The Supreme Industries's (Supreme's) Q3FY13 (financial year June-ending) revenues were in line with while earnings exceeded CRISIL Research's expectations. Revenues grew by 19.4 percent y-o-y (13 percent q-o-q) to Rs 9.2 bn driven by 13.2 percent y-o-y volume growth. EBITDA margin expanded by 101 bps y-o-y (flat q-o-q) to 14.6 percent; the overperformance was due to inventory gain in this quarter. Adjusted PAT increased by 39 percent y-o-y (14 percent q-o-q) to Rs 758 mn mainly due to higher EBITDA margin and improvement in performance of associate Supreme Petrochem Ltd. We expect Supreme to maintain its dominant position in the plastic processing industry driven by capacity expansion across product segments and focus on new products. Hence, we maintain the fundamental grade of 4/5.
Plastic pipes' revenues up, packaging products' revenues down by 5 percent
The plastic pipes segment's revenues grew by 42 percent y-o-y to Rs 4.7 bn driven by 19 percent volume growth and 20 percent realisation growth. Robust demand from the real estate and agriculture sectors, and strong CPVC sales drove growth in this segment. Continuous expansion of the dealer base, to increase presence in India, has supported revenue growth in this segment. The packaging products segment's revenues declined by 5 percent y-o-y to Rs 1.7 bn despite 16.3 percent volume growth y-o-y as the contribution of high-margin cross laminated films declined in the quarter. Cross laminated films are mainly used in agriculture and the demand from its major markets Kerala, Maharashtra and Gujarat was muted due to drought. However, the management has indicated that the demand is showing signs of revival and is expected to pick up in Q4FY13.
Capacity expansion on schedule, new products in the offing
Supreme's capacity expansion across product segments is progressing well and it is focussing on increasing the product portfolio. Both these factors are expected to drive the company's growth over the next few years. During the quarter, it launched several variants of the cross laminated films which have applications in packaging and agriculture. It also has several new products in the development stage including manhole covers, high-rise pipe systems, composite pellets and auto components, premium furniture designs, etc. We believe that while these products will take some time to contribute significantly to revenues, continuous focus on new product development will help the company stay ahead of competition.
Earnings estimates revised, fair value revised to Rs 370
We have increased FY13 earnings estimate by 5 percent and reduced FY14 earnings estimate by 5 percent. We have rolled forward the first year of discounting by one year to FY15 and revised the fair value to Rs 370 from Rs 291. This fair value implies P/E multiples of 14.1x FY14E and 10.1x FY15E EPS. At the current market price of Rs 326 per share, the valuation grade is 4/5.
Disclaimer: This report (Report) has been commissioned by the Company/Investor/Exchange and prepared by CRISIL. The report is based on data publicly available or from sources considered reliable by CRISIL (Data). However, CRISIL does not guarantee the accuracy, adequacy or completeness of the Data / Report and is not responsible for any errors or omissions or for the results obtained from the use of Data / Report. Opinions expressed herein are CRISIL's opinions as on the date of this Report. The Data / Report are subject to change without any prior notice. Nothing in this Report constitutes investment, legal, accounting or tax advice or any solicitation, whatsoever. The Report is not a recommendation to buy / sell or hold any securities of the Company. CRISIL especially states that it has no financial liability, whatsoever, to the subscribers / users of this Report. This Report is for the personal information of the authorized recipient only. This Report should not be reproduced or redistributed or communicated directly or indirectly in any form to any other person or published or copied in whole or in part especially outside India, for any purpose.
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