Accumulate Supreme Industries - Dolat Capital

One of our favorites for the India consumption play, it continues its consistent performance on volumes and margin sustenance. We expect volume growth to remain strong over the next two years (led by strong growth in Pipes & SILPAULIN), exhibiting a CAGR of 15% for FY12-FY14E. SIL will be incurring a capex of INR 10 billion from FY12-FY16E buoyed by strong demand across its product portfolio. The capex would be funded through internal accruals and monetization of its commercial property "Supreme Chambers"

- Impressive track record of rewarding shareholders - High and consistent dividend payout (37% in FY12) over the last several years, one bonus and stock split in last five years & no dilution in last 15 years implying the growth of 18.5% was entirely internally funded (buy back in FY09), speaks of the management capability

- Currently revenues from value added businesses (SILPAULIN and some protective packaging products, CPVC & other value added pipes & premium furniture) account for 31% of the turnover. Apart from the company looking to aggressively expand the aforesaid segments, it is also looking to enter into niche value added segments like LPG composite cylinders, composite pipes and plastic faucets. These products have an element of manufacturing technology involved and therefore higher the value-addition.

- We expect SIL to report revenue & PAT CAGR (core operations) of 18.5% & 21.4% in FY13 & FY14 respectively. SIL currently trades at 13.8x & 11.4x its FY13E & FY14E consolidated earnings (excluding construction business). We value SIL's core business at Rs.324 per share based on 14x its FY14E earnings of Rs.23.1. Further, SIL's 29.88% stake in SPL is valued at Rs.12. Thus, the SoTP valuation for SIL comes to Rs.336, representing an upside potential of 17% from current levels.

Source : Equity Bulls

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