Stock Update: Supreme Industries

BEAR CASE

• RERA to impact housing demand adversely. Negative impact on pipes segment.
• Competition is strengthening in pipes with Astral, Ashirvad & Finolex. Supreme has lost market share from 35% in 2009 to 26% in 2017.
• Competition is moving across the value chain and product range. e.g. Astral is moving into agri pipes and Finolex is moving into plumbing pipes.
• No major breakthrough product from the company in the recent past that can boost sales majorly. Composite cylinders still in initial stages.

BULL CASE

• Overall price cap on crude and buildup of new Polymer plant capacities in USA, China and Middle East will keep a lid on high Polymer prices.
• Govt focus on 1) Affordable housing, 2) Formalization of economy through adoption of GST, 3) Doubling of farmer's income by 2022, 4) Swacch Bharat Abhiyan, 5) 100 smart cities
• The distributors strength has gone up to 2973 by the end of March 2017 compared to 2699 by March 2016.
• Market leader in plastic piping systems with 7230 SKUs
• New Kharagpur plant for PVC,CPVC & HDPE pipes to commence from Nov'17. New Roto moulding plant at Kharagpur to commence from Aug'17
• The co has launched Overhead Water Tanks in various capacities from 500 liters to 5000 liters. Also launched Septic tanks in collaboration with a South African company
• Co manufactured solvent cement – SILBOND was approved by NSF-14 in both the varieties i.e., PVC and CPVC. The PVC variety also was certified by BIS and hence the products are going in the market with necessary ISI and NSF marking. The Company has further introduced BLUE SEALANT suitable for metal threaded joints. As a result Company now got all the products available in the segment of adhesives, solvents & lubricants required for various Piping Systems.
• Informal sector comprises of 40% of plastic furniture segment and with GST that share is expected to reduce over time
• Co has started exporting to USA and has found good acceptance for some of its products
• Co is making car interior parts for Honda and Maruti Suzuki and is continuously acquiring new business from existing customers
• Co has started a new product range using foam for children's education, toys, sports, health sector and interior decoration
• Composite cylinder order for 2.5 lakhs pcs from Bangladesh. BIS certification received and HPCL is expected to start trial runs.
• Capex planned at 300-350 cr in FY17-18

Supreme Industries Vs Astral Poly: Quick Look

Here is a quick look at Supreme vs Astral:

	Astral	Supreme
CMP	286	280
Face Value of Share	5	2
Sales	609.31	2962.2
Net Profit	39.46	240.52
Op Margin	14.15%	15.85%
Net Margin	6.83%	8.08%
RoCE	28.83%	45.6%
RoNW	21.55%	37.5%
Debt-Equity	0.34	0.4
Inventory Turnover	4.96	9.44
Asset Turnover	2.86	2.39
Material Cost	75.32	65.82
Dividend Payout Ratio	7.39	36.82
PE	15.17	14.9
P/B	3.49	5.58
Div Yield	0.4%	2.13%
Last 5 yr Rev Growth	42%	22%
Last 5 yr Profit Growth	23.51%	47.29%

  


The numbers are probably self-explanatory! Interestingly, Supreme has consistently improved its RoCE over the last 10 years. It used to be around 10% in 2002-03 and has moved to nearly 45% currently. It's CPVC business has grown 60% this year.

What I am most interested in is however, the composites business, which I think may be a big differentiator. This is their 5th and newest line of business. The company has received ISO approval for making fibre glass gas cylinders and is expected to start their trial run from Jan'13.




Disclaimer: I am invested in both Supreme and Astral and they are in top 5 holdings in my portfolio.

Stock Update: Supreme Industries (NSE: SUPREMEIND)

Supreme has been going strength to strength. Although it has not been able to sell its Supreme Chambers, it has shown consistent growth and operating results. It has its yearly closing in June. So, what was published last month was the full year results.

• Polymer processing went up by 9.8%. 
• Revenue was at 2965 cr, up 20% yoy
• Net Profit was at 232 cr, up 36.91% yoy
• Standalone EPS of 18.93
• Final dividend of 4.5/share was announced taking the full year dividend to 6/share.

Supreme has 4 major business segments.

Segment	Volume growth	Value growth
Plastic Piping	14%	28%
Packaging Products	9%	19%
Industrial Products	8%	14%
Consumer Products **	-10%	6%

** excluding PP Mats business which was discontinued

• The value added products segment has gone up by 31.5%
• Committed to capex of 280 cr primarily in capacity expansion in cross laminated films, protective packaging unit at Hosur, composite LPG cylinder & pipe unit and plastic piping unit.
• Total planned capex of around 1100 cr in the next 5 years, to be funded from internal accruals.
• The company expects a volume growth of around 16% and value growth of 25% in 2013.

Expected EPS for June 2013 : 21.5-23
PE range : 12-15
Possible price range (June 2013) : 258-345

In my previous update of the company, I had expected an FY12 EPS between 15-16 and a target price range of 180-240 by June end 2012. Both have been positively surpassed. The stock is making new highs recently. Expecting a one year forward price of close to 320-350. I continue to hold Supreme and it continues to be the largest position in my portfolio. I see no reason to other that sit tight on it.

Disclosure: I am invested in Supreme. Please due your own due diligence before investing.

Supreme Industries - Notes from Annual Report'2011

 Here are my notes on the 2010-11 annual report for Supreme Industries:-

* The Company is currently putting plants at two new locations. i.e in Halol (Gujarat) for composite cylinders and Hosur for Protective Packaging Products. Both these plants to be ready in Dec 2011 – Mar 2012 period.

* The Company invested a sum of RS 258 crores to augment capacities and to start a new
unit at Sriperumbudur in Tamilnadu. The company expects to invest Rs 200 crores in 2012.

PLASTIC PIPING SYSTEMS
* Growth was highly impacted due to high cost of raw material.
* Aqua Gold grew more than 40%.
* Lifeline CPVC grew more than 100%
* Fittings grew by over 40%
* After 3 years of degrowth, the exports grew this year by 14%

FURNITURE
* Overall segment grew by 25% by value and 13% by volume. This implies higher sale of high-margin products.
* The company is closing down the mats business. It has a annual revenue of only Rs 15 crores.

INDUSTRIAL PRODUCTS
* Strong growth of 30% overall
* Automotive products grew by 39% and appliances by 69%. Consumer electronics segment was weak.
* Company had bagged order for development of interior parts for new version of trucks from Tata Motors, which included completely assembled Instrument Panel, i.e. Cockpit.
* The Company has also bagged order for development of plastic parts for prestigious ‘Two Wheeler’, to be launched by Piaggio, sometime during early 2012.
* Expecting sustained growth of 25% to 30% year on year for next 3 to 5 years

MATERIAL HANDLING PRODUCTS
* Overall segment grew by 27% by value and 20% by volume. This implies higher sale of high-margin products.

PACKAGING PRODUCTS
* Packaging Films sales were stagnant. Company is trying to move into new areas of applications and reduce its dependency on oil packaging.
* Protective Packaging products grew by 26% by value and 13% by volume. This implies higher sale of high-margin products.

FINANCIALS
* The average rate of Interest has gone up to 9.72% from 7.93%.
* The Company has chalked out Capex of Rs 1000 crores over a period of five years from 2010-11 to 2014-15 across all the products to tap the growth opportunities and to keep the pace of growth momentum so as to achieve desired CAGR of around 20% on y-o-y basis.
* Crisil has upgraded the rating outlook to "AA-/Stable" from "A+/Positive"
* The Company would try to bring the interest cost below 1% of Total Turnover by the end of next year.

Expected EPS for June 2012 : 15-16
PE range : 12-15
Expected price range : 180-240

Results Update - Supreme Industries, Balaji Amines

Supreme Industries (Consolidated):

	Q4 2010	Q4 2011	% Growth	FY 2010	FY 2011	% Growth
Sales	669.98	732.52	9.33%	2007.02	2436.2	21.38%
Op Profit	100.82	113.94	13.01%	298.68	357.39	19.66%
Net Profit	51.91	60.25	16.07%	155.98	195.84	25.55%
EPS	4.09	4.74	15.89%	12.28	15.42	25.57%
Cash EPS	5.28	6.01	13.83%	16.45	20.29	23.34%
Op Margin	15.05%	15.55%		14.88%	14.67%
Net Margin%	7.75%	8.23%		7.77%	8.04%
RoCE%	7.47%	8.70%		21.95%	26.35%
RoE%	9.48%	11.00%		28.48%	35.76%
Assets	1138.48
Net worth	547.71
Loaned Funds	511.24

• Dividend of Rs 3 per share has been declared.
• No news on the real estate sale. 
• Q4 growth has been muted, although annual results are reasonably good.
• Net margins have been consistently been increasing last few years. Stands at 8.04% vs 7.77% last year and has actually doubled in the last 5 years from 4% in 2006.

Balaji Amines

	Q1 2010	Q1 2011	% Growth
Sales	78.91	114.52	45.13%
Op Profit	12.03	15.04	25.02%
Net Profit	6.22	7.17	15.27%
EPS	1.92	2.21	15.10%

• Interest outgo has nearly than doubled - from 2.65 cr to 4.95 cr

Supreme Industries - A strong company (both fundamentally and technically)

Supreme Industries is a very large part of my portfolio. A few weeks back someone I was discussing stocks with asked me why. We discussed the fundamental story for Supreme. But there is another reason why I hold such a large percentage in my portfolio. If you look at the last six months chart, you will realize that the stock touched 165 before its split and has subsequently been consolidating. It does not move down with the Index which provides great comfort. And this has been true in previous minor market corrections also. It simply moves in a very small range but refuses to go down substantially. You need some stocks like these in your portfolio to cushion market movements.

Notes from Investor Presentation dated 12 Nov 2010

* Supreme Industries Ltd (SIL) owns 29.88% of Supreme Petrochem. PAT of SPL was Rs. 60.58 crores in 2009-10, thus SIL's share of the PAT is 18.10 crores.
* Supreme Petrochecm is one of the largest single site Polystrene ( PS )producer accounting for 2% of world capacity. It owns 60% of domestic installed capacity.
* Sales volume to grow at CAGR of 15.60 % and likely to reach 3,24,000 MT by 2014-15
* Debt-Equity ratio has reduced from 0.8 to 0.6
* Positive cash flows at its operating as well as net level every year
* Even during tough times of FY09 company has made investment towards future

Supreme Chambers (Andheri Commercial Complex)
* Total Saleable Area : around 2,75,000 sq. ft.
* Total Project Cost : about Rs. 155 crores .
* Already sold about 40000 Sq.ft. with revenues of Rs 60.20 Crores.
* Plan to sale entire complex excluding one floor.
* Estimated total revenues from Sale about Rs. 375 Crores.
* Entire sale likely to fructify by Dec.2011

2015-15 Plan
* Capacity Expansion: The existing capacity to be enhanced to 595,000 MT by 2014-15 with Rs. 1000 crores of capex. This is to be funded by sales proceeds of the commercial complex and internal accruals.
* Diversify Product Portfolio: Focus on technological innovations
* Increase Share of Value Added Products: Enhance the overall contribution of VA products from 25% to 30%
* Widen Distribution Network: Increase channel partners and widen as well as deepen the distribution network

* Aim to become a Rs. 4500 crore turnover company
* Maintain 15% operating margins
* Overall growth of 17% y-o-y

Plastic Industry
Current Per Capita Polymer Consumption
US - 71.46 Kgs
Brazil - 22.71 Kgs
China - 30.74 Kgs
India - 5.66 Kgs