Supreme Industries Ltd. Absolute ... - Business...

October 30, 2018 Analyst: Maulik Patel ([email protected]) (+91-8128694110) of 14

Before reading this report, you must refer to the disclaimer on the last page.

Supreme Industries Ltd. Absolute: REDUCE

Relative: UNDERWEIGHT

2QFY19 Results: Estimate (), TP (), Rating () Regular Coverage 3% ATR in 14 months

Operating profit in line, packaging segment under pressure — maintain REDUCE Plastic Products

© 2018 Equirus All rights reserved

Rating Information

Price (Rs) 986

Target Price (Rs) 1,022

Target Date 31st Dec'19

Target Set On 29th Oct'18

Implied yrs of growth (DCF) 15

Fair Value (DCF) 559

Fair Value (DDM) 302

Ind Benchmark SPBSMIP

Model Portfolio Position NA

Stock Information

Market Cap (Rs Mn) 1,25,306

Free Float (%) 50.30 %

52 Wk H/L (Rs) 1489.95/944.3

Avg Daily Volume (1yr) 90,488

Avg Daily Value (Rs Mn) 108

Equity Cap (Rs Mn) 254

Face Value (Rs) 2

Bloomberg Code SI IN

Ownership Recent 3M 12M

Promoters 49.7 % 0.0 % 0.0 %

DII 22.0 % 0.8 % 3.4 %

FII 7.2 % -0.1 % -3.2 %

Public 21.1 % -0.7 % -0.2 %

Price % 1M 3M 12M

Absolute -2.0 % -17.8 % -11.0 %

Vs Industry 1.4 % -7.4 % 2.0 %

Astral

Polytechnik -11.6 % -22.2 % 14.9 %

Finolex

Industries 2.8 % -4.1 % -23.8 %

Standalone Quarterly EPS forecast

Rs/Share 1Q 2Q 3Q 4Q

EPS (18A) 5.9 5.5 7.6 13.1

EPS (19E) 5.9 6.3 8.0 13.9

Supreme Industries (SIL) posted in-line revenue/EBITDA growth of 17%/11% yoy driven by

strong polymer prices, but volume growth at 5% yoy was a tad below EE off a high base.

While FY19 volume guidance of 10% looks achievable, declining profitability of the high-

margin/RoCE packaging segment and volatile polymer prices would restrict margin growth.

We raise our realization estimates but reduce margin estimates for FY19/FY20, keeping our

FY18-20E EPS CAGR largely unchanged at 12%. While a ~20% correction in the stock price

over the last few months has led to a multiple de-rating, we think the market is yet to factor

in lower profitability of the packaging segment and the impact of higher polymer prices on

volumes. We cut our target multiple to 26x (vs. 30x earlier) and maintain REDUCE on the

stock with a Dec’19 SOTP-based TP of Rs 1,022 (Sep’19 TP of Rs 1,224 earlier).

Packaging segment under pressure: Cross-laminated films (Shilpaulin) form ~10%/50% of

overall revenues/packaging segment but have higher contribution in overall EBITDA. With

the entry of new players, SIL has reduced prices of Shilpaulin by 3-4% despite a ~20%

increase in polyethylene prices (RM) over the last 6-9 months; this led to merely 4%/3%

growth in packaging volumes/revenues and a 4% decline in 1HFY19 EBITDA. We feel the

high-margin and higher-RoCE Shilpaulin is fast becoming a commodity product — a concern

we have highlighted earlier. SIL has not been able to scale up any other new products

(bathroom fittings, composite cylinders) with higher RoCE/margins off late.

Volumes muted off a high base: On a strong base post GST implementation, SIL reported

muted volume growth of 5% yoy in 2QFY19. Volume CAGR over 1HFY17-1HFY19 is only 5.7%

driven by the industrial segment. Pipe/industrial volume growth stood at 7%/9%yoy whereas

packaging/consumer segments posted volume declines of 3%/2% yoy. Management further

reduced its volume growth guidance for FY19 from 10-12% to

10%; we maintain our volume growth estimates at 9% for FY19.

Margins contract, EBITDA grows 11% yoy: Strong polymer prices in 1HFY19 led to solid

realization growth of 12% yoy. Flattish volumes in the packaging segment and a price cut

taken due to higher competitive intensity in Shilpaulin led to a ~200bps contraction in gross

margins to 32%. EBITDA margins at 12.9% slid 70bps yoy. Pipe/packaging/industrial/

consumer segment EBITDA grew 17%/-11%/19%/1% yoy. Management reduced its margin

guidance to 14.5-15% from 15-15.5% earlier. We expect SIL to report EBITDA margins of

14.9/15% in FY19E/FY20E, in line with its five-year average margin of 15.4%. EBITDA growth

would be marginally lower than revenue growth for FY19-FY20E.

Adj. PAT up 15% yoy: Other income grew 52% yoy to Rs 156mn. Adjusting for one-time

gains of Rs 346mn for sale of property, PAT was up 15% yoy to Rs 804mn.

Estimate Change

FY19E %

Change FY20E

% Change

Sales 58,023 2% 65,352 0%

EBITDA 8,648 -2% 9,812 2%

PAT 4,322 0% 5,097 -1%

Consolidated Financials

Rs. Mn YE Mar FY18A FY19E FY20E FY21E

Sales 49,660 58,023 65,352 74,326

EBITDA 7,865 8,648 9,812 11,120

Depreciation 1,672 1,843 2,055 2,251

Interest Expense 219 273 226 171

Other Income 178 241 191 224

Reported PAT 4,096 5,217 5,097 5,889

Recurring PAT 4,096 4,322 5,097 5,889

Total Equity 17,331 20,189 23,008 26,334

Gross Debt 2,324 1,765 1,165 1,165

Cash 335 5,629 6,121 8,110

Rs. Mn YE Mar FY18A FY19E FY20E FY21E

Earnings 32.2 34.0 40.1 46.3

Book Value 136 159 181 207

Dividends 12.3 15.9 15.3 17.2

FCFF 20.1 71.4 29.3 36.7

P/E (x) 30.6 29.0 24.6 21.3

P/B (x) 7.2 6.2 5.4 4.8

EV/EBITDA (x) 16.3 14.1 12.3 10.7

ROE (%) 25 % 23 % 24 % 24 %

Core ROIC (%) 21 % 22 % 27 % 28 %

EBITDA Margin (%) 16 % 15 % 15 % 15 %

Net Margin (%) 8 % 7 % 8 % 8 %

Supreme Industries Ltd. Absolute – REDUCE Relative – Underweight 3% ATR in 14 Months

October 30, 2018 Analyst: Maulik Patel ([email protected]) (+91-8128694110) of14

Quarterly performance

Rs Mn 2QFY19 2QFY19E 1QFY19 2QFY18 % Change

Comments 2QFY19E 1QFY19 2QFY18

Net Sales 12,353 11,950 13,457 10,551 3% -8% 17%

Goods Consumption 8,412 7,770 9,223 6,974 8% -9% 21%

Employee Costs 598 669 600 578 -11% 0% 3%

Other Expenditure 1,749 1,889 1,777 1,563 -7% -2% 12%

Total Expenditures 10,760 10,328 11,600 9,115 4% -7% 18%

EBITDA 1,594 1,622 1,857 1,436 -2% -14% 11%

Depreciation 473 476 427 424 -1% 11% 11%

EBIT 1,122 1,147 1,430 1,012 -2% -22% 11%

Interest 104 63 39 52 65% 164% 102%

Other Income 156 84 6 102 87% 2546% 52%

PBT 1,173 1,167 1,397 1,063 1% -16% 10%

Tax 370 397 652 367 -7% -43% 1%

Recurring PAT 803 770 745 696 4% 8% 15%

Extraordinaries 336 0 559 0 Income from sale of premises

Reported PAT 1,139 770 1,304 696 48% -13% 64%

EPS (Rs) 6.3 6.1 5.9 5.5 4% 8% 15%

Gross Margin 31.9% 35.0% 31.5% 33.9% -308 bps 44 bps -200 bps

EBITDA Margin 12.9% 13.6% 13.8% 13.6% -67 bps -90 bps -71 bps

EBIT Margin 9.1% 9.6% 10.6% 9.6% -51 bps -154 bps -51 bps

PBT Margin 9.5% 9.8% 10.4% 10.1% -27 bps -88 bps -58 bps

PAT Margin 9.2% 6.4% 9.7% 6.6% 278 bps -47 bps 262 bps

Tax Rate 31.6% 34.0% 46.7% 34.5% -244 bps -1511 bps -295 bps

Volume (In MT) 83,175 2,21,055 99,905 79,029 -62% -17% 5%

Realization (Rs MT) 1,48,521 - 1,34,699 1,33,503 - 10% 11%

Real Estate Revenue 809 - - - - - -



Exhibit 1: Segment-wise volume/revenue/EBITDAM trend

1QFY18 2QFY18 3QFY18 4QFY18 1QFY19 2QFY19 Comments

Sales Vol.

Plastic Piping 66,149 52,967 64,435 72,779 69,619 56,627

Packaging 11,469 10,751 15,806 11,905 12,647 10,443

Industrials 9,979 10,559 11,350 12,600 12,278 11,453

Consumer 4,584 4,749 5,143 5,909 5,275 4,650

Total 92,196 79,029 96,736 103,215 99,905 83,175

Volume (yoy)

Decline in high

margin packaging

volumes

Plastic Piping -6.7% 17.0% 24.9% 7.7% 5.2% 6.9%

Packaging -2.3% 29.5% 3.1% -2.8% 10.3% -2.9%

Industrials 5.8% 17.0% 16.9% 16.5% 23.0% 8.4%

Consumer -7.9% 12.9% 12.8% 16.9% 15.1% -2.1%

Total -5.0% 18.3% 19.2% 7.7% 8.4% 5.2%

Revenue (Rs. Mn)

Plastic Piping 6,649 5,671 6,665 7,966 7,475 6,802

Packaging 2,387 2,153 3,192 2,369 2,598 2,077

Industrials 1,661 1,852 1,927 2,270 2,281 2,544

Consumer 809 842 913 916 1,000 929

Total 11,617 10,551 12,783 14,713 13,457 13,162

Revenue (yoy)

Plastic Piping -3% 17% 19% 25% 12% 20%

Packaging -7% 32% 3% 3% 9% -4%

Industrials 11% 18% 29% 54% 37% 37%

Consumer -4% 15% 17% 18% 24% 10%

Total -1% 20% 15% 28% 16% 25%

EBITDAM (%)

Plastic Piping 13% 12.3% 13.2% 16.9% 13.1% 13.0%

Packaging 19% 16.9% 21.9% 22.1% 17.8% 15.7%

Industrials 11% 12.8% 13.6% 14.5% 11.4% 11.1%

Consumer 16% 18.2% 17.3% 28.8% 15.3% 16.5%

EBITDA/MT

Plastic Piping 13,069 13,136 13,642 19,253 14,107 15,616

Packaging 39,594 33,896 44,205 45,757 36,459 31,220

Industrials 18,298 22,486 23,026 29,438 21,213 24,680

Consumer 28,272 32,316 30,689 46,448 29,047 32,847

Blended 17,208 18,221 20,460 27,783 18,587 19,160

Source: Equirus Securities, Company

Exhibit 2: GPM declined due to rise in RM prices and other operating costs

Source: Equirus Securities

Exhibit 3: Value-added products (with >17% margins) declined from 37% to 35% yoy


17.7%

15.6%

33.3%

0%

5%

10%

15%

20%

25%

30%

35%

40%

1Q

15

2Q

15

3Q

15

4Q

15

1Q

16

2Q

16

3Q

16

1Q

17

2Q

17

3Q

17

4Q

17

1Q

18

2Q

18

3Q

18

4Q

18

1Q

19

2Q

19

Employee+Other Exp EBITDAM Gross Margin - RHS

35%

20%

25%

30%

35%

40%

45%

1Q

15

2Q

15

3Q

15

4Q

15

1Q

16

2Q

16

3Q

16

1Q

17

2Q

17

3Q

17

4Q

17

1Q

18

2Q

18

3Q

18

4Q

18

1Q

19

2Q

19

Value added Product as % of sales



Exhibit 4: PVC prices for the quarter increased to ~Rs 80/kg during the quarter


Exhibit 5:Prices of all the polymers increased during the quarter


Exhibit 6: Quarterly volume growth trend


Exhibit 7: Gross margins declined by 200bps yoy, EBITDA margin by 70bps yoy


50

55

60

65

70

75

80

85

Oct'15

Dec'1

5

Feb'1

6

Apr'16

Jun'1

6

Aug'1

6

Oct'16

Dec'1

6

Feb'1

7

Apr'17

June'…

Aug'1

7

Oct'17

Dec'1

7

Feb'1

8

Apr'18

Jun'1

8

Aug'1

8

Oct'18

Month PVC Price (Rs KG) Quarterly PVC Price (Rs KG)

50

60

70

80

90

100

110

Oct'15

Dec'1

5

Feb'1

6

Apr'16

Jun'1

6

Aug'1

6

Oct'16

Dec'1

6

Feb'1

7

Apr'17

June'…

Aug'1

7

Oct'17

Dec'1

7

Feb'1

8

Apr'18

Jun'1

8

Aug'1

8

Oct'18

PolyEthylene PolyPropylene PVC

8%

17%

5%

18%

3%

17%

6%

-6% -5%

18% 19%

8% 8%

5%

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

Jun-1

5

Aug-1

5

Oct-

15

Dec-1

5

Feb-1

6

Apr-

16

Jun-1

6

Aug-1

6

Oct-

16

Dec-1

6

Feb-1

7

Apr-

17

Jun-1

7

Aug-1

7

Oct-

17

Dec-1

7

Feb-1

8

Apr-

18

Jun-1

8

Aug-1

8

Volume Growth (YoY)

0%

5%

10%

15%

20%

25%

30%

35%

40%

1Q

15

2Q

15

3Q

15

4Q

15

1Q

16

2Q

16

3Q

16

1Q

17

2Q

17

3Q

17

4Q

17

1Q

18

2Q

18

3Q

18

4Q

18

1Q

19

2Q

19

Gross Profit Margin Core EBITDAM



Exhibit 8: 17% yoy revenue growth led by piping & industrial segment, weak base

Source:Equirus Securities

Exhibit 9:EBITDA/MT improves on strong pipe & industrial volumes, partly offset by packaging volumes


Exhibit 10: Historically, SIL has under-achieved its initial volume guidance; value guidance is not completely in control of management due to volatility in polymer prices

Guidance Later on revised to Achieved

Volume Value Volume Value Volume Value

FY13 16% 25% 10% 17%

FY14 12% 22% 9-10% 20-22% 2% 14%

FY15 12-15% 18-20% 12-15% 8-10% 10% 7%

9MFY16 15-18% - 12-15% - 13% 4%

FY17 12-15% - 8-10% - 4% 6%

FY18 12-15% - 12% - 9% 9%

FY19 12-15% - 10% - - -


Exhibit 11: There has never been an upgrade in volume guidance during the year

Volume Guidance FY13 FY14 FY15 FY17 FY18 FY19

Beginning - 14% - 12-15% 12-15% 12-15%

End of Q1 16% 12% - 12-15% 12% 10-12%

End of Q2 16% 9-10% 12-15% 8-10% 12% 10%

End of Q3 16% 6% 10-11% 8-10% 12% -

Actual 10% 2% 10% 4% 9% -


Exhibit 12: Expect 10% volume CAGR over next 2 years led by pipe/industrial segments


*FY16 includes 4thquarter of FY15

7,5

94

10,1

97

10,8

20

12,5

43

7,6

93

9,9

26

12,0

05

11,8

93

8,8

40

11,0

72

12,8

26

11,6

17

10,5

51

12,7

83

14,7

13

13,4

57

12,3

53

8% 9% 8%

0% 1%

-3%

11%

-5%

15%

12%

7%

-2%

19%

15% 15%

16% 17%

-10%

-5%

0%

5%

10%

15%

20%

25%

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,0001Q

15

2Q

15

3Q

15

4Q

15

1Q

16

2Q

16

3Q

16

1Q

17

2Q

17

3Q

17

4Q

17

1Q

18

2Q

18

3Q

18

4Q

18

1Q

19

2Q

19

Revenue (In Rs Bn) Y/Y

0

10,000

20,000

30,000

40,000

50,000

60,000

1Q

15

2Q

15

3Q

15

4Q

15

1Q

16

2Q

16

3Q

16

1Q

17

2Q

17

3Q

17

4Q

17

1Q

18

2Q

18

3Q

18

4Q

18

1Q

19

2Q

19

Blended Pipe Packaging

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19E FY20E FY21E

Pipe Packaging Total



Exhibit 13: Realization growth to be much lower than last few years as PVC/PE prices in INR terms are likely to remain range-bound


Exhibit 14:Expect 12%/13% EBITDA/PAT CAGR over FY18-FY21E


*FY16 was a 9 Month year.

Exhibit 15:Return ratios to largely remain at current levels


Exhibit 16: SoTP valuation

(Rs mn) Sep'18 Mar'19 Sep'19

TTM Plastic PAT 5,063 5,217 4,813

Core Business Multiple (x) 26 26 26

Business Value 1,31,646 1,35,640 1,25,145

Real-estate Value (Post Tax)

Supreme Petrochem stake @ 40% Holding company

discount (Rs. Mn) 4,767 4,767 4,767

SOTP Value 1,36,413 1,40,407 1,29,912

SOTP Value (Rs./Share) 1,073 1,105 1,022

CMP (Rs./Share) 986 986 986

Upside 9% 12% 4%

Source: Equirus Securities, Bloomberg

-10%

-5%

0%

5%

10%

15%

20%

FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19E FY20E FY21E

Pipe Packaging Total2,1

62

2,8

00

3,1

58

2,2

38

3,7

93

4,0

96

5,2

17

5,0

97

5,8

89

5,261 5,543 5,815

4,594

7,632 7,8698,648

9,812

11,120

0

2,000

4,000

6,000

8,000

10,000

12,000

FY13 FY14 FY15 FY16 FY17 FY18 FY19E FY20E FY21E

PAT Plastics EBITDA (Rs Mn)

21% 22%

19%

16%

23%21% 21%

22% 23%

29% 29%

24%

20%

27%25%

23% 24% 24%

0%

5%

10%

15%

20%

25%

30%

35%

FY13 FY14 FY15 FY16 FY17 FY18 FY19E FY20E FY21E

RoIC RoE



Earnings call takeaways

General highlights

• Plastic goods volumes for 2QFY19 were at 83,175MT with net product turnover of Rs

12.28bn (vs. 79,029MT in 2QFY18, net product turnover of Rs 10.44bn), a volume/value

growth of 5%/18% yoy.

• Segmental revenues in 2QFY19: Plastic products Rs 6.8bn (+7% volume growth, 20%

value growth), packaging products Rs 2.1bn (-3% volume growth, -4% value growth),

industrial products Rs 2.5bn (+8% volume growth, 37% value growth), and consumer

products Rs 1bn (-2% volume growth, 12% value growth).

• EBITDA margins across segments were as follows: plastic piping products 13%, packaging

products 15.7%, industrial products 11.1% and consumer products 16.5%.

• Share of value-added products for 2QFY19 stood at 35% of sales vs. 37% in 2QFY18.

Revenues from value-added products increased from Rs 7.5bn in 2QFY18 to Rs 8.5bn in

2QFY19; however, due to strong topline growth, the percent share has reduced.

• Total borrowings as on 30 Sep’18 stood at Rs 2.59bn vs. Rs 2.48bn as on 31 Mar’18.

Average cost of borrowings as on 30 Sep’18 was at 7.07% p.a. vs. 7.12% as on 31 Mar’18.

• Interest cost was high due to MTM accounting of loans which led to gains in 1Q and

reversed to losses in 2Q.

• Debtor days increased from 21 days to a peak of 26 days and are currently at 25 days

— 3-4 days higher than the acceptable number. This is mainly due to a liquidity crunch

in the channel.

• The Kushkera plant given to the JV with Kumi Kosei had an annual turnover of Rs 1bn

and volumes of 6,000 MT per annum.

• While rupee has depreciated by ~15% in H1FY19, PVC prices have increased by 3.5% and

other polymer prices up to 5%, mainly due coming up of several capacities. The

company expects polymer prices to further correct once the supply reaches market.

• SIL has planned a capex of Rs 3.5bn-4bn for FY19, of which Rs 2.2bn has already been

incurred in H1FY19.

Expansion update

• New plant to manufacture industrial components at Giloth, Rajasthan, has commenced

commercial production during Sep’18.

• Capacity of roto moulded products at Malanpur Unit III (M.P.) and at Kanpur (U.P.) has

become operational. Expanded capacities of both plants are 2,400MT p.a. The new

plant to manufacture HDPE pipes of 9,000 MT p.a. capacity at the Malanpur unit III has

commenced trial production.

• New plant to manufacture PP corrugated sheet with a capacity of 3,600MT p.a. has

commenced operations at the Derabassi unit, Punjab.

• Construction work at the Jadchelra plant, Telangana, is going at full speed and will

commence operations in 3QFY19. It will produce furniture and roto moulded items

currently while foam-based products will start from 4QFY19.

• The Hosur unit will be streamlined with increased capacities at one site instead of two

sites in the Oct-Dec quarter.

• Expanded capacities at the Khopoli unit will start production during 4Q19.

Plastic piping

• Good growth for pipes is seen from the housing sector, especially the affordable housing

sector. Agri pipes demand is also looking good with demand coming from the

government.

• SIL is not an aggressive player in the agri pipes segment as it is marked by high

competition and low margins. It supplies to states where competition is low.

Packaging segment

• There was some demand destruction during the quarter in the packing segment and

cross-laminated films. The off-season scheme which was introduced in 2Q last year has

been delayed to 3Q this year, leading to a decline in volumes. Also, due to some

maintenance activities, there was a plant shutdown in the packaging films segment this

year, which further contributed to the drop-in volumes.

• Margin contraction in cross-laminated films led to a decline in EBITDA in the packaging

products division due to a rise in competitive intensity.

• SIL has taken a price cut of 2.5-3% in the packaging films segment in order to maintain

volume growth.

Composite LPG cylinder

• No breakthrough has been achieved till now in the domestic market.

• Apart from existing countries (Bangladesh, South Korea), SIL will start selling composite

LPG cylinders to one more nation, with first shipping starting from 3QFY19.

Real estate update

• SIL has sold off 38,718 sq. ft premises at Supreme Chambers at Andheri (west) for Rs

808.5mn with an EBITDA of Rs 531mn and PAT of Rs 346mn.

• A total of ~12,000 sq.ft. is now unsold at Supreme Chambers.

Guidance

• SIL has guided for FY19 revenue at Rs 57bn-59bn with 10% volume growth for full year

FY19. Operating margin guidance was lowered from 15.5-16% to 14.5-15% in FY19.

• High pressure is seen in the agricultural pipes segment, with a volume drop likely in

FY19.



Company Snapshot

How we differ from Consensus

- Equirus Consensus % Diff Comment

EPS FY19E 34.0 39.0 -13 % We expect lower realization growth

resulting in lower Revenue/EPS as

compared to street. FY20E 40.1 46.7 -14 %

Sales FY19E 58,023 56,903 2 %

FY20E 65,352 65,615 0 %

PAT FY19E 5,217 4,940 6 %

FY20E 5,097 5,922 -14 %

Our Key Investment arguments:

• Management’s revenue growth guidance at~15% seems achievable given the shift from

unorganized to organized and increase in spending.

• SIL’s core RoIC peaked out in FY12-13 at 28% and has been at 24-25% in the last two

years.

• EBITDA margins to remain at ~15% going forward.

• Maintain REDUCE to factor lower profitability in packaging segment and impact of

higher polymer prices on volumes.

Key estimates

Particulars FY16A FY17A FY18A FY19E FY20E FY21E

Plastic Revenue Growth yoy (%) -28.0% 50.7% 11.3% 16.8% 12.6% 13.7% Plastic EBITDA Margin (%) 15.5% 17.1% 15.8% 14.9% 15.0% 15.0% Real Estate Proceeds (Rs. Mn.) 0 0 243 809 0 0

*FY16 was a 9 months year.

Risk to Our View

Sharp revival in volume and scale up of new products

Key Triggers

• RM inflation and volume pressure

Sensitivity to Key Variables % Change % impact on EBITDA

Raw Material Prices 5% -24%

DCF Valuations & Assumptions

Rf Beta Ke Term. Growth Debt/IC in Term. Yr

7.8 % 0.9 13.2 % 2.5 % 5.9 %

- FY19E FY20E FY21-23E FY24-28E FY29-33E

Sales Growth 17 % 13 % 10 % 10 % 9 %

NOPAT Margin 7 % 8 % 8 % 8 % 7 %

IC Turnover 3.22 3.31 3.35 3.43 3.53

RoIC 22.5 % 27.1 % 27.6 % 27.4 % 27.1 %

Years of strong growth 1 2 5 10 15

Valuation as on date (Rs) 284 311 364 438 499

Valuation as of Dec'19 318 348 408 491 559

Based on DCF, assuming15 years of 9% CAGR growth and 27% average ROIC, we derive

current fair value of Rs 499 and a Dec’19 fair value of Rs 559.

Company Description:

Founded in 1942, Supreme Industries ltd (SIL) is an acknowledged leader of India's plastics

industry. SIL is largest plastic processor with the capacity of 0.45mn tons and 19 plants

across the country built over 70 years. SIL portfolio includes the piping, industrial,

consumer and packaging division. It is one of the key beneficiaries of the India growth story

in agriculture, infrastructure, housing and auto.

Comparable valuation Mkt Cap

Rs. Mn.

Price

Target

Target

Date

EPS P/E BPS P/B RoE Div Yield

Company Reco. CMP FY18A FY19E FY20E FY18A FY19E FY20E FY18A FY19E FY18A FY19E FY20E FY18A FY19E

Supreme Industries REDUCE 986 1,25,306 1,022 31st Dec'19 32.2 34.0 40.1 30.6 29.0 24.6 136.4 6.2 25 % 23 % 24 % 1.2 % 1.6 %

Astral Polytechnik SHORT 867 1,03,855 767 30th Sep'19 14.6 19.5 24.8 59.3 44.4 35.0 85.0 8.3 19 % 21 % 21 % 0.0 % 0.1 %

Finolex Industries LONG 540 67,012 858 30th Sep'19 24.1 38.6 33.6 22.4 14.0 16.1 222.8 2.3 12 % 17 % 14 % 1.9 % 3.6 %



Standalone Quarterly Earnings Forecast and Key Drivers

Rs in Mn 1Q18A 2Q18A 3Q18A 4Q18A 1Q19A 2Q19A 3Q19E 4Q19E 1Q20E 2Q20E 3Q20E 4Q20E FY18A FY19E FY20E FY21E

Revenue 11,617 10,551 12,783 14,713 13,457 12,353 14,570 17,643 15,954 13,581 16,482 19,334 49,660 58,023 65,352 74,326

Goods Consumption 7,940 6,974 8,488 9,454 9,223 8,412 9,717 11,553 10,769 8,979 10,887 12,638 32,855 38,905 43,274 49,535

Employee Costs 537 578 596 705 600 598 688 856 673 695 816 1,078 2,413 2,742 3,261 3,704

Other Expenditure 1,553 1,563 1,721 1,686 1,777 1,749 2,091 2,110 2,207 2,076 2,374 2,347 6,527 7,728 9,005 9,968

EBITDA 1,587 1,436 1,979 2,868 1,857 1,594 2,073 3,125 2,305 1,830 2,405 3,272 7,865 8,648 9,812 11,120

Depreciation 406 424 428 414 427 473 480 464 480 531 530 513 1,672 1,843 2,055 2,251

EBIT 1,181 1,012 1,551 2,454 1,430 1,121 1,594 2,661 1,825 1,299 1,875 2,759 6,194 6,805 7,758 8,869

Interest 33 52 79 56 39 104 65 65 65 59 54 48 219 273 226 171

Other Income 4 102 5 37 6 156 9 71 42 47 49 54 178 241 191 224

PBT 1,152 1,063 1,477 2,435 1,397 1,173 1,537 2,666 1,803 1,286 1,870 2,764 6,153 6,774 7,723 8,922

Tax 399 367 518 774 652 370 523 907 613 437 636 940 2,057 2,451 2,626 3,034

Recurring PAT 753 696 960 1,661 745 803 1,015 1,760 1,190 849 1,234 1,824 4,096 4,322 5,097 5,889

Extraordinary 0 0 0 0 559 336 0 0 0 0 0 0 0 895 0 0

Reported PAT 753 696 960 1,661 1,304 1,139 1,015 1,760 1,190 849 1,234 1,824 4,096 5,217 5,097 5,889

EPS (Rs) 5.93 5.48 7.56 13.08 5.86 6.32 7.99 13.86 9.37 6.68 9.72 14.36 32.22 34.01 40.10 46.33

Key Drivers

Plastic Piping - - - - - - - - - - - - 2,35,257 2,56,330 2,81,963 3,10,159

Packaging Products - - - - - - - - - - - - 47,616 49,931 53,925 57,700

Industrial Products - - - - - - - - - - - - 38,984 44,488 45,823 50,863

Consumer Products - - - - - - - - - - - - 18,797 20,385 22,424 23,545

Raw Material cost (% of sales) - - - - - - - - - - - - 65 % 66 % 67 % 66 %

Sequential Growth (%)

Revenue -9 % -9 % 21 % 15 % -9 % -8 % 18 % 21 % -10 % -15 % 21 % 17 % - - - -

Goods Consumption -5 % -12 % 22 % 11 % -2 % -9 % 16 % 19 % -7 % -17 % 21 % 16 % - - - -

EBITDA -34 % -9 % 38 % 45 % -35 % -14 % 30 % 51 % -26 % -21 % 31 % 36 % - - - -

EBIT -41 % -14 % 53 % 58 % -42 % -22 % 42 % 67 % -31 % -29 % 44 % 47 % - - - -

Recurring PAT -40 % -8 % 38 % 73 % -55 % 8 % 26 % 73 % -32 % -29 % 45 % 48 % - - - -

EPS -40 % -8 % 38 % 73 % -55 % 8 % 26 % 73 % -32 % -29 % 45 % 48 % - - - -

Yearly Growth (%)

Revenue -2 % 20 % 15 % 15 % 16 % 17 % 14 % 20 % 19 % 10 % 13 % 10 % 11 % 17 % 13 % 14 %

EBITDA -21 % 7 % 7 % 20 % 17 % 11 % 5 % 9 % 24 % 15 % 16 % 5 % 3 % 10 % 13 % 13 %

EBIT -28 % 4 % 6 % 23 % 21 % 11 % 3 % 8 % 28 % 16 % 18 % 4 % 2 % 10 % 14 % 14 %

Recurring PAT -26 % 20 % 2 % 32 % -1 % 15 % 6 % 6 % 60 % 6 % 22 % 4 % 8 % 6 % 18 % 16 %

EPS -26 % 20 % 2 % 32 % -1 % 15 % 6 % 6 % 60 % 6 % 22 % 4 % 8 % 6 % 18 % 16 %

Margin (%)

EBITDA 14 % 14 % 15 % 19 % 14 % 13 % 14 % 18 % 14 % 13 % 15 % 17 % 16 % 15 % 15 % 15 %

EBIT 10 % 10 % 12 % 17 % 11 % 9 % 11 % 15 % 11 % 10 % 11 % 14 % 12 % 12 % 12 % 12 %

PBT 10 % 10 % 12 % 17 % 10 % 9 % 11 % 15 % 11 % 9 % 11 % 14 % 12 % 12 % 12 % 12 %

PAT 6 % 7 % 8 % 11 % 6 % 6 % 7 % 10 % 7 % 6 % 7 % 9 % 8 % 7 % 8 % 8 %



Consolidated Financials P&L (Rs Mn) FY18A FY19E FY20E FY21E Balance Sheet (Rs Mn) FY18A FY19E FY20E FY21E Cash Flow (Rs Mn) FY18A FY19E FY20E FY21E

Revenue 49,660 58,023 65,352 74,326 Equity Capital 254 254 254 254 PBT 6,153 6,774 7,723 8,922

Op. Expenditure 41,795 49,375 55,540 63,206 Reserve 17,077 19,935 22,754 26,080 Depreciation 1,672 1,843 2,055 2,251

EBITDA 7,865 8,648 9,812 11,120 Networth 17,331 20,189 23,008 26,334 Others 65 895 0 0

Depreciation 1,672 1,843 2,055 2,251 Long Term Debt 2,324 1,765 1,165 1,165 Taxes Paid 2,172 2,451 2,626 3,034

EBIT 6,194 6,805 7,758 8,869 Def Tax Liability 1,276 588 388 388 Change in WC -645 5,214 -582 -588

Interest Expense 219 273 226 171 Minority Interest 0 0 0 0 Operating C/F 5,072 12,274 6,570 7,552

Other Income 178 241 191 224 Account Payables 4,899 5,330 5,928 6,786 Capex -2,856 -3,373 -3,000 -3,000

PBT 6,153 6,774 7,723 8,922 Other Curr Liabi 1,914 4,769 5,371 6,109 Change in Invest 33 0 0 0

Tax 2,057 2,451 2,626 3,034 Total Liabilities & Equity 27,744 32,640 35,861 40,782 Others 157 0 0 0

PAT bef. MI & Assoc. 4,096 4,322 5,097 5,889 Net Fixed Assets 13,534 14,691 15,636 16,386 Investing C/F -2,666 -3,373 -3,000 -3,000

Minority Interest 0 0 0 0 Capital WIP 750 750 750 750 Change in Debt -312 -559 -600 0

Profit from Assoc. 0 0 0 0 Others 876 1,249 1,249 1,249 Change in Equity 0 0 0 0

Recurring PAT 4,096 4,322 5,097 5,889 Inventory 6,970 7,948 8,952 10,182 Others -2,552 -3,047 -2,478 -2,562

Extraordinaires 0 -895 0 0 Account Receivables 3,830 4,475 5,040 5,732 Financing C/F -2,865 -3,605 -3,078 -2,562

Reported PAT 4,096 5,217 5,097 5,889 Other Current Assets 1,449 -2,103 -1,889 -1,627 Net change in cash -459 5,295 492 1,989

FDEPS (Rs) 32.2 34.0 40.1 46.3 Cash 335 5,629 6,121 8,110 RoE (%) 25 % 23 % 24 % 24 %

DPS (Rs) 12.3 15.9 15.3 17.2 Total Assets 27,744 32,640 35,861 40,782 RoIC (%) 21 % 21 % 22 % 23 %

CEPS (Rs) 45.4 48.5 56.3 64.0 Non-cash Working Capital 5,436 222 804 1,392 Core RoIC (%) 21 % 22 % 27 % 28 %

FCFPS (Rs) 20.1 71.4 29.3 36.7 Cash Conv Cycle 40.0 1.4 4.5 6.8 Div Payout (%) 45 % 45 % 45 % 44 %

BVPS (Rs) 136.4 158.8 181.0 207.2 WC Turnover 9.1 261.5 81.3 53.4 P/E 30.6 29.0 24.6 21.3

EBITDAM (%) 16 % 15 % 15 % 15 % FA Turnover 3.5 3.8 4.0 4.3 P/B 7.2 6.2 5.4 4.8

PATM (%) 8 % 7 % 8 % 8 % Net D/E 0.1 -0.2 -0.2 -0.3 P/FCFF 49.1 13.8 33.7 26.9

Tax Rate (%) 33 % 36 % 34 % 34 % Revenue/Capital Employed 3.3 3.7 3.8 3.7 EV/EBITDA 16.3 14.1 12.3 10.7

Sales Growth (%) 11 % 17 % 13 % 14 % Capital Employed/Equity 1.5 1.3 1.3 1.2 EV/Sales 2.6 2.1 1.8 1.6

FDEPS Growth (%) 8 % 6 % 18 % 16 % Dividend Yield (%) 1.2 % 1.6 % 1.5 % 1.7 %

TTM P/E vs. 2 yrs. forward EPS growth

TTM EV/EBITDA vs. 2 yrs. forward EBITDA growth

TTM P/B vs. 2 yrs. forward RoE

-40%

-20%

0%

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5

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-18

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-18

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-19

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2x

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6x

10x



Historical Consolidated Financials

P&L (Rs Mn) FY15A FY16A FY17A FY18A Balance Sheet (Rs Mn) FY15A FY16A FY17A FY18A Cash Flow (Rs Mn) FY15A FY16A FY17A FY18A

Revenue 41,154 29,709 44,618 49,660 Equity Capital 254 254 254 254 PBT 3,807 3,491 5,851 6,153

Op. Expenditure 35,446 24,992 37,002 41,795 Reserve 10,981 11,968 15,281 17,077 Depreciation 1,390 1,046 1,543 1,672

EBITDA 5,708 4,717 7,616 7,865 Networth 11,235 12,222 15,536 17,331 Others 514 51 167 65

Depreciation 1,390 1,046 1,543 1,672 Long Term Debt 3,289 2,280 2,315 2,324 Taxes Paid 1,422 1,252 1,705 2,172

EBIT 4,318 3,671 6,073 6,194 Def Tax Liability 1,010 1,180 1,304 1,276 Change in WC 770 -373 -1,212 -645

Interest Expense 579 289 302 219 Minority Interest 0 0 0 0 Operating C/F 5,058 2,963 4,643 5,072

Other Income 68 108 80 178 Account Payables 3,005 3,442 4,536 4,899 Capex -1,936 -2,319 -2,099 -2,856

PBT 3,807 3,491 5,851 6,153 Other Curr Liabi 4,153 4,194 2,957 1,914 Change in Invest 10 21 16 33

Tax 1,277 1,176 2,058 2,057 Total Liabilities & Equity 22,692 23,318 26,648 27,744 Others 66 117 61 157

PAT bef. MI & Assoc. 2,530 2,314 3,793 4,096 Net Fixed Assets 10,325 11,846 12,625 13,534 Investing C/F -1,860 -2,181 -2,022 -2,666

Minority Interest 0 0 0 0 Capital WIP 998 682 467 750 Change in Debt -798 200 -1,331 -312

Profit from Assoc. 0 0 0 0 Others 1,256 1,032 778 876 Change in Equity 0 0 0 0

Recurring PAT 2,530 2,314 3,793 4,096 Inventory 4,647 5,579 7,768 6,970 Others -1,798 -2,536 -773 -2,552

Extraordinaires -628 77 0 0 Account Receivables 2,376 2,362 2,756 3,830 Financing C/F -2,596 -2,335 -2,104 -2,865

Reported PAT 3,158 2,238 3,793 4,096 Other Current Assets 1,275 1,535 1,466 1,449 Net change in cash 602 -1,554 518 -459

EPS (Rs) 19.9 18.2 29.9 32.2 Cash 1,815 284 787 335 RoE (%) 24 % 20 % 27 % 25 %

DPS (Rs) 11.2 7.7 15.4 12.3 Total Assets 22,691 23,319 26,647 27,744 RoIC (%) 19 % 16 % 23 % 21 %

CEPS (Rs) 30.9 26.5 42.0 45.4 Non-cash Working Capital 1,140 1,839 4,498 5,436 Core RoIC (%) 20 % 16 % 23 % 21 %

FCFPS (Rs) 28.2 7.7 22.2 20.1 Cash Conv Cycle 10.1 22.6 36.8 40.0 Div Payout (%) 53 % 51 % 60 % 45 %

BVPS (Rs) 88.5 96.2 122.3 136.4 WC Turnover 36.1 16.2 9.9 9.1 P/E 49.5 54.1 33.0 30.6

EBITDAM (%) 14 % 16 % 17 % 16 % FA Turnover 3.6 2.4 3.4 3.5 P/B 11.2 10.3 8.1 7.2

PATM (%) 6 % 8 % 9 % 8 % Net D/E 0.1 0.2 0.1 0.1 P/FCFF 35.0 128.7 44.5 49.1

Tax Rate (%) 34 % 34 % 35 % 33 % Revenue/Capital Employed 4.1 2.6 3.2 3.3 EV/EBITDA 22.6 27.5 17.0 16.3

Sales growth (%) 5 % -28 % 50 % 11 % Capital Employed/Equity 1.8 1.6 1.6 1.5 EV/Sales 3.1 4.4 2.9 2.6

FDEPS growth (%) -1 % -9 % 64 % 8 % Dividend Yield (%) 1.1 % 0.8 % 1.5 % 1.2 %



Equirus Securities

Research Analysts Sector/Industry Email Equity Sales E-mail

Abhishek Shindadkar IT Services [email protected] 91-22-43320643 Vishad Turakhia [email protected] 91-22-43320633

Ashutosh Tiwari Auto, Metals & Mining [email protected] 91-79-61909517 Subham Sinha [email protected] 91-22-43320631

Bharat Celly Healthcare [email protected] 91-79-61909524 Viral Desai [email protected] 91-22-43320635

Depesh Kashyap Mid-Caps [email protected] 91-22-43320671 Viraj Mehta [email protected] 91-22-43320634

Dhaval Dama FMCG, Mid-Caps [email protected] 91-79-61909518 Ruchi Bhadra [email protected] 91-22-43320601

Manoj Gori Consumer Durables [email protected] 91-79-61909523 Cash Dealing Room E-mail

Maulik Patel Oil and Gas [email protected] 91-79-61909519 Ashish Shah [email protected] 91-22-43320662

Pranav Mehta Building Materials [email protected] 91-79-61909514 IleshSavla [email protected] 91-22-43320666

Praful Bohra Healthcare [email protected] 91-22-43320611 Manoj Kejriwal [email protected] 91-22-43320663

Rohan Mandora Banking & Financial Services [email protected] 91-79-61909529 Dharmesh Mehta [email protected] 91-22-43320661

Associates E-mail Sarit Sanyal [email protected] 91-22-43320666

Ankit Choudhary [email protected] 91-79-61909533 Vikram Patil [email protected] 91-22-43320677

Dhairya Dhruv [email protected] 91-79-61909528 Gaurav Mehta [email protected] 91-22-43320680

Harshit Patel [email protected] 91-79-61909522 Compliance Officer E-mail

Meet Chande [email protected] 91-79-61909513 Jay Soni [email protected] 91-79-61909561

Nishant Bagrecha [email protected] 91-79-61909526 Corporate Communications E-mail

Prateeksha Malpani [email protected] 91-79-61909532 MahdokhtBharda [email protected] 91-22-43320647

Ronak Soni [email protected] 91-79-61909525 Quant Analyst

Rushabh Shah [email protected] 91-79-61909520 Kruti Shah [email protected] 91-22-43320632

Shreepal Doshi [email protected] 91-79-61909541 F&O Dealing Room

Varun Baxi [email protected] 91-79-61909527 Kunal Dand [email protected] 91-22-43320678

Vikas Jain [email protected] 91-79-61909531 Dhananjay Tiwari [email protected] 91-22-43320668

Mukesh Jain [email protected] 91-22-43320667

Rating & Coverage Definitions: Absolute Rating • LONG : Over the investment horizon, ATR >= Ke for companies with Free Float market cap >Rs 5 billion and ATR >= 20% for rest of the companies • ADD: ATR >= 5% but less than Ke over investment horizon • REDUCE: ATR >= negative 10% but <5% over investment horizon • SHORT: ATR < negative 10% over investment horizon Relative Rating • OVERWEIGHT: Likely to outperform the benchmark by at least 5% over investment horizon • BENCHMARK: likely to perform in line with the benchmark • UNDERWEIGHT: likely to under-perform the benchmark by at least 5% over investment horizon Investment Horizon Investment Horizon is set at a minimum 3 months to maximum 18 months with target date falling on last day of a calendar quarter. Lite vs. Regular Coverage vs. Spot Coverage We aim to keep our rating and estimates updated at least once a quarter for Regular Coverage stocks. Generally, we would have access to the company and we would maintain detailed financial model for Regular coverage companies. We intend to publish updates on Lite coverage stocks only an opportunistic basis and subject to our ability to contact the management. Our rating and estimates for Lite coverage stocks may not be current. Spot coverage is meant for one-off coverage of a specific company and in such cases, earnings forecast and target price are optional. Spot coverage is meant to stimulate discussion rather than provide a research opinion.

Registered Office:

Equirus Securities Private Limited

Unit No. 1201, 12th Floor, C Wing, Marathon Futurex,

N M Joshi Marg, Lower Parel,

Mumbai-400013.

Tel. No: +91 – (0)22 – 4332 0600

Fax No: +91- (0)22 – 4332 0601

Corporate Office:

3rd floor, House No. 9,

Magnet Corporate Park, Near Zydus Hospital, B/H Intas Sola Bridge,

S.G. Highway Ahmedabad-380054

Gujarat

Tel. No: +91 (0)79 - 6190 9550

Fax No: +91 (0)79 – 6190 9560

mailto:[email protected]
































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Research Analyst’ or Relatives’ material conflict of interest No

Disclaimer for U.S. Persons

Equirus Securities Private Limited (ESPL) is not a registered broker - dealer under the U.S. Securities Exchange Act of 1934, as amended (the"1934 act") and under applicable state laws in the United States. In addition ESPL is not a registered investment adviser under the U.S. Investment Advisers Act of 1940, as amended (the "Advisers Act" and together with the 1934 Act, the "Acts), and under applicable state laws in the United States. Accordingly, in the absence of specific exemption under the Acts, any brokerage and investment services provided by ESPL, including the products and services described herein are not available to or intended for U.S. persons. This report is intended for distribution only to "Major Institutional Investors" as defined by Rule 15a-6(b)(4) of the Exchange Act and interpretations thereof by SEC (henceforth referred to as "major institutional investors"). This document must not be acted on or relied on by persons who are not major institutional investors. Any investment or investment activity to which this document relates is only available to major institutional investors and will be engaged in only with major institutional investors. In reliance on the exemption from registration provided by Rule 15a-6 of the U.S. Securities Exchange Act of 1934, as amended (the "Exchange Act") and interpretations thereof by the U.S. Securities and Exchange Commission ("SEC") in order to conduct business with Institutional Investors based in the U.S., ESPL has entered into a chaperoning agreement with a U.S. registered broker-dealer name called Xtellus Capital Partners, Inc, (''XTELLUS'). Any business interaction pursuant to this report will have to be executed within the provisions of this chaperoning agreement. "U.S. Persons" are generally defined as a natural person, residing in the United States or any entity organized or incorporated under the laws of the United States. US Citizens living abroad may also be deemed "US Persons" under certain rules. The Research Analysts contributing to the report may not be registered /qualified as research analyst with FINRA. Such research analyst may not be associated persons of the U.S. registered broker-dealer, XTELLUS, and therefore, may not be subject to NASD rule 2711 and NYSE Rule 472 restrictions on communication with a subject company, public appearances and trading securities held by a research analyst account.

Supreme Industries Ltd. Absolute ... - Business...

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