Supreme Industries

Stock Opportunities Not-so-Hidden Gems
21

10x is from the lows of 2009.

it is a great stock anyways.

;))

22

If you look at the last 10 years (approximately), the stock is up nearly 100 times. from around 3-3.5 (adjusted price) to 300 now.

23

It is indeed a good company. When I started my investing journey about 2 years back, I actually wanted to invest in this but it was after some price runup and I thought…hey, this is too expensive :slight_smile: Ended up buying Wimplast instead.

This sentence caught my eye from the article posted above -

But full marks to the top gun for keeping all the family members cemented to the knittings.

so the ‘unexpected event’ that could happen is a split in the family…

24

I remember warren bufett saying once about family businesses… “Family businesses are great until they start fighting.”

25

Hi

Do not have any strong bullish or bearish view as of now. Based on my limited reading, could think of following reason to buy and not to buy. Views invitedâ

Reasons to buy

1). Supreme Industries seems to have the characteristics of an innovative company that Phil Fisher talks of in his superb book Common Stocks, Uncommon Profits [caporbit.com]. It is one of the rare company earning excellent ROCE and ROE in a commodity business by creating its own niche.

2). Company concentrate more on operating margin and efficient use of capital rather than grabbing market share. In commoditized furniture market its market share is merely 15%, never tried to increase market share by competing on price. Exited Milk segment [supply of plastic bags] when this segment became commoditised and margins were under pressure.

3). SI ROE is almost double compared to most of its peers in various segment [excluding Astra polytechnik, but even here its more than 50% higher]

Reasons not to buy

  1. Competition is heating up â companies like Time Technoplast are increasingly getting stronger in areas like PVC pipes for which they have tie-ups with Lubrizol. They seem to have an interesting range of products which I could not see on the Supreme website.[caporbit.com]. Supreme industries faces intense competition from the unorganised market in various product segments
  2. There will be a limit to how much they can increase the share of value added products in total revenue. This increase has helped improve the financial profile of the company till now. Beyond this it cannot give massive improvement in financials like it has in the past.[caporbit.com]
  3. Darling of FIIs and institution. Together they hold 20% as on Sept-12 and it appears their combined stake has gone up further by Dec-12. In June-2010, their combined holding was only 4.5%.
  4. Rather than PE for capital intensive companies, I prefer PB [unless there is a strong reason to believe that book value is either excessively inflated or undervalued]. Its current PB ratio is around 5.5 on TTM basis. Such high ratio requires that company should be able to maintain its high ROE (>30%) for an extended period of time [for next 5-7 years].

Disc: No position as of now

26

Have been checking this company for a long time; always got scared off by the “commodity” label; my loss i suppose.

Anyway found an interesting piece of info (from the co presentation actually). These guys bought back 10% of the outstanding equity in late 2008 at a split-adjusted price of 22…thats almost a 15x return in just about 4 years. And this from a company (as per my understanding) that has not diluted equity for the last 20 years or so!!!

I think this single transaction should be a case study in corporate governance!!

1 Like
27

CONFERENCE CALL

Confident of 16% volume and 25% value growth for year ending June’13

The company held its conference call on 23rdJan’13 and was addressed by Mr. M P Taparia MD

**

Key highlights

**

  • During the quarter ending Dec’12, Supreme industries processed 66,587 MT of polymers, up by 3% y.o.y and reported net sales of about Rs 795 crore, up by 14% y.o.y. About 32% of total sales were value added products.
  • During Q2 ending Dec’12, plastic piping segment reported a flattish kind of volume growth to around 40935 MT, while the value wise, the growth stood at 21% to Rs 384 crore. Plastic piping has margin of around 14.5%.
  • The packaging segment reported 4% volume growth to 10417 MT and value growth was more or less flat at Rs 196 crore. The segment has margin of around 18.5%.
  • The industrial product segment reported 16% volume growth to 10373 MT and value growth stood at 22% at Rs 125 crore. The segment has margin of around 16.5%.
  • Consumer Product segment reported 2% volume growth and value growth stood at Rs 69 crore with margin at 12%.
  • During the quarter the industrial subsidy value stood at Rs 7.85 crore. The full year subsidy as per the management will be around Rs 41 crore. After June’13, subsidy of about Rs 75 crore will still be pending to claim which will be completed in next couple of years.
  • Despite only 3% volume growth in Q2, management is confident of about 16% year-end volume growth. The lower Q2 volume growth was largely due to constraint in capacity in plastic pipes. By April’13 onwards-plastic pipe capacity will be increased by 25% and this will drive the necessary volume growth.
  • As per the management, except in industrial segment, there is no slowdown of demand in any segment. The company’s plastic pipe product segment, by and large deals with the housing market. About 60% of the segment sales goes to housing, about 30% from infra segment and rest from infrastructure segment.
  • Also, the cross laminated film capacity of 4000 MT is already operational from Q2, with another line of 4000 started from Jan’13 onwards and another 4000 MT will be operational from Feb’13 onwards.
  • The project of plastic cylinder will be ready by early 2014 and then the management will approach for necessary government approvals for the project.
  • In all the capex of about Rs 400 crore will be up and running before June’13 onwards.
  • Company is carrying about 1.98 sq feet of unsold inventory of real estate and is in no hurry to sell them. As per the management, they expect the prices to rise further in 2014.
  • Net debt as on Dec’12 stands around Rs 450 crore.
  • Overall, the company expects volume and value growth of 16% and 25% respectively for 12 months ending June’13.

Source: Capital Market

28

Q3/Jy-13 (MQ-13) Results out…
(Company financial Year ends on June 30)

Total Income up 19.4% to 917.68 Cr from 768.55 Cr.
EBIDTA up 28.3% to 134.35 Cr from 104.75 Cr.
Net Profit up 38.7% to 75.83 Cr from 54.68 Cr.

EBIDTA margin is 14.6% v/s 14.7% (DQ-12) and 13.6% (MQ-12)
NET Profit margin is 8.3% v/s 8.1% (DQ-12) and 7.1% (MQ-12)

Total Raw material costs as a %ge to Income is 65.4% v/s 66% (DQ-12) and 66% (MQ-12)
Employee costs to Income is 3.4% v/s 3.5% (DQ-12) and 3.4% (MQ-12)
Power & Fuel expenses to Income is 4% v/s 4.2% (DQ-12) and 4.1% (MQ-12)
Other expenses to Income is 12.6% v/s 11.7% (DQ-12) and 13.2% (MQ-12)

Financial costs to EBIT is 12% v/s 13.8% (DQ-12) and 17.3% (MQ-12)

Tax Rate 32.7% v/s 32.7% (DQ-12) and 32.3% (MQ-12)

9m/Jy-13 v/s 9m/Jy-12:
Total Income up 15.2% to 2350.3 Cr from 2039.45 Cr
EBIDTA up 14.3% to 338.5 Cr from 296.18 Cr
Net Profit up 23.6% to 181.16 Cr from 146.52 Cr

Processed polymer volume up 13.3% to 201125 mT v/s 177439 mT
Product turnover in Value up 19% to 2266.63 Cr v/s 1902.81 Cr.

Company expects a volume growth of 16% & Value growth of 23% for year ending June 30 over previous year. All expansions on track.

Reported 9-month EPS 14.26 v/s 11.53
Recorded TTM diluted EPS: Rs. 21.74

At 02:05 pm on 25/04/2013, stock on BSE trading flat at Rs. 306/-

29

Steady results as usual for Supreme.

30

Good to see financial expenses coming down as per the trend. Hope the steady growth continues.

Vikas Kukreja

31
Conference Call by Capital Market
The company held its conference call on 25thApril'13 and was addressed by Mr. M P Taparia MD

Key highlights

  • During the quarter ending Mar'13, Supreme industries processed 74526 MT of polymers, up by 13% y.o.y and reported net sales of about Rs 875 crore, up by 18% y.o.y. About 32% of total sales were value added products.
  • Plastic piping segment reported a 19% kind of volume growth to around 47500 MT, while the value wise, the growth stood at 41% to Rs 468 crore. Plastic piping has margin of around 14.7%.
  • The packaging segment reported flattish kind of volume growth to 11117 MT and value growth was also more or less flat at Rs 179 crore. The segment has margin of around 19%.
  • The industrial product segment reported 5% fall in volume to 10962 MT and value was also down by 5% at Rs 174 crore. The segment has margin of around 12%.
  • Consumer Product segment reported 2% volume growth and value growth stood at 9% at Rs 69 crore with margin at 11%.
  • CPVC sale during the nine months stood at around Rs 169 crore and management expects to end the year with sales of around Rs 270 crore, which would represent more than 50% growth y.o.y.
  • During the quarter the industrial subsidy value stood at Rs 11.70 crore. After June'13, subsidy of about Rs 75 crore will still be pending to claim which will be completed in next couple of years.
  • Management is confident of about 16% year-end volume growth. That means volume growth of more than 22% in Q4 ending June'13. As per the management, the volume growth will come from plastic piping business, whose capacity with effect from April'13 has already been increased by 25% y.o.y. Also April-June remains a seasonally peak quarter for piping business due to monsoon season. About 60% of the segment sales goes to housing and rest to agriculture including some towards infra segment.
  • Lower industrial segment growth was largely due to lower sales towards automobile segment and material handling division.
  • There was a delay in implementation of the cross laminated film capacity of 8000 MT which was supposed to be operational before Mar'13, has infact became operational only from April'13 onwards.
  • The project of composite cylinder and composite pipes will be ready by June '13 and management expects all the necessary government approvals for this project
  • Company has completed capex of about Rs 435 crore and this includes new plastic piping facility in MP, cross-laminated film capacity in Gujarat, Packaging product facility in Tamil Nadu and composite cylinders in Gujarat.
  • Company is carrying about 1.98 sq feet of unsold inventory of real estate and is in no hurry to sell them. However, some portion can be sold in next 3-4 months depending upon the rates and enquiries, which are increasing slowly.
  • Total debt as on Mar'13 stands around Rs 750 crore.
  • The quarter ending June'12 had an abnormal operating margin of around 18.5% in which inventory gain also played a role. For first 15-20 days of April'13, as per the management, there was an inventory loss, which is largely due to raw material price curve trending south. While it is difficult to gauge the trend, but looking at current scenario, margin of around 15%, can be expected for June'13 quarter.
  • Overall, the target as envisaged by the company to achieve volume growth and value growth of around 15% and 25% for 12 months ending June'13 continue to remain. As per the management while it is difficult to update about 12 months ending June'14 guidance, but 15% volume growth cannot be ruled out.
32

Q4/Jy 12-13 Results out…

Total Income up 13.8% to 1053.69 Cr from 926.31 Cr.
EBIDTA up 12.3% to 197.13 Cr from 175.59 Cr.
Net Profit up 14.6% to 108.94 Cr from 95.04 Cr.

EBIDTA margin is 18.7% v/s 14.6% (MQ-13) and 19% (JQ-12)
NET Profit margin is 10.3% v/s 8.3% (MQ-13) and 10.3% (JQ-12)

Total Raw material costs as a %ge to Income is 66.4% v/s 65.4% (MQ-13) and 65.3% (JQ-12)
Employee costs to Income is 3.8% v/s 3.4% (MQ-13) and 3.8% (JQ-12)
Power & Fuel expenses to Income is 3.5% v/s 4% (MQ-13) and 3.5% (JQ-12)
Other expenses to Income is 7.6% v/s 12.6% (MQ-13) and 8.6% (JQ-12)

Financial costs to EBIT is 7.7% v/s 12% (MQ-13) and 7.9% (JQ-12)

Polymers processed up 18% @ 80327 mT.
Product Turnover up 12% @ 961.69 Cr.

Jy-13 v/s Jy-12:
Total Income up 16.3% to 3403.99 Cr from 2927.90 Cr
EBIDTA up 13.5% to 535.63 Cr from 471.89 Cr
Net Profit up 20% to 290.1 Cr from 241.68 Cr

Tax Rate 33.1% v/s 33.1%

Polymers processed up 14.6% @ 281452 mT.
Product Turnover up 18.2% @ 3228.32 Cr.

Reported Full-Year EPS 22.84 v/s 19.03

At 02:20 pm on 18/07/2013, stock on BSE trading up 2% at Rs. 360/-

33
Conference Call by Capital Market
The company held its conference call on 18thJuly'13 and was addressed by Mr. M P Taparia MD

Key highlights

  • During the quarter ending June'13, Supreme industries processed 80327 MT of polymers, up by 18% y.o.y and reported net sales of about Rs 961.69 crore, up by 12% y.o.y. About 32% of total sales were value added products as compared to 30.5% y.o.y.
  • For 12 months ending June'13, Plastic piping segment reported a 19% kind of volume growth to around 180746 MT, while the value wise, the growth stood at 20% to Rs 1619 crore. Plastic piping has margin of around 16%.
  • The packaging segment reported 11% volume growth to 41307 MT and value growth stood at 8% at Rs 700 crore. The segment has margin of around 20%.
  • The industrial product segment reported 4% increase in volume to 40033 MT and value was up by 8% at Rs 607 crore. The segment has margin of around 12%.
  • Consumer Product segment reported 3% volume growth and value growth also stood at 3% at Rs 276 crore with margin at 12%.
  • CPVC sale for 12 months ending June'13 stood at Rs 213 crore compared to Rs 155 crore y.o.y.
  • During the year ending June'13, the industrial subsidy value stood at Rs 37.07 crore. After June'13, subsidy of about Rs 65 crore continues to be pending, which is to be claimed in next couple of years.
  • Management is confident of about 14% volume growth and 19% value growth for 12 months ending June'14.
  • During the June'13 quarter, the value growth was lower and volume was higher and the OPM was also at around 18%, largely due to inventory gain, as in May and June, rupee depreciation together with higher crude oil prices resulted in inventory gain. Management expects the crude oil prices to continue to remain at elevated levels for the rest of the year.
  • Borrowing as ofJune'13 stood around Rs 470 crore as compared to Rs 350 crore as of June'12 at average interest costs of about 9.4%. Management does not expect any further borrowings for 12 months ending June'14.
  • The company has about 160 thousand sq feet of saleable area ready and vacant. The prices have been reduced from about Rs 18000 per sq feet to about Rs 14650, and management expects about Rs 50 crore to realize before June'14. The company will keep the prices for the property at around Rs 15000 level.
  • Other income was negative, due to some sale of scrap assets for some losses. Dividend income from the subsidiary Supreme petrochemicals will be booked in Oct'13.
  • Margins at operating level will remain around 14-15% for 12 months ending June'14. Continuous increase in high value added products together with newer capacities will help the margins.
  • Good monsoon will definitely help in better spending in rural and semi rural areas and thus company's piping and other consumer businesses.
  • Composite cylinder business is undergoing its testing and will be up and running from Oct'13 onwards. The company will sell 6 variants of the cylinders both in India and export markets.
  • Overall exports constitute only about 3% of total sales.
  • Overall, management continues to remain optimistic about the business.
34

Constant set of nos. as expected.

Also, Management is confident about clocking around 3900 Cr (Around 17% Growth from FY13) of sales for FY14 and maintaining 14% OPM. The same will be reflected in bottomine. Means management is looking around PAT of 310-320 Cr next year.

Disc:- Holding Supreme in my portfolio

35
  • The Company during the year processed 2,81,452 tons of Polymers vs 2,45,700 tons of Polymers in the previous year, a growth of 14.55% in Polymer consumption.
  • The Company exported goods worth US $ 14.32 mn vs US $ 13.49 million (excluding discontinued business of PP Mats) last year, a growth of 6.15%.
  • The 23rd plant to manufacture LPG Gas Cylinders and Composite Pipes is ready. It may go into production in the 3rd quarter of FY14 after getting regulatory approvals. The Company has plans to put up another manufacturing unit in Kharagpur during the current year, subject to getting all clearances from State Governments on the land owned by the Company. Investment of Rs 250 cr is planned for this.
  • The Company has committed an investment of Rs 415 cr in the year 2012-13.

Segment Review : Plastics Piping Systems

  • The Company has added 169 new products in the range during 2012-2013 taking total product portfolio to 5682 nos.
  • CPVC piping has grown by 37% by volume in FY13.
  • The company is exploring the possibility of entering into Industrial applications as well as Fire Sprinkler segment of CPVC business. The company has entered into an understanding for technical tie-up with leading world brands in that segment.
  • The overall percentage of sale of Value Added Products to total sale increased to 26.47% vs 24.24% of last year. The company expects to further increase the share in years to come.

Segment Review : Consumer Products

  • Revenues have grown by 5% and 3% by volume.
  • The company has decided to get out of the traded furniture business altogether.
  • The Companyâs business in Premium Products sales has increased from a level of 38% in 2011-12 to 40% of overall sales in the year 2012-13.
  • The Company has more than 303 Exclusive Franchise Show Rooms on All-India basis displaying entire range of Supreme Furniture.
  • The company has also initiated steps to start exporting furniture items

Segment Review : Industrial Products

  • Although there was heavy demand recession in general, company managed growth of 21% in Automotive sector and 12% in Consumer Durables, against its planned target of 30% and 18% respectively.
  • The company started supplies to two major Japanese companies in Consumer Durable sector and a few other customers in the same and Auto sector.
  • The initial trial run for the Cockpit Assembly for one of the prestigious projects of our customer has been completed at the Plant. Company expects supplies to start towards later part of this year. Supplies stabilized for the parts of âVespaâ being made by Piaggio.
  • It supported two prestigious product launches of Maruti that is a LUV and a small Car during last year. The plant has successfully started supplies to Honda Car for its first order in recently launched Sedan which has become a market hit. Development is in progress for the next model of Car which is scheduled to be launched during early 2014. The company has bagged order for one more model of Car in mid-size range scheduled to be on road by mid-2014. Company expects good long term prospects with Honda Motors.

Segment Review : Construction - Supreme Chambers

  • Out of the total saleable area available of about 2,79,529 sq. ft., the company has till now realized net Rs 143.05 cr against sale of 92,632 sq. ft. Remaining area to be sold would be about 1,61,241 sq. ft. The going rate is around Rs 14000 / sqft.

Segment Review : Composite LPG Cylinder

  • The company expects to start production in Jan / March 2014. Company is equipped to make six different sizes of Cylinders ranging from 5 to 14 kg. of LPG.

Expected EPS for June 2014 : 24-25
PE range : 12-15
Expected price range (June 2014): 288-375
CMP: 334

http://valueinvstr.blogspot.in/2013/08/supreme-industries-notes-from-annual.html

36

Thanks for the update. Company is surely venturing into more value products and is getting in direct competition with astral into plumbing products. Also good to see development for sprinkler pipes as that area again is high margin, high entry barrier product which will help increase return ratios. Also, their exit from furniture business is a welcome step and I hope they consider some more areas to close down and make their product portfolio more concentrated. Management is certain of what they are doing and future for Supreme looks good amid all this gloom.

Regards,

Vikas Kukreja

37

Vikas,Supreme has decided to exit from ‘traded’ furniture and not furniture entirely. Right?

38

They are moving out of “traded goods” in the furniture segment. In fact, they are investing more and getting higher up the value chain in terms of their moulded furniture. They have added upholstered plastic chairs to their range and that is a novelty in India. They are also coming up with new designs and blended furniture (plastic + other material like metals). So, the furniture segment will continue to do well specially in Tier-II,III,IV cities.

39

Abhishek, Nikhil,

Thanks for correcting. I misunderstood that point on furniture business. So, lets see if this getting higher up the value chain in moulded furniture actually reflect in numbers in future.

regards,

40

Hello to Everyone:

New member here. I was in similar forum few years back but activity dried out. When I saw few posts from Vivek Sukhlani hare I figured out that I am at right place. Not an active investor in Indian equity market. But have some funds which I play around. Anyway will talk more in appropriate thread but just sharing something hereâ

Mathew Asia is very well respected name for Asia investing here in US. I was just scanning there MINDX (Mathew India) funds and there holdings. Where I found this co. Though they are holding only 2% but when Mathew is holding that increase my comfort level. Though fund has not done that great compare to other US funds mot likely due to rupees deprecation, but this fund sill hold sliver star by Morningstar (most reputable MF analysis firm in US).

Here is there holding...

Holdings Weighting Type Ticker Style First Bought Shares Owned Shares Change Sector Price Day Change Day high/low Volume 52-Wk high/low Country 3-Month Return 1-Year Return 3-Year Return 5-Year Return Market Cap Mil Currency Morningstar Rating YTD Return P/E
Supreme Industries Ltd. 2.33 EQUITY SUPREMEIND Mid Core 6/30/2012 2100000 0 Basic Materials 391 6.85|1.78% 393.95-384 77551 393.95-277 India 10.2 35.38 36.82 70.44 48797.37 INR - 34.74 16.81

BTW is this correct PE for this co?