Recommendation From Plastic Sector.

Supreme Industries

MAY BE OF SOME 'SUPREME' RETURNS

HERE IS WHY
Wide product mix
Strong organic growth model
Firm future strategy

Supreme Industries is one of the largest plastic processors in India, processing over 3 lakh MT annually. The company has presence in the Indian plastic industry for over last 50 years under the present management. It has a diversified revenue model with a large product portfolio across five verticals.

Supreme Industries also has 29.99 per cent stake in Supreme Petrochem. Supreme Petrochem is one of the largest single sites Polystrene (PS) producer accounting for 2 per cent of the global capacity and it also owns 60 per cent of the domestic installed capacity. It also has capacity of Polystyrene (PS) 2.55 lakh TPA, compounded polymers 30000 TPA, EPS - normal & cup grade at 65000 TPA and XPS 1 lakh M3.

On nine-month financial front, Supreme Industries’ revenue increased 4.59 per cent to Rs.3180 crore in 9MFY17 as compared to the same period of the previous financial year. The company’s EBITDA too rose 3.41 per cent to Rs.519 crore in 9MFY17 on a yearly basis. Its net profit also increased 6.73 per cent to Rs.282 crore in 9MFY17 as compared to the same period of the previous fiscal year.

On segmental revenue front, Supreme Industries has earned 55 per cent from plastic piping, 23.38 per cent from packaging products, 7.42 per cent from consumer products, 14.13 per cent from industrial products, 0.7 per cent from composite products in 9MFY17. On trailing twelve month (TTM) financial front, Supreme Industries’ top line increased 4.52 per cent to Rs.4357 crore at the end of December 2016.

The company’s bottom line also rose 8.22 per cent to Rs.397 crore in December 2016. Supreme Industries’ total debt stands at Rs.413 crore at the end of FY16. The company’s debt to equity ratio stood at 0.3x in FY16. Its interest coverage ratio of 11.65x in FY16. The company has a large and diverse production network that saves on freight costs and time to market its products. Its portfolio of several patented products & brands with focus on value added products. Supreme Industries has in-house design centre that enables it to launch innovative products.

Supreme Industries has growth plans as it will increase plant size from 25 to 28 by 2018-19 with a capex of Rs.1500 crore. The company will kick off manufacturing at Rajasthan, Assam and southern India. It has plans to increase reach in existing locations and capture market share in untapped locations. The company is also to strengthen its channel partners and increase the distribution network, which at present consists of over 2800 channel partners. Supreme Industries will also increase current export turnover of around 2.50 per cent of total turnover, significantly over next five years. On valuation front, Supreme industries is trading at TTM PE of 31.59x against industry peers such as Time Technoplast (15.61x) and Uflex (5.86x).

At the same time, the industry PE is trading at 15.01x. On growth story, we recommend our reader-investors to BUY the stock.