Buy Supreme Industries; target of Rs 313: Dolat Capital

“Supreme Industries, annual report highlights the resilience of its business model which played a major role in the company reporting strong performance in an otherwise weak and uncertain economic environment. Plastic industry too witnessed marked slowdown in consumption which increased by only 6% last year as compared to five year CAGR of 12-15%. Despite these headwinds, SIL continued its growth momentum and ended the financial year with strong growth in revenues and profitability. Even the fact that the EBIDTA margins were higher by 100 bps as compared to last year despite higher input costs (due to the depreciating rupee) shows the increasing brand awareness and the pricing power that the company has.”  

“SIL targets to achieve a turnover of Rs 60bn by FY16 expecting a CAGR of 20% over the next four years. We believe that this is possible considering the company’s thrust in adding niche products to its product portfolio and adding new stream of business verticals like plastic faucets, composite pipes, LPG composite cylinders over the next one year apart from increasing its focus on its value added product portfolio like SILPAULIN, CPVC Pipes, etc.The focus is clearly shifting towards technological driven businesses (SILPAULIN, faucets, LPG composite cylinders & composite pipes) from the commodity segments which will help company not only drive growth but also increase / maintain their margins going forward. SIL expects to achieve value growth of 25% & volume growth of 16% for FY13”  

“We expect the company to report revenue & PAT CAGR of 18.5% & 24% respectively from FY12-14 on consolidated basis. At CMP of Rs 250, the stock trades at 12x FY13E & 9.9x FY14E earnings. We retain our bullish stance on the company and maintain a BUY on the stock with a target price of Rs 313 (13x FY14E earnings). We value SIL’s core business at Rs 278 per share based on 13x its FY14E earnings of Rs 23.1. Further, SIL’s 29.88% stake in SPL is valued at Rs 12. Thus, the SoTP valuation for SIL comes to Rs 313, representing an upside potential of 25% from current levels. We maintain a ‘BUY’ with a target price of ` 313 (13xFY14 EPS) and continue to remain bullish on the company’s growth prospects going forward,” says Dolat Capital research report.

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