Geojit
Supreme Industries (Hold)
CMP: ₹1,011.1
Target: ₹1,018
Supreme Industries Ltd (SIL) is India’s leading player in plastic products.
SIL’s Q3FY19 revenue grew by 10 per cent y-o-y, led by piping segment which grew by 20 per cent y-o-y and consumer segment by 19 per cent y-o-y. While packaging segment de-grew by 4 per cent y-o-y. The overall volume growth was muted at 4 per cent y-o-y largely due to fall in volumes from packaging segment on account of higher competition in cross laminated films and base impact in industrial segment.
Plastic piping and consumer segment volumes grew by 9 per cent and 5 per cent y-o-y respectively. The share of valued-added products declined to 38 per cent versus 40 per cent y-o-y. Management has maintained its volume growth guidance from 10 per cent for FY19E. We lower our revenue estimates by 1 per cent to factor in the impact of lower volumes in Q3FY19. We expect revenue to grow by 15 per cent CAGR over FY19E-21E. PAT to grow by healthy 21 per cent CAGR over FY19E-21E.
Valuations: Given market leadership position, strong balance sheet and return on equity of about 22 per cent, we value SIL at 25x (24x earlier) on FY20E. However, considering near term impact on margins we downgrade SIL to “Hold” from Accumulate, with a target price of ₹1,018.