We attended the AGM of Supreme industries (SIL) and interacted with its Managing Director, Mr MP Taparia to get an update on growth and new launches of the company. SIL has maintained its topline growth guidance of 25% driven by a 16% growth in volume in FY13E and a strong traction across most segments except consumer segment. The company plans to launch composite cylinders and pipes and also plans to enter the high quality bathroom fittings segment. Maintain ‘BUY’.
Strong traction across most segments
The company has seen 18.6% volume growth and a value growth of over 33% in the first two months of Q1FY13 against our expectation of 20% topline growth for FY13. It continues to see a strong traction across most segments expect consumer segment. The company has increased its channel partners from 1647 in FY11 to 2052 in FY12. It plans to increase the share of value added products from 30.75% in FY12 to 35% plus by FY15-16. The management maintained its guidance of 25% topline growth for FY13 with margins remaining around 14.5%-15%.
Capex, new product launches to drive long term growth
The company has planned a capex of INR11bn over next five years and expects to generate an asset turnover of 3x. It will launch high quality bath room fittings made from superior plastics during Q1FY13 with an investment of INR160mn. The company is eyeing the composites cylinder segment with an initial capacity of 0.5mn units p.a., to be operational in Q4FY13. Also, SIL wants to enter composite pipes segment, which is largely used in oil exploration, with an initial capacity of 15,000 pipes. Investment of INR950mn in the composite cylinders and pipes capacity would lead to revenue of INR1.45bn at peak capacity utilization.
Outlook and valuations: Positive; maintain ‘BUY’
We value its consolidated business at 11x FY14E EPS of INR25.2 and the holding in Supreme Petrochem (SPL) at INR7 per share and arrive at a fair price of INR284 per share for the stock based on our SOTP valuation. We maintain ‘BUY’ on the stock.
Regards,
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