Supreme Industries (SI IN) - Earnings below expectation - CSEC Research

Earnings below expectation

- Total revenue stood at INR 12,826.3mn (+6.9% YoY & +15.8% QoQ) in 4QFY17; during the quarter, plastic goods volume stood at 95,870 MT, down 5.5% YoY, while realization grew by 14.4% YoY to INR 129,550/MT.

- In FY17, Plastic piping segment volume grew 2% YoY to 235,257 MT and revenue grew by 7% YoY to INR 24,530mn. Protective packaging segment volume grew 3% YoY to 47,616MT and revenue grew 4% YoY to INR 9,780mn. Industrial product segment volumes grew by 10% YoY to 38,984 MT and revenue grew by 9% YoY to INR 6,230mn. Consumer product segment volume grew 5% YoY to 18,797MT and revenue grew 4% YoY to INR 3,130mn.

- Company has signed a MoU for 250,000 composite LPG cylinders and company has received an initial order for 30,000 composite LPG cylinders from Bangladesh and the same has been completed in 4QFY17. The balance order would be executed in FY18.

Valuation: At CMP of INR 1,148, the stock is trading at 30.4XFY18E and 25.5XFY19E earnings. We assign MARKETPERFORMER (earlier: BUY) rating with a SOTP target price of INR 1,151 (SI core business is valued at 24XFY19EPS and Supreme Petrochemicals stake at 20% discount to the market value).

Risks: The prices of raw materials are linked with crude oil price and volatility in global crude oil price would significantly impact raw material costs of the company. The plastic industry is considered to be highly fragmented and largely unorganized. Any intensification of competition could lead to a price war, thus affecting the company's operating margin.

Shares of SUPREME INDUSTRIES LTD. was last trading in BSE at Rs.1176 as compared to the previous close of Rs. 1173.2. The total number of shares traded during the day was 6549 in over 575 trades.

The stock hit an intraday high of Rs. 1200 and intraday low of 1167. The net turnover during the day was Rs. 7760726.

Source : Equity Bulls

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