loader2
Login Open ICICI 3-in-1 Account
Open ICICI 3-in-1 Account
  • CMP : 3,371.6 Chg : 30.70 (0.92%)
  • Target : 2,320.0 (18.97%)
  • Target Period : 12-18 Month
Result Update

30 Apr 2022

Strong volume growth led by piping segment…

About The Stock

Supreme Industries (SIL) is India’s leading plastic processing company with a presence in four major segments including piping systems, packaging products, industrial products & consumer product category with revenue contribution of 65%,16%, 13% & 5%, respectively.

  • Market leader in the PVC pipe industry with a value market share of 14%
  • Robust balance sheet with RoE & RoCE of 24% & 27% (five-year average), respectively, with stringent working capital policy
Q4FY22 Results

Strong revenue growth in Q4FY22 led by piping segment but EBITDA margin came in lower on account of higher raw material costs.

  • The company reported revenue growth of ~23% YoY to Rs. 2557 crore led by ~16% volume growth YoY. Piping segment revenue grew 34% YoY
  • Gross margins came in lower by 1097 bps YoY (down 412 bps QoQ) due to higher raw material cost. EBITDA margins declined 915 bps YoY to 15.3%
  • PAT declined 28% YoY to Rs. 324 crore, tracking lower EBITDA
What should Investors do?

SIL’s share price has grown at ~13% CAGR over the past five years.

  • We maintain our BUY rating on the stock
Target Price Valuation

We value the stock at 25x P/E FY24E EPS and maintain our target price at Rs. 2320.

Key Triggers for future price performance
  • The government’s flagship ‘Nal Se Jal’ scheme (with an outlay of Rs. 3 lakh crore over the next five years) is a big booster for domestic plastic piping industry over the long term
  • Rising contribution of value added product in overall topline (increased from 35% in FY18 to ~38% in FY22) to keep EBITDA margin elevated
  • The company is planning a capex of Rs. 700 crore in FY23E to increase manufacturing facility by 11% YoY to ~8 lakh tonnes
  • Model revenue CAGR of 11% led by piping segment revenue CAGR of 12%
Alternate Stock Idea

In consumer discretionary space, we also like Asian Paints.

  • Asian Paints is a market leader in the decorative paint segment having ~2.3x more dealers (~70,000) than the No. 2 player. There are structural long term demand drivers of decorative paint such as reduced repainting cycle and Housing for all, that makes it a long term growth story
  • BUY with a target price of Rs. 3645

Particulars

Particulars (₹ crore) Amount
Market Capitalization 42,828.4
Cash & Invest. (FY22) (Rs. Crore) 526.4
EV (Rs. Crore) 24,243.8
52 week H/L (₹) 4,861.5/3,095.0
Equity Capital 25.4
Face Value (₹) 2.0

Price Chart

Key takeaways of recent quarter & conference call highlight

  • Capex of Rs. 700 crore for FY23
  • Key Risk: (i) Input cost pressure (ii) lower demand for non-pipe segment

Research Analyst

Result Update
ICICI Securities – Retail Equity Research

Key Financial Summary

(Rs# Crore) FY19 FY20 FY21 FY22 5 Year CAGR(FY17-22E) FY23E FY24E 2 Year CAGR (FY22-FY24E)
Net Sales 5,612.0 5,511.5 6,357.1 7,772.8 11.7 8,579.7 9,539.2 10.8
EBITDA 784.6 834.5 1,284.3 1,242.1 10.3 1,309.5 1,567.3 12.3
EBITDA Margin (%) 14.0 15.1 20.2 16.0 - 15.3 16.4 -
Net Profit 448.6 467.4 978.1 968.5 17.7 1,000.4 1,177.2 10.3
EPS (|) 35.3 36.8 77.0 76.2 - 78.8 92.7 -
P/E (x) 55.2 53.0 25.3 25.6 - 24.8 21.0 -
Price/Book (x) 11.5 11.0 7.8 6.4 - 6.0 5.3 -
Mcap/Sales (x) 4.4 4.5 3.9 3.2 - 2.9 2.6 -
RoE (%) 18.7 20.7 30.9 25.2 - 24.3 25.1 -
RoCE (%) 25.0 22.2 33.1 25.9 - 25.2 26.7 -
Source: Company, ICICI Direct Research

Key takeaways of recent quarter & conference call highlights

Q4FY22 Results: Strong recovery in piping segment drive revenues

  • SIL reported strong revenue growth of ~23% YoY to Rs. 2557 crore led by ~16% volume growth. The volume growth was driven by piping segment. Piping segment volume grew 27% YoY supported by favourable base and revival in agri demand. Further, the piping segment revenue increased ~34% YoY to Rs. 1800 crore
  • Other three segments i.e. packaging, industrial and consumer product segments witnessed a muted performance in Q4FY22. Packaging and industrial segment reported marginal revenue growth of ~3% and ~2%, to | 319 crore and | 300 crore, respectively. However, consumer product segment reported a drop in revenue by ~5% to | 118 crore during Q4FY22
  • EBITDA margin declined 915 bps YoY to 15.3%. We believe margins have come back to their normalised level (base period margins expanded due to favourable raw material prices). As a result, PAT fell 28% YoY to Rs. 324 crore

Q4FY22 Earnings Conference Call highlights

Plastic piping system

  • For FY22, piping segment revenue increased 23% YoY to Rs. 5046 crore supported by price hike. However, volume declined ~7% YoY. The EBIT margin also declined ~400 bps YoY to 16%
  • In Q4FY22, strong agri demand helped drive volume growth (of 27% YoY) for piping segment. The agri segment contributes ~30% in overall piping revenues
  • The channel inventory is normal in the piping segment and management has witnessed good demand traction in April 2022
  • Higher agri demand and government sponsored schemes like Jal Jeevan Mission, Housing for All, etc, will help drive piping segment volume growth by 15% in FY23
  • New unit to make plastic pipes in Guwahati, Cuttack and Erode is moving smoothly. All capacities are expected to be operationalised by October 2022

Industrial products

  • For FY22, industrial segment revenue growth came in at 35% YoY led by ~16% volume growth. The strong growth was led by material handling and consumer appliances segment
  • Good demand for consumer appliances (such refrigerator, washing machine, air cooler, etc) and material handling products helped drive volume growth in the industrial product segment
  • Strong growth in the material handling segment was supported by customer addition from the FMCG and retail segment. SIL continues to add new products and increased dealer networks in this division
  • The industrial component division (largely automotive) performance was impacted by pandemic led supply disruption and shortage of semi-conductors (used in the automotive segment)

Packaging products

  • Packaging segment reported price led growth of 17% YoY. However, there was a marginal decline in segment volume by ~1% YoY. The segment performance was impacted by lower sales of cross laminated film (tarpaulin), which was adversely impacted by high competition from unorganised players. The management has increased focus to launch non-tarpaulin products, which are high margin products
  • The protective packaging segment witnessed good demand conditions led by consumer products like sports goods, yoga mats and kids puzzle & toys. The company also witnessed good demand from export markets due to increasing trend of China +1 strategy globally
  • The company’s performance packaging film being part of intermediary to essential product category witnessed good demand from dairy & oil industry. SIL is now focused on improved product mix and adding new customers in this segment to drive future growth
  • EBIT margin of this division shrunk ~400 bps to ~8%, mainly due to delay in price hikes in the segment and lower sales of cross laminated packaging products

Consumer products (furniture)

  • The company is the market leader in the premium range of plastic furniture and is planning to launch various new models in this segment, going forward. SIL has ~1300 pan India distributors
  • For FY22, consumer product segment reported revenue growth of 14% YoY to Rs. 404 crore
  • Furniture division exhibited 6% volume de-growth during Q3FY22 mainly due to lower demand from tier II & III cities
  • EBIT margins were at 13% in FY22, down 400 bps YoY

Others

  • SIL is aiming at overall volume growth of 15% YoY and EBITDA margin of ~15% in FY23
  • The company has planned a capex of Rs. 700 crore for FY23, which includes carry forward commitment of Rs. 280 crore. The large part of this capex will be brownfield expansion of piping segment
  • SIL plans to increase its total manufacturing capacity from current 7.25 lakh TPA to ~8 lakhs TPA by the end of FY23
  • Value added products sales increased 20% YoY to Rs. 972 crore for Q4FY22 (up 17% YoY to Rs. 2911 crore)
  • In the composite cylinder category, SIL received an order worth Rs. 170 crore from IOCL for supply of 7.35 lakh composite cylinders (SKU of 10 kg). The company has planned a capex of Rs. 55-60 crore to enhance its composite cylinder manufacturing capacity to 1 million pcs a year. The current capacity has potential to generate annual revenue of Rs. 200 crore
Variance Analysis

  Q4FY22 Q4FY22E Q4FY21 YoY (%) Q3FY22 QoQ (%)   Comments
Revenue 2,557.1 2,206.8 2,084.6 22.7 1,945.1 31.5   Revenue growth is largely driven by strong volume of ~16% YoY
Other Income 8.6 4.0 8.2 4.4 2.9 192.5    
Raw Material Exp 1,806.2 1,451.9 1,247.2 44.8 1,283.6 40.7   Higher raw material prices and change in product mix drags overall gross margin down by 412 bps QoQ (down by ~1100 bps YoY)
Cost of traded goods 37.7 44.1 27.2 38.6 38.8 -2.9    
Employee Exp 90.4 101.5 93.1 -2.9 88.0 2.7    
Other expenditure 231.4 242.8 207.4 11.6 216.8 6.7    
EBITDA 391.4 366.5 509.7 -23.2 317.9 23.1    
EBITDA Margin (%) 15.3 16.6 24.5 -915 bps 16.3 -103 bps   EBITDA margin declined by 103 bps QoQ (915 bps YoY) due to lower gross margin
Depreciation 58.8 57.9 54.8 7.3 57.5 2.3    
Interest 1.9 0.5 5.0 -62.7 0.5 308.7    
PBT 339.3 312.1 458.1 -25.9 262.9 29.1    
Total Tax 85.1 80.5 78.1 8.9 67.8 25.4    
Profit from associates 69.6 56.3 70.3 -1.0 50.7 37.4    
PAT 323.9 287.8 450.4 -28.1 245.7 31.8   PAT decline was led by lower EBITDA margin
Key Metrics                
Plastic Piping 1,800.0 1,490.3 1,347.0 33.6 1,148.0 56.8   Strong demand of PVC pipes from agriculture segments and a favourable base of last year helped drive Piping volume up by 27% YoY
Packaging Products 319.0 287.0 309.0 3.2 370.0 -13.8   Segment performance hit by ~16% dip in volume. Business of Cross Laminated Film products was impacted due to increased competition from unorganzied players
Industrial Products 300.0 263.1 293.0 2.4 272.0 10.3   Segment volume were up by 11% QoQ (Flat on a YoY basis) led by strong demand from consumer durable segments
 Consumer Products      118.0        138.0     124.0 -4.8     127.0 -7.1    11% volume de-growth in the furniture segment mainly due to weak demand 

 

Terms & conditions and other disclosures

ANALYST CERTIFICATION

I/We, Sanjay Manyal, MBA (Finance) and Hitesh Taunk, MBA (Finance) Research Analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views about the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report. It is also confirmed that above mentioned Analysts of this report have not received any compensation from the companies mentioned in the report in the preceding twelve months and do not serve as an officer, director or employee of the companies mentioned in the report.

Terms & conditions and other disclosures:

ICICI Securities Limited (ICICI Securities) is a full-service, integrated investment banking and is, inter alia, engaged in the business of stock brokering and distribution of financial products.

ICICI Securities is Sebi registered stock broker, merchant banker, investment adviser, portfolio manager and Research Analyst. ICICI Securities is registered with Insurance Regulatory Development Authority of India Limited (IRDAI) as a composite corporate agent and with PFRDA as a Point of Presence. ICICI Securities Limited Research Analyst SEBI Registration Number – INH000000990. ICICI Securities Limited SEBI Registration is INZ000183631 for stock broker. ICICI Securities is a subsidiary of ICICI Bank which is India’s largest private sector bank and has its various subsidiaries engaged in businesses of housing finance, asset management, life insurance, general insurance, venture capital fund management, etc. (“associates”), the details in respect of which are available on www.icicibank.com. 

ICICI Securities is one of the leading merchant bankers/ underwriters of securities and participate in virtually all securities trading markets in India. We and our associates might have investment banking and other business relationship with a significant percentage of companies covered by our Investment Research Department. ICICI Securities and its analysts, persons reporting to analysts and their relatives are generally prohibited from maintaining a financial interest in the securities or derivatives of any companies that the analysts cover. 

Recommendation in reports based on technical and derivative analysis centre on studying charts of a stocks price movement, outstanding positions, trading volume etc as opposed to focusing on a companys fundamentals and, as such, may not match with the recommendation in fundamental reports. Investors may visit icicidirect.com to view the Fundamental and Technical Research Reports. 

Our proprietary trading and investment businesses may make investment decisions that are inconsistent with the recommendations expressed herein. 

ICICI Securities Limited has two independent equity research groups: Institutional Research and Retail Research. This report has been prepared by the Retail Research. The views and opinions expressed in this document may or may not match or may be contrary with the views, estimates, rating, and target price of the Institutional Research. 

The information and opinions in this report have been prepared by ICICI Securities and are subject to change without any notice. The report and information contained herein is strictly confidential and meant solely for the selected recipient and may not be altered in any way, transmitted to, copied or distributed, in part or in whole, to any other person or to the media or reproduced in any form, without prior written consent of ICICI Securities. While we would endeavour to update the information herein on a reasonable basis, ICICI Securities is under no obligation to update or keep the information current. Also, there may be regulatory, compliance or other reasons that may prevent ICICI Securities from doing so. Non-rated securities indicate that rating on a particular security has been suspended temporarily and such suspension is in compliance with applicable regulations and/or ICICI Securities policies, in circumstances where ICICI Securities might be acting in an advisory capacity to this company, or in certain other circumstances. 

This report is based on information obtained from public sources and sources believed to be reliable, but no independent verification has been made nor is its accuracy or completeness guaranteed. This report and information herein is solely for informational purpose and shall not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial instruments. Though disseminated to all the customers simultaneously, not all customers may receive this report at the same time. ICICI Securities will not treat recipients as customers by virtue of their receiving this report. Nothing in this report constitutes investment, legal, accounting and tax advice or a representation that any investment or strategy is suitable or appropriate to your specific circumstances. The securities discussed and opinions expressed in this report may not be suitable for all investors, who must make their own investment decisions, based on their own investment objectives, financial positions and needs of specific recipient. This may not be taken in substitution for the exercise of independent judgment by any recipient. The recipient should independently evaluate the investment risks. The value and return on investment may vary because of changes in interest rates, foreign exchange rates or any other reason. ICICI Securities accepts no liabilities whatsoever for any loss or damage of any kind arising out of the use of this report. Past performance is not necessarily a guide to future performance. Investors are advised to see Risk Disclosure Document to understand the risks associated before investing in the securities markets. Actual results may differ materially from those set forth in projections. Forward-looking statements are not predictions and may be subject to change without notice. 

ICICI Securities or its associates might have managed or co-managed public offering of securities for the subject company or might have been mandated by the subject company for any other assignment in the past twelve months. 

ICICI Securities or its associates might have received any compensation from the companies mentioned in the report during the period preceding twelve months from the date of this report for services in respect of managing or co-managing public offerings, corporate finance, investment banking or merchant banking, brokerage services or other advisory service in a merger or specific transaction. 

ICICI Securities or its associates might have received any compensation for products or services other than investment banking or merchant banking or brokerage services from the companies mentioned in the report in the past twelve months. 

ICICI Securities encourages independence in research report preparation and strives to minimize conflict in preparation of research report. ICICI Securities or its associates or its analysts did not receive any compensation or other benefits from the companies mentioned in the report or third party in connection with preparation of the research report. Accordingly, neither ICICI Securities nor Research Analysts and their relatives have any material conflict of interest at the time of publication of this report. 

Compensation of our Research Analysts is not based on any specific merchant banking, investment banking or brokerage service transactions. 

ICICI Securities or its subsidiaries collectively or Research Analysts or their relatives do not own 1% or more of the equity securities of the Company mentioned in the report as of the last day of the month preceding the publication of the research report. 

RATING RATIONALE

ICICI Direct endeavours to provide objective opinions and recommendations. ICICI Direct assigns ratings to its stocks according -to their notional target price vs. current market price and then categorizes them as Buy, Hold, Reduce and Sell. The performance horizon is two years unless specified and the notional target price is defined as the analysts valuation for a stock

Buy: >15%

Hold: -5%to 15%;

Reduce: -15% to -5%;

Sell: <-15% 

Pankaj Pandey

Head – Research

pankaj.pandey@icicisecurities.com

 

 

ICICI Direct Research Desk,

ICICI Securities Limited,

1st Floor, Akruti Trade Centre,

Road No 7, MIDC,

Andheri (East)

Mumbai – 400 093

 

 

research@icicidirect.com
Read More
✕
Application status