Supreme Industries
A supreme growth plan
India's largest producer of plastic products is on a sustained growth path through focus on higher margin value-added products in all its divisions
| Buy | Supreme Industries |
| BSE Code | 509930 |
| NSE Code | SUPREMEIND |
| Bloomberg | SI@IN |
| Reuter | |
| 52-week High/Low | Rs 285 / Rs 151 |
| Current Price | Rs 256 (as on 24th October 2007) |
Founded in 1942, Supreme Industries is an acknowledged leader of India's plastics industry. It handles volumes of over 100,000 tonnes of polymers annually, effectively making it the country's largest plastics processors. The company also offers the widest and most comprehensive range of plastic products in India.
Over the years, it has gone into almost all segments of plastic products and put up plants at various locations in the country. Its product range caters to both, the industrial and consumer segment. It manufactures injection-moulded items, extruded items, industrial moldings, crates, furniture, polyethylene foam and polypropylene foam, PVC pipes and fittings, multi-layer sheets and products thereof, and multi-layer films. In fact, Supreme is credited with pioneering several products in India. These include Cross- Laminated Films, HMHD Films, Multilayer Films, SWR Piping Systems, PP Mats and more.
The company has 20 manufacturing sites spread throughout the country. They are located at Daman, Derabassi, Durgapur, Guwahati, Halol, Hosur, Jalgaon, Kanpur Dehat, Khopoli, Khuskheda, Kolkata, Malanpur 1, Malanpur 2, Manesar, Mumbai, Nandesari, Noida, Pondicherry, Silvassa, Talegaon. These wide location of the manufacturing sites enables the company to provide improved service to the customers of respective region by reducing the freight cost with minimum lead-time to meet their requirements.
The company has excellent relationship with it's distributors. The distributor numbers are increasing in all the product groups.
Superb Q1 performance - PBT before EO is up 150%
During the quarter ended September 2007, it registered sales growth of 11% to Rs 254.02 crore. However, OPM soared by 250 basis points to 11.8%. This took its OP up by 40% to Rs 29.88 crore.
Other income grew 77% to Rs 1.33 crore and interest cost was up 30% to Rs 8.29 crore. After providing for depreciation (down 11% to Rs 9.08 crore), PBT rose by a stunning 150% to Rs 13.84 crore.
EO gain was nil against Rs 8.25 crore. Even then PBT after EO was flat at Rs 13.84 crore against Rs 13.78 crore.
After providing for tax (up 15% to Rs 4.55 crore), PAT fell 5% to Rs 9.29 crore.
The company has discontinued its business of Rigid PVC Films & Food Service ware Divisions since May 2007 and June 2007 respectively. Excluding these discontinued business the total income, Operating Profit and Profit Before Tax were:
(i) Rs 207.71 crore, Rs 20.31 crore and Rs 6.09 crore respectively during First quarter of previous year and
(ii) Rs 1092.81 crore, Rs 130.58 crore and Rs 65.11 crore respectively for the whole of the previous year 2006-07.
Scope for further expansion of profit margins
To improve it's operating profit margins; the company has accelerated initiatives in three dimensions.
- To withdraw from certain low profit margin products.
- To increase the share of value added products in every product segment.
- To reduce cost especially in overall energy consumption.
These initiatives will not only soften the impact of increase in raw material cost (if any) but will also improve the operating margin.
The company is actively working to improve its OPM. OPM has improved in the first quarter of the current year to 12.83% as compared to 10.08% of the first quarter of the last year for the continued businesses of the Company. This margin improvement is as a result of withdrawing from non-performing product segments, above average growth in high margin product segments, an improved product mix and benefits from operational efficiency programmes.
The prospects of all its divisions are bright
The company operates in 4 broad business segment of Plastic Piping Division, Consumer Products, Industrial Products and Packaging Products.
Product wise, plastics piping system contributed 37.26% to the turnover in FY 2007 as against 35.36% in FY 2006. Consumer products contributed 14.78% compared with 16.89%. Industrial products contributed 20.65% over 19.99%. Packaging products contributed 27.31% compared with 27.76%.
Plastic Piping System division
This division consists of PVC pipes, Injection Mouilded System fittings and handmade fittings, Polypropylene random Co-polymer pipes and fittings
In line with the application of piping products, the company intends to categorize it's products into two broad main categories, namely; a) Building and Installation and b) Civil & Infrastructure.
Building and Installation will have products used above ground level. This will include SWR System, Aqua gold system, PPR system, ASTM Threaded Pipe, Plumbing Pipes used for hot and cold water connections. The company has five systems in this category. The company is adding two new systems in the current year. One for rainwater harvesting and one additional for Hot and Cold water plumbing.
With the continuing boom in construction industry the company's Building Industry related products are in good demand. It is expected that this segment will register a sustainable growth of over 25% in coming years.
Civil & Infrastructure comprises mainly products used below ground level. This business will include pipes used for Drinking water supply, Irrigation, casing and submersible pipes, Underground Drainage. Storm water system and Sewage system. The company's current product range is further classified in separate systems. The company presently supplies four systems. The company plans to add two new systems in this category in the current year, one for Gas distribution and the other for Industrial usage.
Due to the government focus on Irrigation, Drinking water supply schemes, Storm water, underground water systems and Drainage system and Sewerage Pipes, this sub division is also poised for decent growth going forward.
The company's plumbing product range mainly, Indogreen for hot and cold water and Aquagold for cold water has been seeing rapid growth. The company strongly believes that these product lines have high growth potential as they are targeted to replace GI Pipes. The advantages of Indogreen PPR Pipes and PVC Aquagold Pipes over GI Pipes are numerous. The system is well accepted in international market. With superior properties, they also enjoy cost advantage. The company therefore, has initiated steps further to enhance the capacity for these product lines to meet the growing demand of plumbing system.
The underground Drainage System is proving to be cost efficient based on life performance. Presently the company is supplying products to Punjab Sewerage Board and Punjab Health Dept. who in turn are using the Pipes for Sanitation in 190 Villages as a Pilot project. After completion of this project and looking to the success of the project, Punjab Govt. is determined to take-up this project to many other villages. The company is convinced that many other State Govt. will also follow the same route to improve the hygiene and sanitation condition in rural India.
The Govt. is planning to bring millions of hectares of un-irrigated land under irrigation through irrigation projects. The State Govts are actively working to ensure that most of the villages are supplied with adequate quality potable water. There is further thrust on rainwater harvesting and improvement in sanitation conditions. These initiatives taken by Central and State Govts. will see enormous growth for piping products.
The Govt. has announced many schemes for improvement of Primary/Secondary Education, Primary Health Centers and tourism. This has brought in the latent growth potential through renewed construction activity for Educational Institutes, Shopping Malls, Hospitals and Five Star Hotels / Budget Hotels. The country's IT sector is booming. The country is now seeing high growth coming through retail sectors. All these requirements along with infrastructure projects will ensure that the demand for Piping products will grow steadily beyond 20% p.a. over next 10 years.
In all the company has 4268 Nos of products and accessories to cater to these nine systems. Several hundreds of new products are going to be further added in the coming year.
Consumer Products Division
Its Consumer products division consists of Furniture and mats business.
The company continues to concentrate on its furniture manufacturing activity at 4 locations viz: Pondicherry (Union Territory), Durgapur (West Bengal), Lalru (Punjab) and Guwahati (Assam). The company is focusing to broaden the range of value added furniture products, which help to build the superior brand image of the Company's products for its durability and aesthetics. Such products command better price realization and are relatively less affected by raw material cost volatility. The company increased the Premium Item Range by launching new products during the year. The company is the only supplier of Painted Upholstered Plastics Chairs. There has been a growth of more than 45% on sale of premium products compared to last year. More over the share of such products sale had gone up to 19% in value during FY 2007. The company intends to increase its share of such products to 30% in the next two years.
The company has set up few Exclusive Showrooms displaying entire range of Supreme Furniture in a pleasant ambience. The current number of eight exclusive show rooms will be increased to 22 by the end of next year. The company also started few Model Showrooms giving better display of Supreme Furniture range. The company intends to increase such display in the coming years at more locations.
The company's furniture products enjoys good acceptance in the market for its quality, design, colour and range. Supreme brand is perceived as a premium brand in the country.
The demand for exports of the mat business is good. As a result, the company has increased its production capacity by 15%. This is expected to be in full production by the end of Aug, 2008. The management expects the Division to grow by 10% this year.
Industrial Product business
This division consists of Industrial Products, material handling crates and pallets.
The demand of industrial products is good. The company performed well in products for automobiles, household appliances and televisions. Prospects are also encouraging.
This was another year of better demand for Industrial products. Improved Business in Automotive, Household & Consumer Electronics has pushed up growth to more than 20% in sales revenue over that of the previous year. A major order of Electronic Voting Machine parts was executed in a record time. Company performed quite well in all its industrial products segments like Automotive, Consumer electronic, Household Appliances and EVM parts.
The company expects further improvement in demand during the current year. The Company added to its list Mahindra & Mahindra as an OEM customer. This is expected to result in improved business in the current year. The capacity expansion, which was carried out at Noida and Talegaon during the previous year has fully gone into production. Improved demand resulted in better capacity utilization at all the plants.
Khushkera factory at Rajasthan was relaid, modified and modernized to manufacture only auto components. The supplies of these products has commenced from Nov'06. The facility at Pondicherry factory has also been relaid, so that industrial products can be separated from other product divisions. This has resulted into better administration at factory level. The expansion of Pondicherry unit was completed and has resulted in improved sales revenue. The Company has taken and is in the process of taking various actions to increase Value Added Business by improving in-house PUpainting capabilities and doing sub-assembly for auto parts.
Supplies of industrial products from Durgapur unit have been fully streamlined. The company may consider expansion at Durgapur in view of expected increase in demand of Auto parts.
The company is embarking on various Re-engineering measures in Industrial Products Division to achieve the Divisional Mission of becoming world class Injection Moulded Components and Assembly System Supplier. Towards achieving the goal, some of the actions on anvil are:
- The capacity and capability enhancement through adding bigger capacity machines to facilitate moulding of large parts,
- Augumention and expansion of paint shops at all locations,
- Improving Capability in PU painting,
- Replacement of old and inefficient machines by modern and efficient machines,
- Putting up Centralized Design and Technical Centre to cater to the needs of OE to offer Total Plastic Parts Solutions,
- Establishing modern Quality Control Labs,
- Installation of improved material handling and storage systems to facilitate effective Inventory Management and
- Training and development of Human Resources.
Packaging Product business
On the lines of economic buoyancy, the Packaging Product business is also expected to do well going forward. In anticipation of high demand, the company's new seven-layer linehas commenced in production December 2005. This has enabled the company's capabilities to offer high value products to its customers providing better barrier properties, thereby replacing several laminates market as well as being used for several high barrier laminate. As consumption of ready to eat food is also expected to increase, the requirement of these packaging materials are expected to grow.
Awaiting real estate bonanza
The construction of Commercial Complex at company's site at Veera Desai Road in Andheri (Mumbai) is in full swing. The entire complex consisting of 10 floors with all modern facilities and ample parking spaces is likely to be ready for occupation during the last quarter of Calendar Year 2008. The company has invested Rs 34.91 crore on the project till 30th Sept. 2007.
The company also has many other sites where real estate development can be done in future.
Raw material scenario is stable
The raw material situation continues to remain affordable. In spite of high prices of crude, the international prices of raw material remain in a narrow band though at a higher level. The appreciation of Rupee has also helped.
Introduction of VAT throughout the country with a phased reduction plan of Central Sales Tax is reducing the size of unorganised sector's business enabling higher growth of organized sector's business volume.
Huge well-planned capex to supplement growth
The company has made a capital investment plan of around Rs 240 crore for the year 06-07 and 07-08. A sum of Rs 132 crore has already been spent in FY 2007.
Major capital expenditure has been planned for the followings:
Establishing a Mega plastics product complex at Gadegaon near Jalgaon manufacturing varied plastics products with world class Mfg. facilities. The trial production at the complex started in the last week of September 2007. The planned capacity of first phase will be fully operational by February 2008.
Setting up high technical Protective Packaging Products facility in the new unit at Urse-near Pune. The Urse plant is expected to be operational by November 2007.
Increase in capacities of Cross Laminated film and products at Halol, Silvassa and Gadegaon.
Enhance and upgrade the Injection Moulding capacities.
Expand the range of products of Furniture, Crates & pallets businesses.
Expand the range and increase the capacity of plastics pipe fitting at Jalgaon.
These investments are calibrated with a discipline of not to increase the gearing ratio.
Buoyant outlook
The business outlook continues to remain encouraging.
The company is continuously innovating to increase share of specialty products in each products segment to meet demanding specifications from it's end users. The proportion of such business is growing in each product segment.
The company's investment plans are going as per schedule. The trial production at Gadegaon Mega Plastics Products complex was started in last week of Sept. 2007. The planned capacity of first phase will be fully operational by February 2008.
Increased capacity of XF at 9000 TPA is producing fully during the current year. Last year, the company sold 6639 tons. The demand for the product has grown up by 80% in the first quarter. This increased capacity will be sold out in the year yielding a turnover of Rs 140 crore per annum.
EBIDTA in this product is 18%. The company has taken further steps to enhance the capacity by 2500 tons per annum at an investment of Rs 15 crore, which will be operational by October 2008.
The company is studying the market potential of newer varieties of XF film product for which its collaborator has got patents. The company has the exclusive right to produce such newer variety for SAARC countrys requirements. Once the study is complete, the company will proceed to install capacity to make newer range of XF product in the country.
The expansion of capacities in material handling system and furniture along with the introduction of new range of products are all getting implemented as per schedule at all the Five locations.
Protective Packaging Division's Urse plant may go into operation by Nov. 2007. The company is marketing several new foam products with a view to manufacture them once it reaches a critical mass. These products are speciality products and will add to both the top line and the bottom line of the division.
In Industrial Product segment, the company has augmented painting facilities at Talegaon and Noida. The company is also replacing certain machines with new generation efficient machines in order to meet rising expectations of industrial customers, improve manufacturing excellence and get better value additions.
Plastics pipe Division will be introducing newer plastics pipes & Fittings for Hot & Cold water system, infrastructure, Sewerage, Drainage and Industrial Applications at Jalgaon and Gadegaon between Nov. 07 to Feb. 2008.
The company has withdrawn from two product segments. The company has also decided to withdraw from flexible packaging film business. The divestment plans of this business and other non-functional assets are under active negotiation.
The expected net turnover of continuing plastic products business is Rs 1300 crore in this year against. Rs 1,014 crore in the previous year. The company plans to achieve a net turnover of Rs 1,600 crore in the year 2008-09.
Valuations are attractive
In FY 2008 (ending June), we expect the company to register sales and net profit of Rs 1355.17 crore and Rs 58.34 crore. On equity of Rs 27.62 crore and face value of Rs 10 per share, EPS works out to Rs 21.1. The share price trades at Rs 256. P/E is just 12.1, which is low for industry leader in a fast growing industry.
|
| 0406 (12) | 0506 (12) | 0606 (12) | 0706 (12) | 0806 (12P) |
| Sales | 796.27 | 814.09 | 982.07 | 1161.66 | 1355.17 |
| OPM (%) | 10.7 | 9.5 | 9.9 | 11.2 | 12.0 |
| OP | 85.48 | 77.73 | 97.28 | 129.63 | 163.12 |
| Other inc. | 2.42 | 10.03 | 4.66 | 6.67 | 8.43 |
| PBIDT | 87.90 | 87.76 | 101.94 | 136.30 | 171.55 |
| Interest | 24.42 | 22.77 | 26.97 | 33.01 | 41.57 |
| PBDT | 63.48 | 64.99 | 74.97 | 103.29 | 129.99 |
| Dep. | 41.39 | 39.29 | 41.34 | 40.25 | 40.69 |
| PBT | 22.09 | 25.70 | 33.63 | 63.04 | 89.30 |
| EO | 0.70 | 0.00 | 16.93 | 10.43 | 0.00 |
| PBT after EO | 22.79 | 25.70 | 50.56 | 73.47 | 89.30 |
| Tax | 1.80 | 2.05 | 10.37 | 23.34 | 30.96 |
| PAT | 20.99 | 23.65 | 40.19 | 50.13 | 58.34 |
| EPS (Rs)* | 7.5 | 8.6 | 10.3 | 15.8 | 21.1 |
| * Annualised on current equity of Rs 27.62 crore; Face Value of Rs 10 | |||||
| Supreme Industries: Results |
|
| 0709 (3) | 0609 (3) | Var. (%) | 0706 (12) | 0606 (12) | Var. (%) |
| Sales | 254.02 | 228.48 | 11 | 1161.66 | 982.07 | 18 |
| OPM (%) | 11.8 | 9.3 |
| 11.2 | 9.9 |
|
| OP | 29.88 | 21.32 | 40 | 129.63 | 97.28 | 33 |
| Other inc. | 1.33 | 0.75 | 77 | 6.67 | 4.66 | 43 |
| PBIDT | 31.21 | 22.07 | 41 | 136.30 | 101.94 | 34 |
| Interest | 8.29 | 6.39 | 30 | 33.01 | 26.97 | 22 |
| PBDT | 22.92 | 15.68 | 46 | 103.29 | 74.97 | 38 |
| Dep. | 9.08 | 10.15 | -11 | 40.25 | 41.34 | -3 |
| PBT | 13.84 | 5.53 | 150 | 63.04 | 33.63 | 87 |
| EO | 0.00 | 8.25 | 100 | 10.43 | 16.93 | -100 |
| PBT after EO | 13.84 | 13.78 | 0 | 73.47 | 50.56 | 45 |
| Tax | 4.55 | 3.95 | 15 | 23.34 | 10.37 | 125 |
| PAT | 9.29 | 9.83 | -5 | 50.13 | 40.19 | 25 |
| EPS (Rs)* | 13.5 | 10.8 |
| 15.8 | 10.3 |
|
| * Annualised on current equity of Rs 27.62 crore; Face Value of Rs 10 | ||||||
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