - ICICI Securities

Supreme Industries (SIL) reported better than expected performance with market share gains in plastic piping (higher agriculture pipe sales) and packaging (higher cross-laminated film sales). SIL reported revenues at Rs10.5bn (I-Sec: Rs9.6bn), down 26.7% YoY. EBITDA margin came in at 11.1% (I-Sec: 10.7%), down 50bps YoY, led by higher share of VAPs and cost control. With SIL committing higher capex for greenfield plastic piping plants (Odisha and Telangana) and a cross laminated films (cross-plastic film) plant in Gujarat, we expect both the segments to be on higher growth trajectory in FY22 and beyond. We expect EBITDA margin to improve structurally over the next 2-3 years driven by planned new product launches and higher contribution from VAPs (including Silpaulin). Upgrade to HOLD.

- Valuation and outlook: Factoring-in the Q1FY21 performance, we increase our revenue and PAT estimates by 0.9% / 1.2% and 0.4% / 7.1% for FY21E / FY22E respectively. We now expect the company to report revenue and core PAT CAGRs of 3.9% and 9.1% respectively over FY20-FY22E. We upgrade the stock to HOLD (from Reduce) with a revised SoTP-based target price of Rs1,135 (earlier: Rs981), valuing the core business at 27x FY22E earnings.

- Revenues decline 26.7% YoY to Rs10.5bn: SIL reported 26.7% YoY decline in revenues to Rs10.5bn due to 19.4% YoY decline in volumes. The impact of lockdown was relatively lower in the plastic piping segment (volumes down 12% YoY) and packaging segment (volumes down 20% YoY) while other segments reported sharper volume declines. Management highlighted that segments like agriculture pipes, performance films and cross-laminated films have done well and witnessed strong demand in rural markets and tiers-3&4 cities. With higher capex in plastic piping and packaging segments, we expect higher growth trajectory going forward.

- EBIDTA margin was better than expected at 11.1% (I-Sec: 10.7%): SIL reported a beat in EBITDA margin at 11.1% (I-Sec: 10.7%), down 50bps YoY, despite higher share of agriculture pipes and slight inventory loss. The beat was mainly due to higher share of VAPs, cost control and better performance in packaging segment. Packaging segment margin came in at 15.2% vs 12.4% YoY led by better realisation and higher sales of Silpaulin and performance packaging products. We expect EBITDA margin to improve structurally over the next 2-3 years driven by planned new product launches and higher contribution from VAPs (including Silpaulin).

- Core PBT was down 48.7% YoY to Rs588mn (I-Sec: Rs437mn): Better than expected operational performance led to beat in core PBT at Rs588mn (I-Sec: Rs437mn). Core PAT however was down only 41% YoY to Rs442mn (I-Sec: Rs372mn) led by lower tax outgo. Going forward, we expect SIL to report core PAT CAGR of 9.1% over FY20-FY22E.

Shares of SUPREME INDUSTRIES LTD. was last trading in BSE at Rs.1227 as compared to the previous close of Rs. 1172.65. The total number of shares traded during the day was 3827 in over 669 trades.

The stock hit an intraday high of Rs. 1228.3 and intraday low of 1175. The net turnover during the day was Rs. 4601517.

Source : Equity Bulls

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