Q2FY16 RESULT UPDATE GEOJIT BNP PARIBAS Research RETAIL EQUITY RESEARCH SUPREME INDUSTRIES LTD Plastic Products BSE CODE:509930 NSE CODE: SUPREMEIND Bloomberg CODE: SIL IN SENSEX: 24,470 HOLD CMP Rs725 TARGET Rs768 RETURN 6% 29 th January, 2016 Volume growth tepid...margin expansion positive. Supreme Industries Ltd (SIL) is India s leading player in plastic products, offering wide range of products, including Plastic Piping system, Packaging products, Industrial and Consumer products. In Q2FY16, SIL PAT grew by 133% YoY to Rs82cr. Revenue declined by 6% YoY, owing to de-growth in Industrial segment by -21% YoY and lower commodity prices impacting realisation. EBITDA margins improved by 340bps YoY to 15.5% led by lower Raw Material cost. During the quarter volume growth was tepid at 5% YoY. But we expect pickup in volume to 9% for FY17E. Debt has reduced to Rs272cr from Rs656cr YoY. We value SIL at P/E of 21x on FY18E and increase the target price from Rs704 to Rs768, with a HOLD rating. Q2FY16 Volume growth disappointed...but expected to pick-up... SIL s Q2FY16 revenue declined by -6% YoY, led by de-growth in Industrial segment by -21% YoY and owing lower realisation due to fall in raw material prices. SIL s Packaging and consumer segment revenue grew by 14%& 12.1% YoY, respectively. Volume growth was lower at 5%, but going forward seasonal factors will steer the volume growth. Positively, the share of value added products increased to 42.38% from 38.2%. Management maintains volume growth guidance at 12%-15% for FY16E. We factor SIL s FY16E revenue at Rs28,804 (9months). EBITDA margin to improve further... SIL s consolidated EBITDA margins improved by 340bps YoY to 15.5% vs. 12.1% YoY, largely led lower raw material cost. Gross margins in Plastic piping, Packaging & Consumer segment improved by 540bps, 650bps & 710bps YoY, respectively. We factor EBITDA margins to be at 14.7% for FY16E. Considering lower cost we expect EBITDA margins to expand to 16.7% in FY17E. Other key highlights... SIL s share of profit from Supreme Petro (associate) was at Rs79.3mn. SIL has received an order for supply of 4500 pieces of LPG cylinders from HPCL. Another 2,500 pieces of 5 kilo, 7 kilo and 15 kilo capacity, which is expected to supplied in March. Management expect to launch CPVC fire sprinklers in FY17E. The CAPEX plans for FY16E amounts to Rs2,000mn. Gross debt has reduced to Rs2,723mn Vs Rs6,655mn YoY. Valuations At CMP, SIL is trading at average 1yr fwd P/E of 22x. We believe that going forward volume growth is expected to pick up in plastic piping and packaging segment. Higher contribution from value added products and lower cost will help in expansion of EBITDA margins. SIL s new products (LPG cylinders & fire sprinklers), is likely provide higher revenue trajectory going ahead. We value SIL at 21x on FY18E with a target price of Rs768 and we have a HOLD rating. * SIL changed its financial year-end from June to March effective from FY16, so we have adjusted FY16 estimate to 9MFY16. P/E based on annualised EPS. Company Data Market Cap (mn) Enterprise Value (mn) Rs92,063 Rs94,928 Outstanding Shares (mn) 127 Free Float 50% Dividend Yield 1.3% 52 week high Rs745 52 week low Rs540 6m average volume (mn) 0.08 Beta 0.6 Face value Rs2 Shareholding % Q4 FY15 Q1 FY16 Q2 FY16 Promoters 49.7 49.7 49.7 FII s 22.3 21.2 20.3 MFs/Insti 6.3 7.4 7.4 Public 21.2 21.2 21.7 Others 0.5 0.5 0.5 Total 100.0 100.0 100.0 Price Performance 3mth 6mth 1 Year Absolute Return 15.0% 16.0% 22.7% Absolute Sensex -8.2% -13.2% -17.2% Relative Return* 25.3% 33.6% 48.3% *over or under performance to benchmark index 850 650 450 250 SIL Ltd Sensex Rebased Jun-13 Oct-13 Feb-14 Jun-14 Oct-14 Feb-15 Jun-15 Oct-15 Y.E June (Rsmn) 9mFY16E * FY17E FY18E Sales 28804 44066 51397 Growth (%) (32.3) 53.0 16.6 EBITDA 4493 7359 8172 Margins (%) 15.6 16.7 15.9 PAT Adj. 2141 4046 4646 Growth (%) (34.0) 89.0 15.0 Adj.EPS 17.0 32.0 37.0 Growth (%) (34.0) 89.0 15.0 P/E 43.0 22.8 20.0 P/B 7.0 5.8 4.8 EV/EBITDA 21.1 12.8 11.4 ROE (%) 23.0 28.0 26.0 D/E 0.2 0.1 0.1 Anil R Analyst
Quarterly Financials Profit & Loss Account (Rs mn) Q2FY16 Q2FY15 YoY Growth % Q1FY16 QoQ Growth % Sales 10,017 10,658 (6.0) 7,728 29.6 EBITDA 1,551 1,288 20.4 909 71.0 EBITDA Margin 15.5 12.1 11.7 Depreciation 336 333 0.7 335 0.2 EBIT 1,216 955 27.3 573 112.1 Interest 95 169 (44.0) 100 (4.6) Other Income 4 11 (63.1) 15 (73.3) Exceptional Items - - - - - PBT 1,125 796 41.2 489 130.0 Tax* 383 267 50.2 169-76.4 Reported PAT 742 529 46.3 320-77.3 Adjustment for profit/loss (asso) 79 (177) - (74) - Adj PAT 821 353 133.0 245 235.0 No. of shares (mn) 127 127-127 - EPS (Rs) 6.5 2.8 133.0 1.9 235.0 Segment Revenue (Rs mn) Q2FY16 Q2FY15 YoY Growth % Q1FY16 QoQ Growth % Segments Plastic Piping 4,920 4,920 0.0 4,015 22.5 Packaging 3,030 2,670 13.5 1,585 91.1 Industrial Segment 1,250 1,580 (20.9) 1,404 (11.0) Consumer 740 660 12.1 581 27.4 Composite LPG cylinders - - - - Total Segmental Revenue 9,940 9,830 1.1 7,585 31.0 Change in Estimates Old estimates New estimates Change % Year / Rsmn FY16E (9months)* FY17E FY16E (9months)* FY17E FY16E FY17E Revenue 3,1695 52,436 28,804 44,066-9.0-16.0 EBITDA 4,643 7,761 4,493 7,359-3.2-5.2 Margins (%) 14.7 14.8 15.6 16.7 +90bps +190bps PAT* 2,003 4,063 2,141 4,046 6.9-0.4 EPS* 15.8 32.0 16.9 31.9 6.9-0.4 *SIL changed its financial year-end from June to March effective from FY16, so we have adjusted FY16 estimates to 9MFY16.
Consolidated Financials Profit & Loss Account Sales 39,622 42,552 28,804 44,066 51,397 % change 16.4 7.4 (32.3) 53.0 16.6 EBITDA 5,888 6,662 4493 7,359 8,172 % change 9.9 13.1 (32.6) 63.8 11.0 Depreciation 1,016 1,390 1,015 1,358 1,398 EBIT 4,873 5,273 3,478 6,001 6,774 Interest 761 580 294 224 157 Other Income 32 24 22 45 45 PBT 4,143 4,718 3,207 5,822 6,663 % change 3.2 13.9 (32.0) 81.5 14.4 Tax 1,400 1,600 1,106 1,985 2,272 Tax Rate (%) 33.8 33.9 34.5 34.1 34.1 Reported PAT 2,834 3,224 2,141 4,046 4,646 Adj* - - - - - Adj PAT 2,834 3,224 2,141 4046 4,646 % change (2.3) 13.7 (33.6) 89.0 14.8 No. of shares (mn) 127 127 127 127 127 Adj EPS (Rs) 22.3 25.4 16.9 31.9 36.6 % change (2.3) 13.7 (33.6) 89.0 14.8 DPS (Rs) 9.4 9.4 9.4 9.4 9.4 CEPS (Rs) 30.3 36.3 24.8 42.5 47.6 Balance Sheet Cash 238 1,790 1,823 3,270 5,466 Accounts Receivable 2,348 2,380 2,514 2,777 3,098 Inventories 4,976 4,647 5,105 5,392 5,820 Other Cur. Assets 2,099 2,224 2,315 2,487 2,619 Investments 1,074 1,207 1,257 1,457 1,657 Gross Fixed Assets 17,394 18,158 20,158 21,008 22,008 Net Fixed Assets 10,820 10,151 11,136 10,628 10,230 CWIP 181 998 600 450 250 Intangible Assets 59 174 174 174 174 Def. Tax (Net) (1,168) (895) (776) (561) (315) Other Assets - - - - - Total Assets 20,627 22,675 24,147 26,072 28,998 Current Liabilities 2,777 3,004 3,574 3,451 3,580 Provisions 1,122 1,657 1,718 1,871 1,971 Debt Funds 3,901 3,315 2,865 2,115 1,365 Other Liabilities 2,435 2,583 2,924 2,711 2,701 Equity Capital 254 254 254 254 254 Reserves & Surplus 10,138 11,861 12,813 15,670 19,127 Shareholder s Fund 10,392 12,115 13,067 15,924 19,381 Total Liabilities 20,627 22,675 24,147 26,072 28,998 BVPS (Rs) 82 95 103 125 153 Cash flow Y.E March (Rsmn) FY14A FY15 FY16E* FY17E FY18E Net inc. + Depn. 3,759 4,507 3156 5405 6044 Non-cash adj. 894 736 175 8 (93) Changes in W.C (1401) 765 (54) (691) (651) C.F.O 3,252 6,008 3,277 4,722 5,302 Capital exp. (1,445) (1,936) (1,602) (700) (800) Change in inv. - 10 (50) (200) (200) Other invest.cf 108 66 - - - C.F - investing (1,337) (1,860) (1,652) (900) (1,000) Issue of equity - - - - - Issue/repay debt 1 530 (403) (750) (750) Dividends paid (1,115) (1,197) (1189) (1189) (1,189) Other finance.cf (789) (870) - (437) (167) C.F - Financing (1,903) (2,596) (1,592) (2,376) (2,106) Chg. in cash 12 1,552 33 1,447 2,197 Closing cash 210 1,790 1,823 3,270 5,466 Ratios Profitab. & Return EBITDA margin (%) 14.9 15.7 15.6 16.7 15.9 EBIT margin (%) 12.3 12.4 12.1 13.6 13.2 Net profit mgn.(%) 7.2 7.6 7.4 9.2 9.0 ROE (%) 29.6 28.6 17.0 27.9 26.3 ROCE (%) 19.2 16.0 9.6 15.6 15.4 W.C & Liquidity Receivables (days) 20.2 20.3 23.4 21.9 20.9 Inventory (days) 44.4 41.3 46.6 43.5 39.8 Payables (days) 41.6 36.3 49.6 45.6 38.1 Current ratio (x) 2.5 2.4 2.2 2.6 3.1 Quick ratio (x) 0.9 1.0 0.7 0.8 0.9 Turnover &Levg. Gross asset T.O (x) 2.4 2.3 1.5 2.1 2.4 Total asset T.O (x) 2.0 2.0 1.2 1.8 1.9 Int. covge. ratio (x) 6.4 9.1 11.8 26.8 43.3 Adj. debt/equity (x) 0.4 0.3 0.2 0.1 0.1 Valuation ratios EV/Sales (x) 2.1 2.0 3.3 2.1 1.8 EV/EBITDA (x) 14.3 12.5 21.1 12.8 11.4 P/E (x) 28.2 24.8 43.0 22.8 19.8 P/BV (x) 7.7 6.6 7.0 5.8 4.8 * SIL changed its financial year-end from June to March effective from FY16, so we have adjusted FY16 estimate to 9MFY16
Recommendation Summary (last 3 years) Dates Rating Target 900 700 500 300 100 Apr-12 Sep-12 Feb-13 Jul-13 Dec-13 May-14 Oct-14 Mar-15 Aug-15 Jan-16 Source: Bloomberg, Geojit BNP Paribas Research 13-Feb -14 Accumulate 482 25-April-14 Hold 546 22-July-14 Accumulate 661 20-Oct-14 Hold 612 28-Jan-15 Hold 630 04-May-15 Buy 797 27-July-15 Accumulate 715 02-November-15 Accumulate 704 29-January-16 Hold 768 Investment Rating Criteria Large Cap Stocks; Mid Cap and Small Cap; Buy - Upside is 10% or more. Buy - Upside is 15% or more. Hold - Upside or downside is less than 10%. Accumulate* - Upside between 10% - 15%. Reduce - Downside is 10% or more. Hold - Absolute returns between 0% - 10%. Reduce/Sell - Absolute returns less than 0%. To satisfy regulatory requirements, we attribute Accumulate as Buy and Reduce as Sell. The recommendations are based on 12 month horizon, unless otherwise specified. The investment ratings are on absolute positive/negative return basis. 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