Supreme Industries

[basumallick]

NOTES FORM AR2016

• No of distributors have gone up from 2469 to 2699
• Value added product share has gone up from 34.2% to 36.73%
• Current average monthly borrowing is 401 cr. SIL expects to reduce it to 300 cr in FY17
• Supreme Industries Sharjah is exporting products to 15 countries - GCC, Africa, Australia, UK, Germany & Indian sub-continent. It has made inroads into Maldives and re-entered Saudi Arabia. It has also penetrated Solvent Cement market in Australia
• Statutory auditors M/s Choggmal & co have stepped down and has been replaced by M/s Lodha & Co.
• Polymer consumption has increased by 14% in volume terms which is double of GDP, something which did not happen in the last decade.

PLASTIC PIPING SYSTEMS
• New plant at Kharagpur has started production. Full capacity to be scaled up by June 2016.
• Further expansion of pipe manufacturing is expected at Kharagpur plant
• cPVC volume growth was 23.7%; cPVC manufacturing has stabilized at Kharagpur
• Roto moulding plant is being commissioned at Kharagpur, to start by April end.
• HDPE piping systems gorwth was at 24.09%
• SIL has launched a variety of septic tanks in technology tie-up with a South African company. Many other varieties are expected to be launched for underground water storage
• SIL has produced multilayer foam pipe of 200 mm diameter, BIS certification in process
• SIL has developed a cheap & economic model of manhole cover
• In process to setup a PVC plant at Jalgaon to produce 20,000 tons at full capacity and is expected to go on stream by Mar 2017
• Submersible pipes are getting good traction. Monthly sales are expected to rise to 750 tons in FY17 from 270 tons.
• Maharashtra Fire Department has issued a directive that makes installments of fire sprinklers mandatory in every room for residential building above 45 m and in common areas for buildings between 25m to 45m. SIL has tied up with FlameGuard of USA to manufacture and sell these sprinkler systems. SIL is planning to sell the same product in Sri Lanka as well.
• The portfolio of bath fittings has reached 90 items. Chrome fittings are likely to be launched this year

FURNITURE
• SIL has introduced 8 new models this year and plans to add 7 new models this year.
• SIL is looking to expand into export market with their new line of furniture
• New plant being put up at Kharagpur; to start in the Q1 of FY17
• Increased distribution channel partners to 746 and have started selling online as well; partnering with flipkart, amazon, snapdeal, pepperfry etc

INDUSTRIAL PRODUCTS
• SIL started manufacturing complete coolers for one company. Expects good growth in this segment.
• BOSCH, a new customer, has setup a large manufacturing plant for home appliances. SIL expects good orders from them.
• Working closely with Honda cars on multiple models

MATERIAL HANDLING
• New facility setup and started in Malanpur (M.P) for roto moulded products
• Two new plants being setup - at Kharagpur and Kanpur; to be operational in April/June 2016

PACKAGING PRODUCTS
• A specialty product - high gloss film has been successfully developed
• The PPD plant at Kharagpur is now fully operational and is expected to generate a revenue of Rs 50cr

COMPOSITE CYLINDERS
• Received initial educational order from HPCL for 5 & 10 kg cylinders; dispatches expected in April 2016
• SIL received orders for 7.5 & 15 kg cylinders as well
• FY17 may be a transformational year for this division

[damangill70]

Thanks Abhishek for listing the salient features from the AR.

[basumallick]

Consolidated Q2 Results:

*SIL has also announced an interim dividend of Rs 3/ share

[basumallick]

Dec 31 FY17 Results - Decent set of results from Supreme considering impact of demonetization.

The co has signed an MOU to supply 300,000 composite LPG cylinders to Bangladesh and has alrady received an initial order of 30,000 pcs.

[nil_71]

Thanks @basumallick Kindly share the details of conf. call also

[nil_71]

Is there any reason for close 10 %-12 % correction in this stock ???

[basumallick]

BEAR CASE
- RERA to impact housing demand adversely. Negative impact on pipes segment.
- Competition is strengthening in pipes with Astral, Ashirvad & Finolex. Supreme has lost market share from 35% in 2009 to 26% in 2017.
- Competition is moving across the value chain and product range. e.g. Astral is moving into agri pipes and Finolex is moving into plumbing pipes.
- No major breakthrough product from the company in the recent past that can boost sales majorly. Composite cylinders still in initial stages.

BULL CASE
• Overall price cap on crude and buildup of new Polymer plant capacities in USA, China and Middle East will keep a lid on high Polymer prices.
• Govt focus on 1) Affordable housing, 2) Formalization of economy through adoption of GST, 3) Doubling of farmer’s income by 2022, 4) Swacch Bharat Abhiyan, 5) 100 smart cities
• The distributors strength has gone up to 2973 by the end of March 2017 compared to 2699 by March 2016.
• Market leader in plastic piping systems with 7230 SKUs
• New Kharagpur plant for PVC,CPVC & HDPE pipes to commence from Nov’17. New Roto moulding plant at Kharagpur to commence from Aug’17
• The co has launched Overhead Water Tanks in various capacities from 500 liters to 5000 liters. Also launched Septic tanks in collaboration with a South African company
• Co manufactured solvent cement – SILBOND was approved by NSF-14 in both the varieties i.e., PVC and CPVC. The PVC variety also was certified by BIS and hence
the products are going in the market with necessary ISI and NSF marking. The Company has further introduced BLUE SEALANT suitable for metal threaded joints. As a result Company now got all the products available in the segment of adhesives, solvents & lubricants required for various Piping Systems.
• Informal sector comprises of 40% of plastic furniture segment and with GST that share is expected to reduce over time
• Co has started exporting to USA and has found good acceptance for some of its products
• Co is making car interior parts for Honda and Maruti Suzuki and is continuously acquiring new business from existing customers
• Co has started a new product range using foam for children’s education, toys, sports, health sector and interior decoration
• Composite cylinder order for 2.5 lakhs pcs from Bangladesh. BIS certification received and HPCL is expected to start trial runs.
• Capex planned at 300-350 cr in FY17-18

[nil_71]

Supreme will be in a growth phase. It is moving up the value chain. In case one goes through the AR, you will have the feeling. CPVC Pipes space are too crowded now. The most important factor for its margin Crude is down

[basumallick]

Supreme has already moved up the value chain in the last 5-7 years, now it is struggling to maintain its position. I have been following Supreme for last 10 years and seeing the company struggling to come out with any new blockbuster products like it had done Silpaulin in the past. The next big thing which can click is the composite cylinder, but it has been on the cards for about 3 years now. I am not very sure it will come this year as well. So, unless there is a major domestic industrial recovery, I am not sure if Supreme can grow topline beyond 10-15%. Its revenues have been flat for practically 2 years now, and it is making money on crude going down and some increase in product mix and operating leverage kicking in.

[nil_71]

Thanks a lot @basumallick for your comments. One thing- if Supreme ,the leader of the pack is not growing, then all the other ancillaries for ‘Affordable Housing’ theme bandwagon will also fail to grow. We need to see

I saw in the Moneylife Magazine , that Q1 of Supreme not coming that good. It has been mentioned in the AGM by Mr.Taparia. In fact Volume growth is 2.45%. May be Market got a cue from it.

[basumallick]

This quarter may not be good for a number of companies due to channel clearance due to GST. Supreme has an advantage of being into multiple segments - affordable housing is just one of many. Industrial products, packaging, agri pipes, material handling crates, tarpaulins, laminates, plastic sheets etc has very very diverse uses. Coupled with a strong and ethical management, Supreme is a good company to be invested in for the long term.

The last 7-10 years return may not get replicated in the future as the ROE expansion and PE re-rating is both in the past. But its a good conservative bet on the domestic economy (both industrial and consumer) expansion.

[ramanhp]

Sorry but I keep hearing this “Affordable Housing” but is it really happening? And a developer keen to cut costs, would rather not choose a non-branded product. Despite GST, the un-organized players still have a comfortable price advantage.

I agree with the part that this quarter might be particularly bad due to destocking and should give good entry points to companies like Supreme which are run by honest and result oriented management.

[nil_71]

Yes it is happening but enabled in Tier #2 and 3 Cities. You need to look into Gruh Q1 presentation. Pace is picking up.

[basumallick]

Q1 Results - Poor show from Supreme, likely impact of GST. Management had said that Q1 results will be impacted, but this is lower than what I was expecting.

This rev includes 11cr from industrial promotion assistance for Kharagpur plant. so actual operation reve is lower by that amount.

[nil_71]

But they are expecting volume growth of 12% this year as mentioned in Q1 Statement to BSE. Q1- they have de-growth of 5%. 12% looks surprising and very stretched.

[basumallick]

Notes from Concall:

• Co plans to be debt free next year
• Co has received land at concessional rate in telengana
• Price for most products have gone down by 2%. Some products have gone down by 20% (sealants).
• Major impact seen due to destocking at distributor level due to GST rollout.
• Co reiterated 12% volume growth expectation for FY18
• Vol growth is picking up. July is already better than last year.
• Expecting full year margins at around 15%

[ricky76]

Hi Abhishek,

Thanks for the notes.

Supreme is likely to be a good long term compounder indeed. Given that their current MD MP Taparia is in his seventies, is there a clear succession plan?

Bobby

[basumallick]

Q2 results: Laclustre performance once more

Q2 Conf Call Highlights

• The company has sold 79,029 MT of plastic goods a volume growth of 18% for the Sep 17 quarter on YoY basis. For H1 ended Sep 17, the volume growth stood at 4% YoY.
• Value added products account for around 37% of total sales for Sep 17 quarter as compared to 34% for Sep 16 quarter.
• Company envisages capex in the range of around Rs 425-450 crore in FY 18 as against earlier plan of around Rs 300 to Rs 350 crore in FY 18 and the same is progressing smoothly. This is due to better growth prospects going forward. With the new capex, around 10% capacity addition will happen in FY 18 and another 5% in FY 19. More capacity addition is happening in packaging and industrial segment.
• For Sep 17 quarter, plastic piping system volume growth was up by 17% and value growth was also up by 17% to 52967 MT and Rs 567 crore respectively on YoY basis. OPM for the segment stood at 12.3% as compared to 16.5% for Sep 16 quarter.
• Packaging products reported volume growth of 30% and value growth of 31% to 10751 MT and Rs 215 crore respectively for Sep 17 quarter on YoY basis.OPM stood at 16.9% as compared to 16.4% for Sep 16 quarter.
• For Industrial products, volume growth for Sep 17 quarter stood at 17% to 10559 MT and value growth stood at 23% to Rs 185 crore on YoY basis. OPM stood at 12.8% as compared to 12.9% for Sep 16 quarter.
• Consumer products segment reported a 12.9% rise in volume for Sep 17 quarter at 4749 MT while value growth stood at 17.9% to Rs 84 crore for Sep 17 quarter on YoY basis. OPM stood at 18.2% as compared to 16.5% for Sep 16 quarter.
• Company’s net borrowing as on Sep 17 stood at Rs 428 crore as compared to Rs 228 crore on Mar 17 and Rs 456 crore as on Sep 16. Average cost of borrowing stood at 5.3% p.a. The company is committed to become debt free in next 12-15 months.
• Expects 12% volume growth for FY 18 so the company has to grow by around 19% in volume terms in H2 FY 18 which management believes it can achieve.
• Extended credit period was given in Sep 17 quarter due to higher working capital requirement by channel partners which has resulted in some temporary higher borrowings in Sep 17 quarter.
• For the first time after more than a decade, the PVC consumption was lower on YoY basis. It was lower by 6% in H1 FY 17 YoY which affected the company’s plastic piping segment. Slowdown in demand from agri pipes and implementation of RERA, affected the overall demand in housing and real estate sector.
• OPM was lower in H1 FY 17 as the company had to sell at lower prices to continue to hold its market share. PVC volatility also had resulted in some inventory losses. Operating Margin should remain around 14-15% going forward given the volatility in the PVC consumption. Margins can improve if the volatility subsides.
• The company had smooth transition to GST. Some issues on last mile GST implementation and working capital still remains to be solved.

[basumallick]

Q4 Results - https://www.bseindia.com/corporates/anndet_new.aspx?newsid=c3dc8409-8827-4986-aff2-706c5440924e

Q4 Concall key highlights

The company has sold 103215 MT of plastic goods a volume growth of 8% for the Mar 18 quarter on YoY basis. For FY 18, the volume growth stood at 9%.

Industrial side demand was very strong in FY 18, driven by automobile and consumer sectors. While agri pipe demand and demand towards real estate sector was muted.

Value added products account for around 36% of total sales for FY 18.

Total borrowing as on Mar 18 stood at Rs 248 crore with average interest cost of 7.2%. Expects to be a debt free company in next couple of years.

Of the total capex planned envisaged of around Rs 450 crore, the company has so far incurred capex of around Rs 260 crore in FY 18. The company will incur the remaining capex by end of FY 19. Two new green field projects will commission in FY 19

Polymer prices should remain high in FY 19 as there are plant shut downs in USA.

PVC segment which has grown by around 7-8% CAGR for past several years grew by only 2% in FY 18 in India. Real estate regulations and lower demand in Agri pipe market segment impacted the overall demand. This affected the company’s plastic piping segment in FY 18. Expects the demand to come back strongly in FY 19. This is visible in the month of April 18.

Both real estate and Agri markets are reviving. MSP is also higher which will revive the rural demand which was held back in past years.

Composite cylinders should see good demand both in domestic and exports in FY 19

Increase in crude prices and depreciating rupee has resulted in increase in polymer prices. However, the increase in passed on to the end consumers.

Exports should also see an increase.

Expects volume growth of around 12-13% in FY 19 as compared to around 9% growth in FY 18. Expects margins of around 16% for FY 19

Several initiatives on GST, demonetisation, Rera should see the benefits in FY 19. Increase in spend on rural infra and normal monsoon should also help in increase in demand from rural sector.

No inventory gain or loss in FY 18.

[basumallick]

Q1 results and concall:

The company has sold 99905 MT of plastic goods a volume growth of 8% for the June 18 quarter on YoY basis.

The company has transferred its Khushkhera unit engaged in plastic automotive components to JV where the company will have 20.67% stake. Profit on the transfer if Rs 56 crore which is shown as EO income for June 18 quarter. The company never got 13-14% ROC in Khushkhera unit and decided to hive off the unit into a JV and operate separately.

32.7% value added product sale in June 18 quarter as compared to 32% YoY.

Rs 206 crore total borrowing as on June 18 as compared to Rs 248 crore on Mar 18. Average cost of borrowing stands at around 6.8%.

Polymer prices remain affordable.

Volatility of crude oil prices have resulted in some business uncertainty. However domestic market looks healthy.

Expects all business segments to grow.

No inventory gain in the quarter

Doesn’t expect polymer prices to harden further

Expects 10-12% volume growth for FY 19.

Rs 5500-5600 crore net sales for FY 19.

Expects 15.5-16% OPM for FY 19.

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

Housing demand is coming back. Big push of affordable housing will also lead to higher demand from construction industry which is good for the company.

All the capex plan is progressing well.

Company expects some sale of property income in H2 FY 19.

Exports should also see an increase.