Supreme Industries Results Review - Inventory gains bolsters margin! - HDFC Securities

Supreme Industries (SIL) reported a strong 4QFY21, led by strong realisations and inventory gains. Consolidated net sales/EBITDA/APAT grew 13/27/44% QoQ (46/86/284% YoY) to INR 20.8/5.1/4.5bn respectively and EBITDAM came in at an all-time high of 24.5%. We like SIL for its steady growth, market share gains, lean working capital, and sustained high return ratios. We retain our ADD rating with a revised target price of INR 2,245 (19x Mar'23E consolidated EBITDA and 30% holding in Supreme Petrochem at 30% disc to current MCap).

4QFY21 performance: SIL's volume remained flat QoQ (+8% YoY) to 111.2KT as last 10days of 4Q's demand was hit by COVID 2.0. Volume for Piping segment fell 2% YoY as demand from agri -sector declined due to high product prices. Demand from other segments was robust (+45/40/12% YoY for Industrial/Packaging/Furniture divisions). PVC-resin prices kept soaring in 4Q, resulting in NSR uptick of 16/38% QoQ/YoY. Large inventory gains (~4% of net sales) burgeoned EBITDAM to 24.5% (+267/534bps QoQ/YoY).

FY21 performance and outlook: Sales volume declined by 1% YoY to 409.1KT as demand from Piping/Furniture segments declined 2/11% YoY. However, demand from Industrial/Packaging continued to grow (+7/7% YoY). NSR grew 15% YoY to INR 153/Kg. EBITDAM grew to 20.2% (+506bps YoY) on strong inventory gains of ~3% of sales (mainly in 2H). APAT grew 109% YoY on lower tax rate and increased profit share from associates. SIL expects to add ~40KT (Ex-Odisha and TN) in FY22E, incurring a Capex of INR 4bn (INR 2bn carried forward) to cater to increased demand. Cash Conversion Cycle has improved to 29days vs 43days YoY. Net cash stands at INR 7.4bn (vs net debt 2.1bn YoY). Capex stood at INR 2.2bn vs 2.4bn YoY. Factoring in better margins, we upgrade our EBITDA estimates by 6/5% for FY22/23E.

Shares of SUPREME INDUSTRIES LTD. was last trading in BSE at Rs.2130.75 as compared to the previous close of Rs. 2113.3. The total number of shares traded during the day was 24065 in over 3468 trades.

The stock hit an intraday high of Rs. 2213.65 and intraday low of 2110.25. The net turnover during the day was Rs. 52438824.

Source : Equity Bulls

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