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Last Updated : Aug 20, 2014 11:50 AM IST | Source:

Hold Supreme Infra; target of Rs 350: ICICIdirect has recommended hold rating on Supreme Infrastructure India with a target price of Rs 350, in its research report dated August 19, 2014.

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“Supreme Infrastructure (Supreme) reported a topline of ~Rs 381.1 crore (YoY decline of 13.7%) vs. our estimate of Rs 501.3 crore. However, the EBITDA margin at 16.8% (improved 45 bps YoY) was ahead of our estimate of 14.0%. The PAT was reported at Rs 11.4 crore (YoY decline of 48.5%) below our estimate of Rs 18.1 crore mainly due to the topline miss.”

“Supreme currently has an order book of Rs 5,530 crore, which implies a TTM order book to bill ratio of 2.6x. In terms of segmental break-up, the roads segment occupies the maximum share of outstanding order of ~40% followed by the buildings segment, which constitutes ~37% of the order book. The company received orders worth Rs 2000 crore in FY14. We have built in order inflows of ~Rs 2000 crore and Rs 2600 crore for FY15E and FY16E, respectively. Going ahead, we expect revenues to grow at 14.1% CAGR during FY14-16E on the back of current order book visibility and built in order inflows. Supreme owns crusher plants, asphalt plants and RMC plants across various locations and, therefore, enjoys superior margins vis-à-vis its peers due to its backward integration model. The aggregates, which constitute ~25-35% of the material cost, are sourced internally leading to savings in costs. Thus, they lend an additional margin advantage of ~3- 4%. While peers have EBITDA margins of ~8-10%, Supreme enjoys superior margins of ~14-15% as the in-house aggregates supply at lower cost enabling them to have lower cost.”

“While we like Supreme given its superior margin and return ratio profile than its peers, we remain wary over its rising debt level and subdued execution rate in last two quarters. Going ahead, we believe any steps towards debt reduction and pick up in execution would be key catalysts for a re-rating of the stock. We recommend HOLD on the stock with an SOTP based target price of Rs 350. We value Supreme’s construction business - Rs 220/share (4.0x FY16 EV/EBITDA, which is at 33% discount to leading construction companies multiple) and BOT portfolio at Rs 130/share (1x P/BV for operational projects),” says research report.    

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First Published on Aug 20, 2014 11:50 am
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