Supreme Industries

HI

Was going through the call scripts of Astral Poly and on their recent acquistion of Rex polyextrusion for Double wall corrugated pipes. They claim that its evolving market with long term potential. Does Supreme industries play in that space, if yes what are the revenues looking like. Management of Astral wasnt willing to share the market size for this segment.

Secondly what make Astral phenomenally expensive that Supreme, is it the growth rates which is slightly higher or is market betting on their adhesives which may pose some threat to likes of pidilte.

Views from members would be highly appreciated

Q2 Results: Stable Results

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Important Notes to Results:

https://beta.bseindia.com/xml-data/corpfiling/AttachLive/924207c0-8598-4464-b3d3-90afbf066e7a.pdf

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Does anyone have a summary of the concall? Why haven’t Finolex Industries and Supreme face an impact in costs with the oil prices rising? While plastic companies like Nilkamal were severely affected.

Summary of concall I will not be able to give but here are few important points

  1. Top Line guidance 5800-5900 crs, Upped the gudiance
  2. Margin 14.5% - 15% - reduced it from earlier
  3. Management mentioned, they are expecting RM price to come down
    4.Guidance lower as facing significant competition
  4. Volume growth 8%-10% but for the 1st time from last year, overall plastic consumption less than GDP growth whereas expectation is 1.4 times
  5. Supreme petrochem facing not only banning of plastic products but dumping from Iran
  6. Composite Cylinder no progress domestically but making progress internationally
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Concall Transcript has been uploaded and should be available in the links mentioned in below thread

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Concall Highlights (source: capital market)

The company has sold 83175 MT of plastic goods a volume growth of 5% for the Sep 18 quarter on YoY basis.

No inventory gain or loss in Sep 18 quarter

Focus remains to increase sale of value added products and improve ROC of the company.

Expects net sales of around Rs 5700 crore to 5800 crore for FY 19 and volume growth for FY 19 to be at 10% as compared to 7% for H1 FY 19.

Packaging business has seen some plant shut down so volume was down but year end volumes should not be a problem.

In Sep 18 quarter, Company has realised Rs. 80.85 crore from sale of 38718 sq. ft. of the premises.

Excluding the construction income, PAT for Sep 18 quarter stood at Rs 72.70 crore as compared to Rs 70.82 crore for Sep 17 quarter.

35% value added product sale in Sep 18 quarter as compared to 37% YoY.

All polymer prices have declined. Expects international polymer prices to remain low and will have a downward bias given the new capacities of polymers coming worldwide.

Average net borrowing as on Sep 18 stood at Rs 259 crore vis a vis Rs 248 crore as on Mar 18. Average net borrowing cost stood at 7.07% vis a vis 7.12% at start of the year.

Demand of plastic products remain positive.

Ebidta margin for plastic piping stood at 13% and the segment grew by 7% in volume terms in Sep 18 quarter. Ebidta margin in Packaging products stood at 15.7% and the segment de-grew by 3% in volumes in Sep 17 quarter.

Industrial products volumes grew by 8% in Sep 17 quarter with Ebidta margin of 11.1%. Consumer products volume was down by 2% and margin stood at 16%.

Capex for FY 19 stood at Rs 280 crore. All the capex plan is progressing well.

Piping demand is strong

The rupee depreciation had seen some forex hedging gain in other income and some MTM forex loss which resulted in some high interest cost Sep 18 quarter.

Expects around 15-15.5% OPM for FY 19.

Company’s business is very much dependent on agri sector, construction activities and other industrial pick up.

Housing demand remains strong and from Nov onwards should be stronger. Big push of affordable housing will also lead to higher demand of construction which is good for the company.

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I thing i fail to understand why does the company needs to invest so heavily every year on capacity expansion, reminds me of time technoplast where the asset turnover ratio is very low and the company keeps on investing in the capacities.

current/quick ration is at 0.72 which is below 1 (a red alert)
does it indicate a problem in future operations ?

Summary of Concall (source:capital market)

The company has sold 100982 MT of plastic goods a volume growth of 5% for the Dec 18 quarter on YoY basis. For 9 months ended Dec 18, the volume growth stood at 6%. Expects a 10% volume growth and a 15% value growth for FY 19.

Focus remains to increase sale of value added products and improve ROC of the company. Value added products sale now stands at 38% of total turnover.

The polymer prices in Dec 18 quarter has gone down by around 14-16%, which resulted in inventory losses in Dec 18 quarter and affected the margins. Such a sharp inventory adjustment in short period of time affected the overall performance. There is some inventory loss for Jan 19 month, but from there on, the entire high cost inventory gets taken care off.

The low polymer prices will eventually benefit the company significantly. Expects the trend of polymer prices to remain flattish to negative which augers well for the company.

Expects very strong Mar 19 quarter with better margins and volumes. Demand continues to remain strong.

Expects overall net sales for FY 19 at Rs 5700 crore and margins at 14.5% as compared to earlier guidance of 15.5% for FY 19. Expecting 20% volume growth in Mar 19 quarter which will be driven by piping segment and packaging.

No pressure in piping segment at all. The company is moving from pipes business only to entire piping business. Adding more value and focus remains on margins in this segment. The entire piping industry is growing at around 12% in value terms and around 8% in volume terms.

6.6% average cost of borrowing for the company and net debt of around Rs 250 crore. Will be net debt free company by 2020.

Lot of performance packaging films came up simultaneously in the country which affected the overall margins for this segment in short term. The segment will bounce back in margins.

Expects international polymer prices to remain low and will have a downward bias given the new capacities of polymers coming worldwide.

Capex for FY 19 stood at Rs 280 crore. All the capex plan is progressing well.

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Highlights of the Q1Fy20 Concall (Source: capitalmarket.com)

  • The co sold 113,428 MT of Plastic goods and achieved net product turnover of Rs. 1418 crore during Q1FY20 against sale of 99,905 MT and net product turnover of Rs. 1316 crore in the corresponding quarter of previous year achieving volume & product value growth of about 14 % and 8 % respectively.
  • The overall turnover of value added products increased to Rs. 457 crore during the current quarter as compared to Rs. 431 crore in the corresponding period of previous year achieving growth of 6%.
  • Plastic Piping System saw a volume growth of 22% to 85,214 tonne and value growth of 20% to Rs 898 crore in Q1FY20 with OPM down 180 bps at 11.3%
  • Industrial products saw a volume de-growth of 16% to 10,369 tonne and value de-growth of 19% to Rs 188 crore in Q1FY20 with OPM down 50 bps at 10.8%
  • Packaging products saw a volume growth of 1% to 12,745 tonne and value de-growth of 5% to Rs 245 crore in Q1FY20 with OPM down 440 bps at 12.4%
  • Consumer products saw a volume de-growth of 3% to 5,100 tonne and value de-growth of 3% to Rs 97 crore in Q1FY20 with OPM up 150 bps at 16.8%
  • PBDIT margin was down 180 bps to 12.5% in Q1FY20 mainly due to inventory loss led by lower polymer prices and higher demand of agricultural pipes which enjoys lower margin.
  • The raw material prices of most of the polymers are in a declining trend. The co converts mostly commodity plastics where prices have tendency to remain volatile. This resulted in steep inventory loss in the working of the co for the quarter affecting operating margins adversely. It is expected that due to increased worldwide supply of these polymers, the prices may remain soft and range bound during the year.
  • The co expects raw material polymer prices to be range bound but at affordable levels.
  • PVC resin prices hiked during the quarter due to increase in custom duty.
  • Various initiatives taken by the Central and State Governments such as boosting affordable house construction, establishing sewerage & drainage system, drinking water system are all gathering momentum. Recent announcement by Government to provide drinking water in each home by the year 2024 will boost the requirement of plastic pipe system in large volume augurs well for the co’s business.
  • Jadcherla unit has commenced commercial production and started delivering Roto Moulded Tank and furniture products in the market during the first quarter. The co is doubling the Roto Moulding capacity at Jadcherla and finalizing plan to put up HDPE fittings manufacturing capacity at Jadcherla which may go in production in first half of 2020-21. The co will plan to put up plastic pipe manufacturing capacity at Jadcherla complex where initial steps are being taken. New Production facilities of Protective Packaging division are under construction at Jadcherla.
  • The co is augmenting capacity of HDPE Pipe capacity and putting up injection moulded fitting manufacturing facility at Kharagpur, PVC pipe capacity at Kanpur and Moulded fitting capacity in Jalgaon unit. Most of the capacities shall go into the production during 3rd/4th quarter of the current year and shall be available for full in FY2020-21 onwards.
  • The co has maintained its volume guidance of 8-10%, value growth guidance of 12-15% and Ebitda margin of 13.5-14.5% in FY20
  • Total borrowing of the co stands at 115 crore as on 30th June 2019 as against 162 crore as on 31st March, 2019. Average cost of borrowings as on 30th June, 2019 decreased to 6.53% per annum as against 8.23% per annum as on 31st March, 2019.

Q2 FY2020 Result

  • Total Income fell 3.8% YoY.
  • PAT jumped 30% YoY aided by 4 times more share of profit from associates and Tax credit.
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Extra ordinary margin expansion for Supreme Industries … https://www.bseindia.com/xml-data/corpfiling/AttachLive/a0f58783-6356-42b7-96fd-a7cefc6fb72c.pdf

On 9 months basis, Revenue up ~5% , profit up 50%

The Company sold 111584 MT of Plastic goods and achieved net product turnover of Rs. 1766 Crores during the 3rd quarter of the current year against sales of 101393 MT of Plastic goods and achieved net product turnover of Rs. 1356 Crores in the corresponding quarter of previous year achieving volume and product value growth of about 10 % and 30 %, respectively.

If you see Segment Results, all segments have given enhanced profit, specially piping …
What has changed?

OPM - TTM @18%

Highest ever quarterly margin @22%

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The concall explains that margin expansion in the quarter was largely (~ 4%) due to inventory gains. Without that, the margins would be around ~ 17%. That said, the management commentary sounded very bullish – extremely strong rural demand, new product launches, capacity expansion, large size of the opportunity and a 30% ROCE benchmark. Company has become debt free and has Rs.400+ crore cash in hand.

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HDFC Securities initiates coverage on Supreme Industries

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A small summary as to why Supreme has not been able to command superior valuations as compared to Astral.
Astral is foraying into other businesses like adhesives while Supreme has been focusing on value addition and high margin sales. Astral’s strategy is much more profitable in comparison to Supreme in case of additional foray segments, despite it competing with giants like Pidilite and Asian Paints in that space ?
On other hand SIL is the market leader in the PVC piping (housing segment), second largest in agriculture pipes, and third largest in cPVC pipes and management has guided on increasing sales in higher margin value added products.
Although it is unable to pass on the raw material volatility in automobile sector, losing market share in packaging films division(unethical practises followed by competitors) and has to make low margin products in furniture division to compete with unorganised sector. Almost 30-40% sales from these divisions provide a bad view of revenue.

A sky level view on major players with basic comparisons

Disc: Not Invested and views invited.

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I believe this is to meet the demand, Industry as such is capex intense

Supreme industries reported decent Q3 results with 5.49% YoY growth. The EBITDA took a hit due to high raw material price and posted a dip of 20.16% compared to Dec 2020. The management is good, has more manufacturing facilities and is also a leader in various segments. Despite, the stock price keeps going down and is near to 52 week low. Are there any other factors which is affecting the stock price?

Disc invested

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