Jul 23, 2013 06:33 PM IST | Source:

Accumulate Supreme Industries; target Rs 420: Dolat Capital

Dolat Capital is bullish on Supreme Industries (SIL) and has recommended 'Accumulate' rating on the stock with a price target of Rs 420 in its July 22, 2013 research report.

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Dolat Capital's report on Supreme Industries (SIL)

"Supreme Industries (SIL) for Q4FY13 has reported net revenues at Rs 10.2bn (Dolat Est. Rs 11.1bn), growth of 11.9 percent YoY on the back of decent revenue growth of ~13.4 percent YoY in its plastic piping segment. On the other hand, while packaging & consumer product segment grew 7 percent & 6 percent YoY respectively, the industrial product segment de-grew by 2.7 percent YoY for the quarter under review. Overall the volume growth was quite impressive with 17.7 percent YoY growth at 80,327 tonnes (Dolat estimates at 79,500 tonnes)."

"In Q4FY12, SIL had an outstanding operating performance with margins in excess of 19 percent largely attributed to high inventory gains. Despite the higher base effect on YoY basis, SIL continued to post healthy operating performance with strong EBIDTA margin of 18.4 percent in Q4FY13. This resulted in EBIDTA growing by 7.1 percent YoY to Rs 1.88bn (Dolat estimates at Rs 1.63bn). SIL’s operating margins were lower by 80bps YoY but higher by 350bps QoQ (Dolat estimates at 14.8 percent) due to: a) strong 19 percent margins (an increase of 200 bps YoY) reported by plastic piping segment (55 percent of overall revenues) and b) inventory gains."

"Profits from the core business (adjusted for construction business profits & excluding share of associates) grew by 5.6 percent to Rs 990mn (Dolat estimates at Rs 835mn) as compared to Rs 937mn. On consolidated basis (including share of associates & construction business), SIL has reported a YoY growth of 14.6 percent to Rs 1.09bn from Rs 950mn YoY."

Our View: "With the FY13 profitability higher than our estimates, we have revised our earnings estimates upwards by 3.5 percent/1.6 percent for FY14/15 respectively. We now expect SIL to report revenue & PAT CAGR of 17.1 percent & 18.6 percent from FY13-FY15. Accordingly we have revised our TP from Rs 413 to Rs 420. SIL currently trades at 14.1x & 11.9x its FY14E & FY15E consolidated earnings (excluding construction business)."

"We have valued SIL on SoTP basis for: (i) its core operations, and (ii) its stake in SPL. We value SIL’s core business at Rs 405 per share based on 14x its FY15E earnings of Rs 28.9. Further, SIL’s 29.88 percent stake in SPL is valued at Rs 15. Thus, the SoTP valuation for SIL comes to Rs 420.  Since the stock has moved up 20 percent post the Q3 numbers, we change our rating to ‘ACCUMULATE’ (upside of 13 percent) from buy with a target price of Rs 420," says Dolat Capital research report.

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