ICICI Direct is bullish on Supreme Industries has recommended buy rating on the stock with a target price of Rs 1165 in its research report dated May 08, 2019.
ICICI Direct's research report on Supreme Industries
Supremes’ performance was hit by significant inventory losses during Q4FY19 owing to sharp decline in polymer prices, resulting a sharp contraction in EBITDA margin by ~630 bps YoY to ~13% (I-direct: 16.6%). As a result, net profit declined by ~30% YoY. On the positive front, volume growth at ~10% YoY (I-direct: ~13%) was led by ~15% and ~14% YoY growth in core business i.e. piping and packaging segments respectively. However, volume growth in the industrial and consumer segment was tad below the expectation at -13% and 3% YoY respectively. According to management, downside pricing pressure has been bottom-out and company is likely to maintain EBITDA margin in the range of ~14% -15%.
However, strong balance sheet with debt/equity 0.08x and higher return ratios RoE, RoCE at 22%, 28% reduce the short-term concern in the industrial segments. We maintain our stance on the stock as Buy with revised target price of Rs 1165/share.
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