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Monday 26 August 2013

Supreme Industries: Notes from Annual Report

* The Company during the year processed 2,81,452 tons of Polymers vs 2,45,700 tons of Polymers in the previous year, a growth of 14.55% in Polymer consumption.
* The Company exported goods worth US $ 14.32 mn vs US $ 13.49 million (excluding discontinued business of PP Mats) last year, a growth of 6.15%.
* The 23rd plant to manufacture LPG Gas Cylinders and Composite Pipes is ready. It may go into production in the 3rd quarter of FY14 after getting regulatory approvals. The Company has plans to put up another manufacturing unit in Kharagpur during the current year, subject to getting all clearances from State Governments on the land owned by the Company. Investment of Rs 250 cr is planned for this.
* The Company has committed an investment of Rs 415 cr in the year 2012-13.

Fig 1 - Revenue Mix across Segments

Segment Review : Plastics Piping Systems
* The Company has added 169 new products in the range during 2012-2013 taking total product portfolio to 5682 nos.
* CPVC piping has grown by 37% by volume in FY13.
* The company is exploring the possibility of entering into Industrial applications as well as Fire Sprinkler segment of CPVC business. The company has entered into an understanding for technical tie-up with leading world brands in that segment.
* The overall percentage of sale of Value Added Products to total sale increased to 26.47% vs 24.24% of last year. The company expects to further increase the share in years to come.

Segment Review : Consumer Products
* Revenues have grown by 5% and 3% by volume. 
* The company has decided to get out of the traded furniture business altogether.
* The Company’s business in Premium Products sales has increased from a level of 38% in 2011-12 to 40% of overall sales in the year 2012-13.
* The Company has more than 303 Exclusive Franchise Show Rooms on All-India basis displaying entire range of Supreme Furniture.
* The company has also initiated steps to start exporting furniture items

Segment Review : Industrial Products
* Although there was heavy demand recession in general, company managed growth of 21% in Automotive sector and 12% in Consumer Durables, against its planned target of 30% and 18% respectively.
* The company started supplies to two major Japanese companies in Consumer Durable sector and a few other customers in the same and Auto sector.
* The initial trial run for the Cockpit Assembly for one of the prestigious projects of our customer has been completed at the Plant. Company expects supplies to start towards later part of this year. Supplies stabilized for the parts of ‘Vespa’ being made by Piaggio.
* It supported two prestigious product launches of Maruti that is a LUV and a small Car during last year. The plant has successfully started supplies to Honda Car for its first order in recently launched Sedan which has become a market hit. Development is in progress for the next model of Car which is scheduled to be launched during early 2014. The company has bagged order for one more model of Car in mid-size range scheduled to be on road by mid-2014. Company expects good long term prospects with Honda Motors.

Segment Review : Construction - Supreme Chambers
* Out of the total saleable area available of about 2,79,529 sq. ft., the company has till now realized net Rs 143.05 cr against sale of 92,632 sq. ft. Remaining area to be sold would be about 1,61,241 sq. ft. The going rate is around Rs 14000 / sqft.

Segment Review : Composite LPG Cylinder
* The company expects to start production in Jan / March 2014. Company is equipped to make six different sizes of Cylinders ranging from 5 to 14 kg. of LPG.

Expected EPS for June 2014 : 24-25
PE range : 12-15
Expected price range (June 2014): 288-375
CMP: 334

My View:  
The upside potential at this price seems to be already priced in, so no real point in buying aggressively. On the other hand, the stock is also very unlikely to take a major beating, so may be a good overall portfolio choice as a store of value.

Disclosure: I have a nearly 20% of my portfolio in Supreme Industries, so I am highly biased. This is not a recommendation to buy or sell in the stock.

Friday 2 August 2013

Market Update - Where are we headed?

In the last 13-14 years, that I have been observing and participating in the markets, I cannot recollect a time where market sentiment was so negative. It was not this bad (atleast in India) in 2000, nor in 2008. Before, there was always a ray of hope, of optimism, that India was doing fine and the market problems were "imported". Once the external problems sorted itself out, Indian markets would go back up. This time I don't see any hope, no optimism at all amongst market participants. Because the problems are within. The problems are self-created and cannot be wished away.

When I speak to my friends who run their own businesses, they say thing s are terrible on the ground. There are just no orders. Inquiries have come down drastically. At the macro level also, the problems are all well documented - very high current account deficit, a central government hell bent on killing the economy by rocketing the fiscal deficit by harebrained welfare schemes like the food security bill. Rupee getting killed vis-a-vis the dollar with the RBI not having enough resources (either through reserves or policy initiatives) to be able to defend the currency, systemic policy inaction and flip-flops so that no one in their sane minds would want to invest in India.

Look at the way the RBI and Finance Ministry is behaving. It is very evident that they are a scared lot and have no clue as to what to do. Chidambaram is giving statements everyday to try to soothe the ruffled nerves of investors. But, it is not working. Simply because investors have lost trust on the effectiveness of the government to deliver on results. What is needed is decisive action, which sadly is missing. What we are getting instead is minor tinkering with FDI policy here and there. None of it is going to make any substantial difference anyway.

Jim Rogers in a recent interview said very candidly that there is nothing good in India (other than being a terrific tourist destination). The fact that he is short on an India ETF proves that atleast he puts his money where his mouth is.

I am beginning to get worried. A lot. I am worried that the era of 7-8% GDP growth was an aberration for India and is now gone forever. We are back to the 3-4% growth rates of the post-colonial license raj era. How long is it before the Indian economy stabilizes or will it ever go back up to 8% GDP growth levels? I don't know. What I fear is that we may be getting into a negative spiral of mediocrity and low-to-no-growth era for the many many years to come.

So,what does all this mean for investments? Specially in equities? I think, its time to take a long, hard look at the stocks in our portfolios. Keep those that can survive in a very difficult environment; which have low or no debt on their balance sheet; preferably have a large component of earnings coming from outside India. And most importantly, moderate expectations. Don't expect more that 10-12% growth. If you do get better, great. But don't count on it. Wait this period out. Maybe in hind sight, you would have missed a great buying opportunity, but it is better to be prudent and give off the first 10-20% of the up move (if it comes) to the really brave. Keep you ears to the ground and see if actual business sentiment is improving. Only then take a plunge.

Disclosure: I am an interested market participant. All views are personal. I reserve the right to be wrong!! I also reserve the right to change my mind anytime!! So, please do your due diligence before investing.