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We rate Supreme as preferred pick in this segment considering its diversified product portfolio, strong geographic
reach and most importantly having a strict working capital which is a key differentiator vis-à-vis other plastic
processors. This has enabled the company to enjoy higher return ratios over a sustained period of time. Thus we
believe that SIL will continue to command a premium over the other plastic processors.
Supreme Industries Limited (SIL), one of the largest plastic processors in India, is expected to reap benefits of its
ongoing capacity expansions amidst strong demand outlook across its product portfolio. Revenues and PAT are
expected to exhibit a CAGR of 17.5% and 24.1% respectively from FY11-13. At CMP, SIL’s core business is attractively
valued at 9.4x FY13E earnings and 6x EV/EBIDTA. We initiate coverage on SIL with a Buy rating and TP of Rs246 on
SoTP basis, representing an upside of 35% from the current levels.
Investment Rationale
Standing tall in an unorganised sector
With over six decades of experience and through regular innovation and
introduction of cost-effective solutions, Supreme Industries (SIL) has created
a place and brand for itself in a business dominated by the unorganised
sector. SIL is now acclaimed with having the most diversified range of products
(over 7,000) resulting in market as well as customer diversification. With the
bulk of revenues coming from supplies to OEMs and through distribution
channels, the company has been able to get assured and large volumes,
resulting in revenue CAGR of around 20% over FY07-FY11.
Capacity expansion to drive growth, VAPs to drive margins
Backed by strong demand, SIL has planned an aggressive capex of Rs 10bn
across segments over five years. With this, SIL will see a volume CAGR of
18.4% in FY11-13 from 225bn tonnes per annum (btpa) in FY11 to 315btpa in
FY13 in terms of polymers processed. Apart from capex, SIL will continue to
increase its share of value-added products (VAPs) -- having margins upwards
of 17% -- by enhancing its focus on cross-laminated films (100% VAPs) and
other VAPs that will help maintain or even increase its margins.
Clean balance sheet, strict working capital, strong dividend payouts
We believe SIL will continue to maintain high RoE and RoCE due to: 1) healthy
topline growth on the back of strong capex initiatives and higher fixed asset
turnover, 2) increasing cash flows from core operations through strict control
of working capital, and 3) stable margins. Besides, SIL has been continuously
rewarding shareholders with strong dividend payout ratio ranging 30-50%
over three years. SIL has not raised capital in 15 years since the current
management took over, despite its asset-heavy business. It, in fact, bought
back shares in FY09 at an average Rs 111 per share (pre-split).
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
We rate Supreme as preferred pick in this segment considering its diversified product portfolio, strong geographic
reach and most importantly having a strict working capital which is a key differentiator vis-à-vis other plastic
processors. This has enabled the company to enjoy higher return ratios over a sustained period of time. Thus we
believe that SIL will continue to command a premium over the other plastic processors.
Supreme Industries Limited (SIL), one of the largest plastic processors in India, is expected to reap benefits of its
ongoing capacity expansions amidst strong demand outlook across its product portfolio. Revenues and PAT are
expected to exhibit a CAGR of 17.5% and 24.1% respectively from FY11-13. At CMP, SIL’s core business is attractively
valued at 9.4x FY13E earnings and 6x EV/EBIDTA. We initiate coverage on SIL with a Buy rating and TP of Rs246 on
SoTP basis, representing an upside of 35% from the current levels.
Investment Rationale
Standing tall in an unorganised sector
With over six decades of experience and through regular innovation and
introduction of cost-effective solutions, Supreme Industries (SIL) has created
a place and brand for itself in a business dominated by the unorganised
sector. SIL is now acclaimed with having the most diversified range of products
(over 7,000) resulting in market as well as customer diversification. With the
bulk of revenues coming from supplies to OEMs and through distribution
channels, the company has been able to get assured and large volumes,
resulting in revenue CAGR of around 20% over FY07-FY11.
Capacity expansion to drive growth, VAPs to drive margins
Backed by strong demand, SIL has planned an aggressive capex of Rs 10bn
across segments over five years. With this, SIL will see a volume CAGR of
18.4% in FY11-13 from 225bn tonnes per annum (btpa) in FY11 to 315btpa in
FY13 in terms of polymers processed. Apart from capex, SIL will continue to
increase its share of value-added products (VAPs) -- having margins upwards
of 17% -- by enhancing its focus on cross-laminated films (100% VAPs) and
other VAPs that will help maintain or even increase its margins.
Clean balance sheet, strict working capital, strong dividend payouts
We believe SIL will continue to maintain high RoE and RoCE due to: 1) healthy
topline growth on the back of strong capex initiatives and higher fixed asset
turnover, 2) increasing cash flows from core operations through strict control
of working capital, and 3) stable margins. Besides, SIL has been continuously
rewarding shareholders with strong dividend payout ratio ranging 30-50%
over three years. SIL has not raised capital in 15 years since the current
management took over, despite its asset-heavy business. It, in fact, bought
back shares in FY09 at an average Rs 111 per share (pre-split).
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