Nov 28, 2012, 03.09 PM | Source: Moneycontrol.com
SKP Securities is bullish on Supreme Industries and has recommended buy rating on the stock with a target of Rs 377 in its November 27, 2012 research report.
, SKP Securities |
“Supreme Industries Ltd (SIL) was incorporated in 1942, recognized as a market leader of Indian plastic industry. It is among the largest plastic processing company in India, processing over 2.4 lakh metric tonnes of plastic per annum. It has a diversified business model with a large product portfolio spread across its four business divisions broadly categorized into: piping systems, packaging films, consumer products and industrial products.”
“SIL continue to shift towards high margin value-added products (VAP) which have EBIDTA margin of more than 17%. SILs revenue share from VAP has increased from 15% during FY07 to 30.75% during FY12 and expects further increase to 35% by FY16. SIL is increasing its focus on existing VAP like cross laminated films, protective packaging products like insulation and construction films, CPVC pipes, PPRC pipes, and shifting from commodity furniture to premium moulded furniture. SIL has plans to introduce new and innovative products in next two years. These new and innovation product would help them to capture more business opportunities and also make a higher profitability. SIL is focusing on new products like Hi-Tech SWR system, bath room fittings, painted plastic upholstered chair, second generation cross laminated films, composite LPG cylinder and composite pipe which enables them to expand margins going forward. SIL has delivered strong growth in top line and bottom line at a CAGR of 22% and 44%, respectively, during FY08-12. Its EBITDA margins also expanded from 11% in FY08 to 14.7% in FY12 due to increase in production and increase in value added products. We expect its EBITDA margins to remain strong at 14.5% in FY12-14E. The company has recorded strong ROAE and operating cash flows over the years. ROAE during FY08-12 stood at 32.8%. We expect ROAE of 32.5% and 35.3% in FY13E and FY14E respectively, on the back of strong operational efficiency.”
“At the current market price of Rs.285, the stock is trading at a P/E of 15.6x, 14.4x and 10.8x of FY12, FY13E and FY14E earnings of Rs.18.3, Rs.19.8 and Rs. 26.5 per share respectively. We have valued SILs core business through discounted cash flow with a fair value of Rs 368 per share. We have valued SILs 30% stake in Supreme Petrochem based on its current market cap of Rs 553 crore, applying a holding company discount of 30% to arrive at a value of Rs 9 per share for Supreme Petrochem. We recommend BUY rating on the stock with a target price of Rs. 377/- (based on SOTP Valuation), at 32% upside over the period of 15 month,” says SKP Securities research report.
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