It is building a 10-storey office complex on a plot owned by it in Andheri West, a prime locality in Mumbai suburbs. This will boost its profitability over the next couple of years. At the same time SILs scrip is trading at a lower price-to-earnings ratio than other big players in the industry.
BUSINESS:
Established in 1942, Supreme Industries operates 19 plants across India and produces a range of plastic products such as pipes, furniture, industrial and packaging products. In fact, it claims to have the countrys largest plastic products portfolio. The company has an annual turnover of Rs 1,650 crore and a market capitalisation of Rs 760 crore.
Plastic pipes systems accounted for 43% of its total turnover in the year ended June 2009, while industrial components, including automotive parts, brought in one-fifths of its earnings. It is also a leading player in cross-laminated films, furniture, protective packaging and material handling materials. Exports account for a negligible 5-6 % portion of its total sales. Supreme Industries has restructured its business over last couple of years by selling off unprofitable divisions and investing in the others. It divested its PVC film business at Malanpur in Madhya Pradesh, food serviceware plant in Daman and flexible film division at Pondicherry.
GROWTH DRIVERS:
The company is developing its land at Andheri (West) by constructing a 10-storey commercial complex, set to be ready by October . The project, which will offer 2.5 lakh square feet office area for sale, is coming up in a prime locality. The proceeds from this project will boost the companys earnings, while providing necessary funds to invest in its main business.
Supreme Industries achieved 29% volume growth in FY09 despite the weak economic conditions and is expected to grow by over 20% for next couple of years as well. With overall indirect taxes coming down, the demand for plastic products is growing fast in India. At the same time, additional polymer capacities coming up in the Middle East are expected to suppress the prices of polymer over next couple of years. Both developments augur well for the firms future.
FINANCIALS:
Supreme Industries has a history of steady growth with the net profits growing at a cumulative annual growth rate (CAGR) of 35.9% over the last five years, with net sales growing at 15.7%. The company has not missed a dividend in at least 15 years. Its operating cash flows also have been strong over last five years.
The company recently carried out a share buyback scheme reducing its paid-up capital by 8% to Rs 25.4 crore. Although, Supreme Industries performance during the first half FY09 was under pressure due to crash in polymer prices, it reported 90% jump in its net profit to Rs 97.4 crore for 2008-09 with the net sales growing by 26% to Rs 1651.9 crore.
Market Cap 786.80
EPS (TTM) 38.33
P/E 8.08
P/C 5.25
Book Value 134.94
Price/Book 2.30
Div(%) 80.00
Div Yield(%) 2.58
Market Lot 1.00
Face Value 10.00
Industry P/E 7.38
VALUATIONS:
At the current market price of Rs 303.5, the scrip is trading at 7.9 times its earnings for last 12 months, which is cheaper compared to its key rivals Sintex Industries (P/E of 10.3), Nilkamal (P/E of 12.3) and Time Technoplast (P/E of 14.2). We expect the company to post EPS of Rs 57.8 for the year ending June 2010, which discounts the current market price by 5.3 times. For FY10, Supreme Industries has declared a payout of Rs 12 per share, which translates in 4% dividend yield at the current market price.
Source: EconomicTimes
