Kotak Securities recommended accumulate rating on Supreme Industries with a target price of Rs 1248 in its research report dated October 31, 2017.
Kotak Securities's research report on Supreme Industries
Supreme Industries Q2FY18 results were ahead of our estimates led by strong volume growth across most of the segments. The company reported 19.5% yoy growth in revenue backed by 18.3% yoy growth in total volume. The volume growth in the quarter was led by aggressive discount policy adopted by the company particularly in agri-based PVC pipes segment. The company’s piping segment grew by 17% yoy despite 6% decline in the PVC pipes industry. Aggressive pricing and inventory loss resulted in 160 bps yoy decline in EBITDA margins which stood at 13.6% in Q2FY18. The company expects EBITDA margins to improve in H2FY18 and guided for 14-15% EBITDA margins in FY18. The company is positive on demand of plastic products across all segments led by improvement in consumption, long term benefits of GST, government focus on infra and affordable housing, etc and maintains volume guidance of 12% in FY18. We have factored in lower EBITDA margin guidance for FY18 in our estimates and expect sharp recovery in FY19E earnings factoring strong volume performance and positive growth outlook for the company.
We upgrade our rating on the stock to ACCUMULATE (Vs Reduce) with the revised target price of Rs 1248 (Vs 1155 earlier), valuing the stock at 28x on FY19E earnings.
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