crisil report
TRANSCRIPT
The Supreme Industries Ltd
Enhancing investment decisions
Initiating coverage
© CRISIL Limited. All Rights Reserved.
Explanation of CRISIL Fundamental and Valuation (CFV) matrix
The CFV Matrix (CRISIL Fundamental and Valuation Matrix) addresses the two important analysis of an investment making process –
Analysis of Fundamentals (addressed through Fundamental Grade) and Analysis of Returns (Valuation Grade) The fundamental
grade is assigned on a five-point scale from grade 5 (indicating Excellent fundamentals) to grade 1 (Poor fundamentals) The
valuation grade is assigned on a five-point scale from grade 5 (indicating strong upside from the current market price (CMP)) to
grade 1 (strong downside from the CMP).
CRISIL Fundamental Grade
Assessment CRISIL Valuation Grade
Assessment
5/5 Excellent fundamentals 5/5 Strong upside (>25% from CMP)
4/5 Superior fundamentals 4/5 Upside (10-25% from CMP)
3/5 Good fundamentals 3/5 Align (+-10% from CMP)
2/5 Moderate fundamentals 2/5 Downside (negative 10-25% from CMP)
1/5 Poor fundamentals 1/5 Strong downside (<-25% from CMP)
Analyst Disclosure
Each member of the team involved in the preparation of the grading report, hereby affirms that there exists no conflict of interest
that can bias the grading recommendation of the company.
Disclaimer:
This Company-commissioned Report (Report) is based on data publicly available or from sources considered reliable by CRISIL
(Data). However, CRISIL does not guarantee the accuracy, adequacy or completeness of the Data / Report and is not responsible for
any errors or omissions or for the results obtained from the use of Data / Report. The Data / Report are subject to change without
any prior notice. Opinions expressed herein are our current opinions as on the date of this Report. Nothing in this Report constitutes
investment, legal, accounting or tax advice or any solicitation, whatsoever. The Report is not a recommendation to buy / sell or hold
any securities of the Company. CRISIL especially states that it has no financial liability, whatsoever, to the subscribers / users of this
Report. This Report is for the personal information only of the authorized recipient in India only. This Report should not be
reproduced or redistributed or communicated directly or indirectly in any form to any other person – especially outside India or
published or copied in whole or in part, for any purpose.
The
© CRISIL Limited. All Rights Reserved. CRISIL RESEARCH | 1
July 14, 2011 Fair Value Rs 239 CMP Rs 192 Fundamental Grade 4/5 (Strong fundamentals)
Valuation Grade 5/5 (CMP has strong upside)
Industry Information technology
Polaris Software Limited
Business momentum remains intact
Fundamental Grade 4/5 (Superior fundamentals)
Valuation Grade 4/5 (CMP has upside)
Industry Chemicals
The Supreme Industries Ltd Maintaining its supreme-acy in plastics
The Supreme Industries Ltd (Supreme) is India’s largest plastic products
company. It has a well-diversified product portfolio comprising i) pipes and
fittings, ii) consumer products, iii) packaging products and iv) industrial
products. CRISIL Equities expects the growth in demand for plastic products in
India augurs well for the company, which is gearing up for growth with an
aggressive expansion plan. We assign Supreme a fundamental grade of 4/5, indicating that its fundamentals are superior relative to other listed securities in India.
Reigning “supreme” over the Indian plastic products industry Supreme is the largest player in the highly unorganised plastic products
industry in India. Over the past 45 years, the company has diversified its
products over various segments and occupies a prominent position in most of
them. The company is well-placed to benefit from the rising demand for plastic
products in India, which is expected to double from 8 million tonnes at present
to 16 million tonnes by 2018.
Consistent diversification and innovation are Supreme’s key strengths One of Supreme’s key strengths is its ability to constantly move away from
competitive segments into those where it can have the first mover advantage.
With constant innovation, the company has successfully kept pace with
technological improvements and churned its product portfolio to include more
of premium, value added products, to maintain its strong competitive position.
Raw material price and competition remain key monitorables Prices of key raw material like PVC resin, polypropylene and polyethylene are
primarily linked to crude oil and subject to volatility. While the company is
likely to pass on any increase in raw material costs in their value added
products, margin expansion in the more competitive and commoditised
products categories may be restrained. Further, with intensifying competition,
timely diversification into newer product categories will be key to maintain
margins as well as market position.
Expect three-year revenue CAGR of 19% We expect revenues to register a three-year CAGR of 19% to Rs 33.5 bn in
FY13 driven by growth across product segments. While EBITDA margin for
plastic products is expected to remain at 14-15%, profits from the one-off real
estate project will increase the overall EBITDA margins, in FY12 and FY13. EPS
is expected to increase from Rs 12.2 in FY10 to Rs 22.8 in FY13.
Valuations – the current price has ‘upside’ CRISIL Equities has used the discounted cash flow method to value Supreme
and arrived at a fair value of Rs 239 per share. This fair value implies P/E
multiple of 10x FY13E EPS. The fair value estimate includes Rs 9.7 from
29.88% share of Supreme in Supreme Petrochem Ltd (Supreme Petrochem),
an associate company. We initiate coverage on Supreme with a valuation
grade of 4/5.
KEY FORECAST
(Rs mn) FY09 FY10 FY11E FY12E FY13E
Operating income 16,587 20,155 24,000 27,933 33,543
EBITDA 2,547 2,974 3,447 4,121 5,459
Adj Net income 852 1,555 1,855 2,126 2,890
Adj EPS-Rs 6.7 12.2 14.6 16.7 22.8
EPS growth (%) 76.2 82.6 19.3 14.6 36.0
PE (x) 7.6 9.3 13.2 11.5 8.4
P/BV (x) 2.1 3.5 4.6 3.8 3.1
RoCE (%) 33.2 38.4 39.0 36.2 41.2
RoE (%) 29.6 43.3 39.4 36.4 40.2
EV/EBITDA (x) 3.5 5.6 7.9 6.8 5.1
NM: Not meaningful; CMP: Current Market Price, Financial year ending June
Note: Financials have been adjusted for a 5-for-1 stock split in October 2010.
Source: Company, CRISIL Equities estimate
CFV MATRIX
KEY STOCK STATISTICS NIFTY/SENSEX 5585/18554
NSE/BSE ticker SUPREMEIND
Face value (Rs per share) 2
Shares outstanding (mn) 127.0
Market cap (Rs mn)/(US$ mn) 24,402/547
Enterprise value (Rs mn)/(US$ mn) 26,506/594
52-week range (Rs) (H/L) 192/136
Beta 0.5
Free float (%) 50.4%
Avg daily volumes (30-days) 110,543
Avg daily value (30-days) (Rs mn) 19.8
SHAREHOLDING PATTERN
PERFORMANCE VIS-À-VIS MARKET
Returns
1-m 3-m 6-m 12-m
SUPREME 7% 24% 31% 67%
NIFTY 2% -6% -3% 3%
ANALYTICAL CONTACT
Sudhir Nair (Head) [email protected]
Niyati Dave [email protected]
Bhaskar Bukrediwala [email protected]
Client servicing desk
+91 22 3342 3561 [email protected]
1 2 3 4 5
1
2
3
4
5
Valuation Grade
Fundam
enta
l G
rade
Poor Fundamentals
ExcellentFundamentals
Str
ong
Dow
nsi
de
Str
ong
Upsi
de
49.6% 49.6% 49.6% 49.6%
3.9% 4.1% 4.2% 6.8%0.4% 0.5% 1.1%
1.3%
46.0% 45.8% 45.1% 42.3%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Jun-10 Sep-10 Dec-10 Mar-11
Promoter FII DII Others
© CRISIL Limited. All Rights Reserved. CRISIL RESEARCH | 2
The Supreme Industries Ltd
Table 1: Supreme: Business environment
Product /
Segment Plastic pipes and fittings Packaging products Consumer products Industrial products
Revenue
contribution
(FY10)*
39.7% 22.8% 10.5% 18.9%
Revenue
contribution
(FY13E)*
40.3% 22.2% 11.4% 18.0%
Product /
service offering
PVC, CPVC, PPRC and
HDPE pipes, injection
moulded and handmade
fittings
Performance films,
protective packaging films,
cross laminated films
Moulded furniture and mats • Moulded parts like
dashboards and other
interior and exterior parts
for automobiles
• Plastic body for consumer
durables
• Material handling
products like pallets,
crates and bins
Market position Second largest player with
18% of the organised
plastic pipe market
• 33-39% market share
across various products
in protective packaging;
market leader in cross
laminated films
Second largest player with
15% market share
18% market share in
material handling products;
preferred supplier to OEMs
Sales growth
(FY08-FY11E –
3-yr CAGR)
28.8% 19.7% 20.3% 20.7%
Sales forecast
(FY11E-FY13E –
2-yr CAGR)
15.1% 16.3% 21.4% 15.5%
Demand drivers • Government's thrust on
development of irrigation
facilities and urban
sanitation
• Demand for pipes for new
houses
• Replacement demand
from GI pipes in housing
and industry
• Protective packaging -
Growth directly linked to
growth in varied end
user industries such as
manufacturing, white
goods, automobiles, etc
• Performance films -
Increasing thrust on
packaged food
• Urbanisation and rising
per capita income in rural
and semi-urban segments
• Increasing acceptance of
plastic furniture among
tier 2 and tier 3 cities in
India
• 12-13% growth in
automobile industry over
FY11-13 to boost demand
for plastic components
• Rising income levels to
boost consumer durables
industry
• Soft drinks industry to
grow at over 20%
Key competitors • PVC - Finolex Industries
Ltd, Chemplast Sanmar
Ltd, Kriti Industries India
Ltd, Tulsi Extrusions Ltd,
Jain Irrigation Systems
Ltd
• CPVC - Astral Polytechnik
and Ashirvad Pipes
6-7 large players and
other unorganised players
• Nilkamal, which has a
30% share
Large and mid-sized
competitors such as Tata
Auto Comp Systems Ltd,
Varroc Group, Motherson
Sumi Systems Limited,
Sintex Industries Ltd,
Mutual Industries Ltd
Key risks • Entry of new players in
plastic pipes segment
• Raw material price
fluctuations
• Increasing competition in
some segments,
necessitating entry into
new categories
• Raw material price
fluctuations
• Competition
• Raw material price
fluctuations
• Client-specific demand
and off take risk since
company has dedicated
plants for certain clients
• Raw material price
fluctuations
*Balance constitutes “Others” which includes income from trading of raw materials and real estate project
Source: Company, CRISIL Equities
© CRISIL Limited. All Rights Reserved. CRISIL RESEARCH | 3
The Supreme Industries Ltd
Grading Rationale
Reigning “supreme” over the Indian plastic products industry
Supreme is a dominant player in the Indian plastics industry, with more than
7,000 industrial as well as consumer products categorised into i) pipes and
fittings, ii) consumer products, iii) packaging products and iv) industrial
products. Plastic pipes and fittings is Supreme’s largest segment constituting
40% of revenues. Supreme is a prominent player in most of these product
segments despite its diverse product range. The company has largely a
domestic focus with exports constituting a negligible portion of its business.
Supreme has the largest polymer processing capacity in India at 328,650
tonnes. The plastic products industry in India is highly fragmented, with the
unorganised segment constituting 60% of the market.
Diversified product range is Supreme’s forte
Supreme has, over a period of time, established itself as a diversified plastic
products company by innovating and coming up with new products and
applications of polymers. The company has also been successfully adding new
high value added products. This diversified product portfolio protects the
company from major threats to any single product.
Fig 1: Segment wise revenue break up (FY10)
Source: Company, CRISIL Equities
Well-placed to ride the growth in Indian plastic consumption
Indian plastic consumption has grown at a CAGR of 10% over the past 10 years
largely due to growth in end-user segments such as industry, automobiles,
consumer durables, agriculture, infrastructure, housing etc. Given the low
penetration of plastics in India as compared to other countries, plastic demand
in India is all set to grow.
Plastic pipes and
fittings40%
Consumer
products10%
Packaging
products23%
Others (including
commercial real estate)
8%
Industrial
products19%
Supreme has the highest
polymer processing
capacity in India at
328,650 tonnes
Low per capita polymer
consumption, indicates
plenty of room for plastic
consumption to grow
© CRISIL Limited. All Rights Reserved. CRISIL RESEARCH | 4
The Supreme Industries Ltd
Table 2: International comparison of polymer consumption
Per Capita Polymer consumption kgs
US 71.5
China 30.7
Brazil 22.7
India 5.7
Source – Industry sources, CRISIL Equities
Replacement demand to support growth
Plastics have been rapidly replacing conventional materials such as steel, glass,
paper, iron, aluminium and leather largely due to its cost effectiveness and
durability. For instance, plastic pipes have replaced almost 80% of galvanised
iron (GI) pipes in plumbing since GI has zinc-oxide and corrodes over time.
Similarly, plastic tarpaulins are fast replacing conventional cotton tarpaulins
since there is a marked cost differential and frequency of replacement is also
low. Going forward, as newer applications of plastics find a wider acceptance
among the end users, total plastic consumption in India is expected to double
from the present 8 million tonnes to 16 million tonnes by 2018 and 20 million
tonnes by 2020. With a prominent presence in plastic products, Supreme is well
poised to benefit from this growth in consumption of plastics.
Second largest player in plastic pipes
Supreme is one of the largest players in manufacturing of plastic pipes and
comes a close second to Finolex Industries Ltd. The company has 18% share of
the organised plastic pipe market (7.3% of overall market) estimated at Rs 110
bn.
Supreme manufactures a wide range of pipes including PVC, CPVC, PPRC, HDPE
(High Density Polyethylene) and LLDPE pipes, which have applications in
housing, rainwater drainage as well as irrigation. The company markets its pipes
under various brand names such as Aqua Gold, Indo-green, Eco-drain, etc;
some of these have a good brand recall and a loyal customer base. CPVC pipes,
which are used in hot and cold water plumbing, are gaining increasing
acceptance due to reliability and durability, recording 100% y-o-y growth for
the past two years.
Plastic is fast replacing
many conventional
materials
Supreme has a diverse
piping products portfolio
© CRISIL Limited. All Rights Reserved. CRISIL RESEARCH | 5
The Supreme Industries Ltd
Fig 2: Supreme’s pipe portfolio (FY11E) Fig 3: Supreme - Pipes by end-use (FY11E)
Source: Company, CRISIL Equites Source: Company, CRISIL Equities
Demand for PVC pipes to grow at 10% CAGR
The Indian pipe industry is dominated by plastic pipes, within which PVC pipes
are the most prominent. The proportion of plastic pipes in the overall pipe
industry is expected to increase further driven by:
Replacement demand – Plastic pipes are rapidly replacing cement and GI
pipes (which cost twice as much as PVC pipes and last half as long) in housing
applications.
New demand - Construction of new houses is creating a robust demand for
plastic pipes. Also, higher government thrust on irrigation is creating a pull for
PVC pipes.
Fig 4: Indian pipe market (4.7 mn tonnes) Fig 5: Indian plastic pipe market (1.7 mn tonnes)
Source: Industry sources, CRISIL Equities Source: Industry, CRISIL Equities
Moulded plastic furniture - another segment with a strong foothold
Supreme is one of the largest players in manufacturing moulded plastic
furniture, second only to Nilkamal Ltd. The estimated market size of moulded
furniture industry is Rs 16 bn with Supreme having a market share of 15%.
(against Nilkamal’s ~30%). The company manufactures and sells commodity
PVC
72.3%
CPVC
9.8%
CPRC
6.9%
Fittings
11.0%
Housing
29.4%
Sewerage
&rainwater drainage
29.4%
Agriculture
and infrastructure
41.2%
Cement
12.3%
Plastic
34.8%
Steel (SAW)
27.2%
Steel (ERW)
7.4%
Ductile Iron
18.4%
Polypropylene
1.0%
CPVC
1.0%
PVC
86.0%
Polyehylene
12.0%
Demand for piping
products from housing
and irrigation segments
to be robust
Supreme is the second
largest player in moulded
plastic furniture segment
© CRISIL Limited. All Rights Reserved. CRISIL RESEARCH | 6
The Supreme Industries Ltd
furniture (plastic chairs, stools), which comprise 70% of total furniture sales,
while the remaining consists of high-margin premium furniture (sofa sets,
tables, office furniture, etc). While the commodity furniture is mainly sold
through dealers, the premium furniture are marketed mostly through retail
outlets.
Sales of premium furniture to grow faster
Supreme markets its premium furniture through more than 200 pan-India
showrooms, where plastic furniture is displayed alongside steel and wood
furniture. With rising income levels in Tier 2 and Tier 3 cities, and increased
penetration of plastic furniture, this segment is likely to grow faster than
commodity furniture.
Dominant player in packaging products Supreme is a dominant player in the packaging products segment, which
constitutes 23% of its business currently. Under this segment, it manufactures
i) cross laminated films, ii) protective packaging products (PE foam, bubble
wraps, cross linked foam) and iii) performance films (extruded plastic sheets
used for packaging). These products find applications in protective packaging of
food, industrial goods, household appliances, automobiles, etc.
Fig 6: Supreme – Packaging products portfolio (FY11E
revenues)
Source: Company, CRISIL Equities
Only Indian player manufacturing cross-laminated films
Supreme is the only Indian company to have the technology to manufacture
cross laminated XF films under the brand name “Silpaulin”. Technology for this
product has been acquired from a Switzerland-based company, Rasmussen
Polymer Development. Supreme has the sole rights for manufacturing and
marketing this product in India and South Asia.
XF films are used for a variety of applications - agricultural applications such as
pond lining, covering of agriculture produce, cattle sheds; civil engineering
applications such as basement capping, swimming pool capping, and general
applications such as covering of raw materials, machinery etc. The USP of the
Cross laminated
Films54%
Protective
Packaging Products
31%
Performance
films13%
Others
2%
Supreme is sole
manufacturer and
supplier of cross
laminated films in India
and South Asia
© CRISIL Limited. All Rights Reserved. CRISIL RESEARCH | 7
The Supreme Industries Ltd
product is that it is one-seventh the weight of conventional cotton tarpaulin, but
has a high strength-to-weight ratio. However, the company has been unable to
fully tap the potential of the product due to paucity of semi-skilled labour,
especially in fabrication. To overcome this, the company is trying to partially
automate the fabrication process, resulting in less manual intervention.
Protective packaging – leading player in a highly
competitive industry
Supreme has a basket of protective packaging products including thermoplastic
polyethylene foam sheets and profiles, cap cells, cross-linked and blending PE
foams, air bubble films and customized products including foam and bubble
films that are corrosion resistant, anti-static, UV resistant and metal laminated.
Supreme has a 33-39% market share in various categories of protective
packaging products. Around 35% of the business comes directly from OEMs
while the rest is distributed through dealers. Since this segment has many
products which are low-value adding and the company has to compete with a
large number of unorganised players, these products typically have lower
margins (10-12%).
Table 3: Market share in protective packaging products
Products
Estimated Market
Size (Rs mn)
Supreme's Share in
FY10 (%)
EPE Foam 2200 39%
Air Bubble Film 1600 33%
Cap Cell 2100 33%
Source: Company, CRISIL Equities
Performance films – low margin, low focus
Performance films are extruded plastic packaging films used for food items,
largely edible oil (~40% of revenues from the segment). Supreme supplies
performance films to clients such as Ruchi Soya Industries Ltd, Adani Wilmar
Ltd, Cargill Oil (for the Gemini refined oil products), etc. It is a highly
competitive segment and entails relatively lower EBITDA margins of ~10%.
Within this segment, the company has been able to maintain margins by
gradually exiting competitive segments such as two-layer films, while entering
higher value added segments such as seven-layer films.
Industrial products – catering to an elite client base
In the industrial products segment, Supreme manufactures dashboards for
automobiles, plastic body for electronic appliances as well as material handling
products. The estimated market size of the segment is Rs 200 bn. In this
competitive segment, Supreme is the preferred supplier to an elite corporate
clientele.
Supreme is the preferred
supplier to renowned
players in the automobile
and electronics space
© CRISIL Limited. All Rights Reserved. CRISIL RESEARCH | 8
The Supreme Industries Ltd
Table 4: Industrial products – snapshot
Product categories % of FY11E revenues Clients Comments
Moulded parts like dashboards
and other parts for automobile
interiors and exteriors
44
Mahindra and Mahindra Ltd,
Maruti Suzuki India Ltd, Tata
Motors Ltd
Is the major supplier of plastic
parts for Tata Motors’ “Prima” at
Jamshedpur
Plastic body for consumer
durables 22
Hitachi India Pvt. Ltd, Samsung
India Electronics Ltd, Tata
Chemicals Ltd, Whirlpool India
Ltd
Largest player in the consumer
durables segment, is the major
supplier to Samsung (India) for
plastic requirements ranging
from television sets to
computers, is the sole supplier
for complete plastic requirement
for washing machine model
“Radiance” for Whirlpool India
Ltd
Material handling products like
pallets, crates and bins. 34
Coca Cola India, Hindustan
Unilever Ltd, Pepsico India
Reliance Retail
Largest supplier of bottle crates
to the soft drinks industry
Source – Company, CRISIL Equities
To provide customised and dedicated products to large clients, the company
also has dedicated plants – in Khushkheda (Rajasthan) for Maruti, in Puducherry
for Whirlpool, and in Sriperumbudur for Samsung.
Composite products – Supreme still has some way to go Composite products refer to products manufactured using non-plastic materials
along with plastic, largely fibre glass. Supreme has plans to invest Rs 650 mn
in setting up a manufacturing unit for composite LPG cylinders, having capacity
of 400,000 cylinders. These are explosion-free, translucent and light-weight
cylinders, which will be sold directly to oil marketing companies, to replace
conventional LPG cylinders. Although the Government of India has expressed
interest to procure composite cylinders, progress has been slow and no tenders
have been floated yet. Till the clarity on the regulatory front emerges and
domestic demand picks up, the company will explore export markets for the
same. Supreme will get technical know-how from European consulting firm(s)
and expects to commence production of cylinders by December 2011. A few
other Indian players such as Time Technoplast Ltd are also eying the composite
LPG cylinders space; however, we believe product acceptance is still some way
off.
Composite products
industry is still nascent
in India
© CRISIL Limited. All Rights Reserved. CRISIL RESEARCH | 9
The Supreme Industries Ltd
Product diversification and innovation give Supreme the edge One of Supreme’s key strengths is the company’s ability to constantly move
away from competitive segments, into those where it can have first mover
advantage. Among the many firsts, Supreme was the first in the industry to use
the high-end injection moulding technology in the manufacturing process in
consumer products. Likewise, the company has introduced various technologies
in the market, either through international tie-ups or on its own, such as:
• Instant polyurethane foams, sound absorbing open cell foam, high
temperature and fire resistant foam in protective packaging
• SWR drainage systems, Aqua Gold high pressure plumbing system, Indo-
Green PP-R hot and cold water system in the plastic piping division,
• Lacquered and upholstered furniture in the furniture segment
• Injection moulded plastic pellets for industrial products
Continuous portfolio churn with new products
With constant innovation, the company has successfully kept pace with
technological improvements and churned its product portfolio to include less of
commoditised products and more of premium, value added products. For
instance, the company was, at one time, the largest supplier of plastic sheets
for milk packets (over 90% market share). But, as competition intensified, the
company began reducing its exposure to the milk packaging segment and
entered the 5-layer film segment (edible oil packaging) and even the 7-layer
film segment; currently, milk packaging makes negligible contribution.
Supreme scores higher than peers on operational and return parameters Supreme has superior returns and working capital management compared with
its peers in the plastic products industry. While, some of them are not strictly
comparable since they may be backward integrated (such as Finolex) or may
compete with Supreme in only a single product category (such as Nilkamal),
they are more or less comparable with Supreme.
Supreme has been the
first mover in many new
product segments, which
helps it to gain the
requisite market share
© CRISIL Limited. All Rights Reserved. CRISIL RESEARCH | 10
The Supreme Industries Ltd
Fig 7: Supreme has relatively lower revenue
growth...
Fig 8 : ...and lower EBITDA margins
Source: Industry sources, CRISIL Equities Source: Industry sources, CRISIL Equities
Fig 9: ...but returns are considerably higher than
peers’
Fig 10: ...due to excellent working capital
management
Source: Industry sources, CRISIL Equities Source: Industry sources, CRISIL Equities
*Kemrock Industries data is for 15 months.
Intense competition will keep Supreme on its toes The competitive nature of the plastic-based industry requires nimble response
to changes in market trends and timely exit from the more competitive
segments. In the past, Supreme had to sell off lower-margin businesses such as
food service wares (plastic cups), BoPP and rigid PVC film, where competition
was pulling down margins. While Supreme already faces competition from the
unorganised market in various product segments, the entry of newer players in
segments such as PVC pipes (where large steel pipe makers are eyeing the PVC
space) and consumer products is expected to further intensify competition. In
an intensifying competitive scenario, sustaining the pace of growth through
constant product innovation will be key.
20,15514,527
10,950 10,003 32,816 6,078
20%
12%
29%
36%41%
63%
0%
10%
20%
30%
40%
50%
60%
70%
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
Supreme
Industries
Finolex
Industries
Nilkamal
Time
Technoplast
Sintex
Industries
Kemrock
Industries*
(Rs mn)
Revenue (FY10) 3-yrs revenue growth (FY07-10)
14.8
21.9
12.2
19.5
15.3
25.2
0
5
10
15
20
25
30
Supreme
Industries
Finolex
Industries
Nilkamal Time
Technoplast
Sintex
Industries
Kemrock
Industries*
(%)
EBITDA margin (FY10)
0
5
10
15
20
25
30
35
40
45
10 15 20 25 30 35 40 45
RoCE (%)
RoE (%)Supreme Industries Finolex Industries
Nilkamal Time Technoplast
Sintex Industries Kemrock Industries*
22
14
81
107
97
229
0 50 100 150 200 250
Supreme Industries
Finolex Industries
Nilkamal
Time Technoplast
Sintex Industries
Kemrock Industries*
Working capital days (FY10)
Competition is expected
to intensify both from
organised and
unorganised players
© CRISIL Limited. All Rights Reserved. CRISIL RESEARCH | 11
The Supreme Industries Ltd
Rising raw material price is a risk The main raw materials used across segments are PVC, polypropylene, LD, LLD
polyethylene and High Density Polyethylene (HDPE). All, except PVC – which is
48% chlorine - have a strong linkage with crude oil. While the company is
successfully able to pass on raw material price increases in its more value added
products, a sustained increase in raw material prices can have an impact on
margins of the more commoditised products.
Supreme has a clearly laid out expansion plan to tap the growth opportunity in plastics Supreme has chalked out a well laid out expansion plan across products to tap
the growth opportunity that lies ahead. The company plans to increase the
number of plants from 19 currently to 32 by FY15. The company has also
zeroed in on the proposed locations for the expansion. To this end, the company
expects to incur a capex of ~Rs 2000 mn each year till FY15 across various
product segments.
Funding of capex not a concern
Supreme has strong operating cash flow given a lean working capital cycle. The
company will be able to fund its future expansion from these cash flows and will
not require any dilution of equity. Sales from the real estate project will also
provide the necessary funding support.
Real estate project is a one-off venture Supreme has developed a commercial real estate project in Andheri, Mumbai.
The project was undertaken to unlock the value in the company’s factory plot
located in Mumbai. With help from R. Raheja Group (who are equal partners
with The Supreme Industries Ltd in Supreme Petrochem Ltd), the company
executed the commercial real estate project, at a total cost of Rs 1,550 mn. The
project is spread over a 2.65 lakh sq ft, of which 40,000 sq ft has already been
sold for ~Rs 600 mn. While the management has indicated that the balance will
be sold in 2011, given the prevailing slowdown in the real estate market, we
believe the same may happen in the next two years. Proceeds from the sale will
help fund the company’s capex requirements.
Prospects of Supreme Petrochem appear good Supreme has a 29.88% stake in Supreme Petrochem, a listed company, in
which the R. Raheja Group also has a 29.88% stake. Supreme Petrochem’s
FY10 revenues stood at Rs 16,154 mn, with a PAT of Rs 605 mn. Supreme
Petrochem is one of the largest single-site polystyrene producers globally,
accounting for 2% of world capacity. The company owns 60% of domestic
installed capacity of polystyrene at 2,72,000 tonnes and is further expanding
capacities with a capex of Rs 1250 mn in FY11, due to strong international
demand for polystyrene. We expect Supreme Petrochem’s PAT to grow at a
CAGR of 12% in FY11-13, consequently supporting Supreme’s profits.
Sales from the real
estate project will take
some time to complete
© CRISIL Limited. All Rights Reserved. CRISIL RESEARCH | 12
The Supreme Industries Ltd
Key risks
Increasing raw material price
PVC resin (48% chlorine and 52% petrochemicals), one of the key raw material
used by Supreme, constitutes ~45% of total raw material costs. Any major
fluctuation in crude prices will have a corresponding impact on prices of PVC as
well as other raw materials that the company uses. Price of other crude-linked
materials, such as polyethylene and polypropylene, will also be a key
monitorable.
Delay in capacity expansion plan The company has outlined capacity expansion to the tune of ~Rs 2,000 mn each
year. Any delay in commissioning of these capacities may have an impact on
the financial performance of the company.
Delay in sale of commercial real estate project Given the prevailing slowdown in the real estate market, we remain cautious
about the timing of cash flows from sale of the company’s commercial real
estate project. Any further delay in sales could have an impact on our cash flow
assumptions which may affect our valuation estimates.
Intensifying competition Since Supreme operates in a highly competitive market, which is also
dominated by a large number of unorganised players, intensifying competition
in any product category, if not adequately countered by a corresponding
introduction of innovative products, will limit the company’s ability to maintain
margins in the 14-15% range.
Forex fluctuations The company imports ~50% of its raw material and also has foreign currency
borrowings. While the management has indicated that all forex transactions are
sufficiently hedged, they remain a monitorable.
Raw material price and
competition are key
monitorables
© CRISIL Limited. All Rights Reserved. CRISIL RESEARCH | 13
The Supreme Industries Ltd
Financial Outlook
Revenues to grow at three-year CAGR of 19%
We expect revenues to grow at 19% CAGR in the next three years led by
growth across all the product segments. Growth will be primarily driven by
volumes. We expect the revenue mix (excluding real estate income) to remain
largely unchanged.
Fig 11: Expect strong growth in revenues Fig 12:Revenue mix to remain unchanged in FY13
Source: Company, CRISIL Equities Source: Company, CRISIL Equities
Core business EBITDA margins to remain stable at around 14% Supreme reported an EBITDA margin of 14.8% in FY10 and 14.6% in the nine
months ended March 2011. While the company is continuously expanding its
range of value added products in most of the segments, we believe intensifying
competition will put pressure on the company’s core business margins,
restricting margin expansion. At the same time, in FY12 and FY13, revenues
from the real estate project will cause EBITDA margins to expand briefly, before
returning to the ~14% range, once the sale is through.
Fig 13: EBITDA margins to expand due to real estate sale
Source: Company, CRISIL Equities
16,587 20,155 24,000 27,933 33,543
26.4%
21.5%
19.1%
16.4%
20.1%
0%
5%
10%
15%
20%
25%
30%
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
FY09 FY10 FY11E FY12E FY13E
(Rs mn)
Revenues growth % (RHS)
Plastic pipes
and fittings40%
Packaging
products22%
Consumer
products12%
Industrial
products18%
Others
8%
2,547 2,974 3,447 4,121 5,459
15.4%
14.8%
14.4%
14.8%
16.3%
13%
14%
14%
15%
15%
16%
16%
17%
0
1,000
2,000
3,000
4,000
5,000
6,000
FY09 FY10 FY11E FY12E FY13E
(Rs mn)
EBITDA EBITDA Margin (RHS)
Revenues likely to grow at
a three-year CAGR of 19%
to Rs 33.5 bn in FY13
© CRISIL Limited. All Rights Reserved. CRISIL RESEARCH | 14
The Supreme Industries Ltd
Raw material price risk does not seem imminent
CRISIL Research expects crude prices to soften from the current levels to
~US$100 per bbl in FY12 and US$90 per bbl in FY13 and chlorine prices (48%
of PVC cost) to remain stable over FY12-13, lowering the likelihood of a major
raw material price disruption on profitability.
Excellent working capital management
The company sells cross laminated films and a large portion of plastic piping
products on cash basis. The company has been able to consistently lower its
debtor days, despite adding new clients and new products. Supreme has also
managed to maintain its supplier days within a range through constant vendor
management. A lean working capital ensures that the operating cash flows of
the company are high resulting in its ability to fund the capacity expansion
through internal accruals without resorting to too much of debt.
Fig 14: Debtor days have been on a decline Fig 15:Inventory days also expected to decline
Note – Inventory decline is owing to realisation of proceeds from
real estate project
Source: Company, CRISIL Equities Source: Company, CRISIL Equities
PAT to grow at a three-year CAGR of 23%, EPS to increase from Rs 12.2 in FY10 to Rs 22.8 in FY13
Supreme’s consolidated PAT is expected to grow from Rs 1,555 mn in FY10 to
Rs 2,890 mn in FY13, primarily driven by a strong growth in revenues, stable
EBITDA margins (excluding real estate project) and income from the real estate
project. EPS is expected to increase from Rs 12.2 in FY10 to Rs 22.8 in FY13.
Excluding the real estate project, we expect EPS to be Rs 18 in FY13.
40 38
25 24 24 24 24
0
5
10
15
20
25
30
35
40
45
FY07 FY08 FY09 FY10 FY11E FY12E FY13E
(Days)
Receivable days
43
5549
6862 58
43
0
10
20
30
40
50
60
70
80
FY07 FY08 FY09 FY10 FY11E FY12E FY13E
(Days)
Inventory days
Strong bottom-line
growth led by higher
operating profits and
comfortable interest
outflow
© CRISIL Limited. All Rights Reserved. CRISIL RESEARCH | 15
The Supreme Industries Ltd
Fig 16: PAT and PAT margins to improve Fig 17: EPS to rise
Source: Company, CRISIL Equities Source: Company, CRISIL Equities
RoE and RoCE to remain strong
Supreme had a strong RoE of 43% and RoCE of 38% in FY10. Given its strong
operational performance, we expect RoE and RoCE to remain at healthy levels.
Fig 18: RoCE and RoE to remain strong
Source: Company, CRISIL Equities
852
1,5551,855
2,126
2,890
5.1%
7.7% 7.7% 7.6%
8.6%
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
0
500
1,000
1,500
2,000
2,500
3,000
3,500
FY09 FY10 FY11E FY12E FY13E
(Rs mn)
PAT PAT Margin (RHS)
6.7 12.2 14.6 16.7 22.8
76%
83%
19%
15%
36%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
0.0
5.0
10.0
15.0
20.0
25.0
FY09 FY10 FY11E FY12E FY13E
(Rs mn)
EPS EPS Growth (RHS)
29.6
43.3
39.4
36.4 40.2
33.2
38.4 39.0
36.2
41.2
25
27
29
31
33
35
37
39
41
43
45
FY09 FY10 FY11E FY12E FY13E
(%)
ROE ROCE
Higher returns and better
utilisation of existing
assets is expected to
maintain the RoE and
RoCE
© CRISIL Limited. All Rights Reserved. CRISIL RESEARCH | 16
The Supreme Industries Ltd
Management Overview
CRISIL's fundamental grading methodology includes a broad assessment of
management quality, apart from other key factors such as industry and
business prospects, and financial performance.
Current management at the helm for 45 years
Supreme has a strong management team with excellent domain expertise. Mr.
M.P.Taparia (Managing Director, 74), Mr. S.J.Taparia (Executive Director, 66)
and Mr. V.K.Taparia (Executive Director, 56) are from the promoter family
actively engaged in the business currently, with an equal shareholding (~16%
each). The Chairman, Mr. B.L.Taparia, 77, is Mr. M.P.Taparia’s brother and Mr.
V.K. Taparia’s father. He currently works in a non-executive capacity. Since the
company was taken over in 1966, the Taparia family has been at the helm of
affairs. Apart from The Supreme Industries Ltd, Mr. M.P. Taparia is also the
Chairman of Supreme Petrochem Ltd, but more in an advisory role, while the
operations are managed by professionals. Apart from Supreme Petrochem Ltd,
the promoters do not have any other group company.
Although the company has not disclosed the plan for succession, we believe that
adequate thought is being given to the same.
Strong second line of management
The second line comprises seasoned professionals, all of whom have over 25
years of experience and most of whom have been with the company for over 20
years, some as long as 40 years. The company has profited from their vast
experience and keen understanding of their technical as well as marketing
expertise.
Strong focus on core competency, with steady and well-timed diversification
Over the past 10 years, the company’s PAT has grown at a 28% CAGR, largely
driven by growth in core operations. Most of the business growth has been
organic (the acquisitions the company had made were largely extensions of
their foam and films businesses, for instance Futuristic Packaging was taken
over for access to its 5-layer extrusion packaging technology). Also the
management’s focus has been the Indian market, with very little export
exposure and this appears to be the strategy going forward. The management
has also proceeded cautiously on new ventures and competitive new segments
such as drip irrigation, where dependence on tendering process and government
subsidy is high.
Shareholder – friendly management
Supreme has consistently rewarded shareholders, with an average dividend
payout of 35-40% of distributable profits, while maintaining the pace of growth.
Accompanied by a consistently improving RoE, a 5-for-1 stock split in October
2010 and seven instances of bonus since the Taparia family took over the
business in 1966, the returns to shareholders have been extremely rewarding.
The Taparia family has
largely focussed on the
business they know
best - plastics
© CRISIL Limited. All Rights Reserved. CRISIL RESEARCH | 17
The Supreme Industries Ltd
Corporate Governance
CRISIL’s fundamental grading methodology includes a broad assessment of
corporate governance and management quality, apart from other key factors
such as industry and business prospects, and financial performance. In this
context, CRISIL Equities analyses the shareholding structure, board
composition, typical board processes, disclosure standards and related-party
transactions. Any qualifications by regulators or auditors also serve as useful
inputs while assessing a company’s corporate governance.
Overall, corporate governance at Supreme is good and is supported by good
board practices and an independent board.
Board composition
Supreme’s board comprises nine members, of whom five are independent
directors, which is more than the requirement under Clause 49 of SEBI’s listing
guidelines. Four directors are from the promoter family – Mr. B.L.Taparia
(Chairman – Non-executive), Mr. M.P.Taparia (MD), Mr. V.K. Taparia and Mr.
S.J.Taparia. The independent directors have strong industry experience and are
highly qualified. We believe they have a fairly good understanding of the
company’s business and its processes and their participation in Board meetings
is good.
Board’s processes
The company’s quality of disclosure can be considered quite good judged by the
level of information and details furnished in the annual report, websites and
other publicly available data. The company has all the necessary committees –
audit, remuneration and investor grievance - in place to support corporate
governance practices. The audit committee is chaired by an independent
director, Mr H.S.Parikh, who is a practicing Chartered Accountant.
Corporate governance
practices are good
© CRISIL Limited. All Rights Reserved. CRISIL RESEARCH | 18
The Supreme Industries Ltd
Valuation Grade: 4/5
We have used the discounted cash flow (DCF) method to value Supreme and
arrived at a fair value of Rs 239 per share (this includes Rs 9.7 as share in
profits of Supreme Petrochem Ltd). Supreme is currently trading at Rs 192 per
share. Consequently, we initiate coverage on Supreme with a valuation grade of
4/5, indicating that the current market price has strong upside.
Key DCF assumptions
• We have considered the discounted value of the firm’s estimated free cash
flow from FY12 to FY18.
• We have included capital expenditure of ~Rs 2,500 mn annually from FY12-
18, including maintenance capex.
• We have assumed a terminal growth rate of 4% beyond the explicit
forecast period until FY18.
WACC computation
FY12-16 Terminal value
Cost of equity 15.3% 15.3%
Cost of debt (post tax) 8.2% 8.2%
WACC 12.7% 12.7%
Terminal growth rate 4.00%
Sensitivity analysis to terminal WACC and terminal growth rate
Terminal growth rate
Term
inal W
ACC
2.0% 3.0% 4.0% 5.0% 6.0%
10.7% 248 273 307 352 417
11.7% 219 238 263 294 337
12.7% 196 211 229 252 283
13.7% 177 189 203 221 243
14.7% 162 172 183 196 213
Source: CRISIL Equities estimates
Valuation of profits from Supreme Petrochem
We have valued Supreme’s 30% stake in Supreme Petrochem based on its
current market cap of Rs 5,800 mn. We have further applied a holding company
discount of 30% to arrive at a value of Rs 9.7 per share for Supreme
Petrochem.
This, along with Supreme’s DCF value of Rs 229 per share, gives a fair value of
Rs 239 per share.
We assign a fair value of
Rs 239 per share to
Supreme and initiate
coverage with a valuation
grade of “4/5”
The fair value implies P/E
multiple 10x FY13 EPS of
Rs 22.8
© CRISIL Limited. All Rights Reserved. CRISIL RESEARCH | 19
The Supreme Industries Ltd
One-year forward P/E band One-year forward EV/EBITDA band
Source: NSE, BSE, Company, CRISIL Equities Source: NSE, BSE, Company, CRISIL Equities
P/E – premium / discount to NIFTY P/E movement
Source: NSE, BSE, Company, CRISIL Equities Source: NSE, BSE, Company, CRISIL Equities
Note: PE has been adjusted for bonus, stock split and buy back
Peer comparison
Company M.cap P/E RoE P/BV
(Rs mn) FY10 FY11E FY12E FY13E FY10 FY11E FY12E FY13E FY10 FY11E FY12E FY13E
Supreme Industries 21,849 14.1 11.8 10.3 7.6 43.3 39.4 36.4 40.2 3.5 4.1 3.4 2.7
Finolex Industries 9,501 6.1 14.2 na na 24.3 12.6 na na 1.4 1.7 na na
Nilkamal 3,772 6.4 8.0 5.3 na 22.2 17.4 17.0 na 1.3 1.3 0.9 na
Time Technoplast 14,189 15.8 13.9 9.6 7.9 17.1 16.4 20.1 20.2 2.5 2.1 1.8 1.5
Sintex Industries 45,303 12.2 9.0 8.4 7.2 18.0 21.2 20.1 19.4 2.1 1.7 1.5 1.2
Kemrock Industries 8,698 21.1 na na na 28.4 na na na 2.6 na na na
Median 14.1 12.8 9.6 7.7 23.7 19.3 20.1 22.1 2.5 1.9 1.8 1.9
Average 15.0 12.2 9.3 8.2 25.3 21.6 23.3 25.9 2.8 2.4 2.1 1.9
Note: Data is as of July 2011
Source: CRISIL Equities, Industry sources
0
50
100
150
200
250
Apr-07
Jul-07
Oct-07
Jan-08
Apr-08
Jul-08
Oct-08
Jan-09
Apr-09
Jul-09
Oct-09
Jan-10
Apr-10
Jul-10
Oct-10
Jan-11
Apr-11
Jul-11
(Rs)
Supreme Industries 1x 4x 7x 10x
0
5,000
10,000
15,000
20,000
25,000
30,000
Apr-07
Jul-07
Oct-07
Jan-08
Apr-08
Jul-08
Oct-08
Jan-09
Apr-09
Jul-09
Oct-09
Jan-10
Apr-10
Jul-10
Oct-10
Jan-11
Apr-11
Jul-11
(Rs mn)
EV 2x 4x 6x
-90%
-80%
-70%
-60%
-50%
-40%
-30%
-20%
-10%
0%
Apr-07
Jul-07
Oct-07
Jan-08
Apr-08
Jul-08
Oct-08
Jan-09
Apr-09
Jul-09
Oct-09
Jan-10
Apr-10
Jul-10
Oct-10
Jan-11
Apr-11
Jul-11
Premium/Discount to NIFTY Median premium/discount to NIFTY
0
2
4
6
8
10
12
14Apr-07
Jul-07
Oct-07
Jan-08
Apr-08
Jul-08
Oct-08
Jan-09
Apr-09
Jul-09
Oct-09
Jan-10
Apr-10
Jul-10
Oct-10
Jan-11
Apr-11
Jul-11
(x)
1yr Fwd PE (x) Median PE
+1 std dev
-1 std dev
© CRISIL Limited. All Rights Reserved. CRISIL RESEARCH | 20
The Supreme Industries Ltd
Company Overview
The Supreme Industries Ltd is India’s leading plastic products manufacturer.
The company operates in the injection moulding and extrusion segments.
Supreme has the largest capacity in India, with 19 manufacturing facilities and a
pan-India distribution network. The company has an overseas subsidiary in the
UAE, which makes little contribution to revenues.
Company’s segment-wise capacities (mtpa) and capital expenditure plan
Division FY11E FY12E FY13E FY14E FY15E
Industrial Moulded Products 34,700 37,500 40,000 46,000 50,000
Plastic Piping System 190,000 207,500 247,500 300,000 360,000
Cross laminated Film 17,500 22,500 22,500 27,500 27,500
Protective Packaging Products 24,600 27,500 33,000 36,000 40,000
Furniture 29,320 40,000 45,000 48,000 54,000
Material Handling System 23,030 28,000 33,000 36,000 42,000
Packaging Film 9,500 9,500 15,500 15,500 21,500
Total Estimated Production Capacities 328,650 372,500 436,500 509,000 595,000
Total Capex Budgeted (Rs mn) 2,734 2,046 1,595 2,002 1,557
Source – Company
Proposed expansion of manufacturing facilities
Division No of new locations Proposed locations
Industrial Moulded Products 3 Ahmedabad, Jamshedpur and Puduchery
Plastic Piping System 2 East Zone, South Zone
Cross Laminated Film 1 Gujarat
Protective Packaging Products 4 Hosur, Gujarat, West Bengal and Rajasthan
Furniture 2 Andhra and North Zone
Composite cylinders 1 Halol (Gujarat)
Total 13
Source – Company
Technical collaborations
Company Country Product Line
Rasmussen polymer development Switzerland Cross-Laminated Films
Sapac packaging solution Belgium Instant Packaging Solution
Foam Partner Switzerland Reticulated PU Foam
Sanwa Kako Japan 2 Stage Foam
PE Tech Korea Cross Linked Foam
Wavin Overseas Holland Plastic piping system
Industrie Polieco MPB SRL Italy Sewerage system
Source – Company
© CRISIL Limited. All Rights Reserved. CRISIL RESEARCH | 21
The Supreme Industries Ltd
Annexure: Financials
Note – Share of profits in Supreme Petrochem for Fy11E (included in “Other Income”) is for 9M ended March 2011, Financial year for
the company ends in June, Financials have been adjusted for a 5-for-1 stock split in October 2010.
Source: CRISIL Equities
Income statement Balance Sheet
(Rs mn) FY09 FY10 FY11E FY12E FY13E (Rs mn) FY09 FY10 FY11E FY12E FY13E
Operating income 16,587 20,155 24,000 27,933 33,543 Liabilities
EBITDA 2,547 2,974 3,447 4,121 5,459 Equity share capital 254 254 254 254 254
EBITDA margin 15.4% 14.8% 14.4% 14.8% 16.3% Reserves 2,787 3,887 5,031 6,139 7,745
Depreciation 525 529 563 781 953 Minorities - - - - -
EBIT 2,021 2,444 2,884 3,339 4,506 Net worth 3,041 4,141 5,285 6,393 7,999
Interest 681 339 330 415 458 Convertible debt - - - - -
Operating PBT 1,341 2,105 2,555 2,924 4,048 Other debt 3,250 2,291 3,091 3,691 3,791
Other income (2) 199 214 249 266 Total debt 3,250 2,291 3,091 3,691 3,791
Exceptional inc/(exp) 57 5 - - - Deferred tax liability (net) 643 698 698 698 698
PBT 1,396 2,309 2,768 3,173 4,314 Total liabilities 6,934 7,130 9,074 10,782 12,488
Tax provision 487 749 914 1,047 1,424 Assets
Minority interest - - - - - Net fixed assets 5,431 5,626 7,814 9,532 11,579
PAT (Reported) 908 1,560 1,855 2,126 2,890 Capital WIP 895 131 231 331 431
Less: Exceptionals 57 5 - - - Total fixed assets 6,326 5,757 8,045 9,863 12,010
Adjusted PAT 852 1,555 1,855 2,126 2,890 Investments 496 693 892 1,114 1,364
Current assets
Ratios Inventory 1,683 2,906 3,145 3,448 3,012
FY09 FY10 FY11E FY12E FY13E Sundry debtors 1,153 1,310 1,560 1,816 2,181
Growth Loans and advances 535 793 960 1,117 1,342
Operating income (%) 26.4 21.5 19.1 16.4 20.1 Cash & bank balance 870 187 331 211 584
EBITDA (%) 71.5 16.8 15.9 19.6 32.5 Marketable securities - - - - -
Adj PAT (%) 62.1 82.6 19.3 14.6 36.0 Total current assets 4,240 5,197 5,996 6,592 7,119
Adj EPS (%) 76.2 82.6 19.3 14.6 36.0 Total current liabilities 4,128 4,517 5,858 6,787 8,005
Net current assets 112 680 138 (195) (886)
Profitability Intangibles/Misc. expenditure - - - - -
EBITDA margin (%) 15.4 14.8 14.4 14.8 16.3 Total assets 6,934 7,130 9,074 10,782 12,488
Adj PAT Margin (%) 5.1 7.7 7.7 7.6 8.6
RoE (%) 29.6 43.3 39.4 36.4 40.2 Cash flow
RoCE (%) 33.2 38.4 39.0 36.2 41.2 (Rs mn) FY09 FY10 FY11E FY12E FY13E
RoIC (%) 31.2 40.0 37.7 35.1 38.9 Pre-tax profit 1,339 2,304 2,768 3,173 4,314
Total tax paid (367) (693) (914) (1,047) (1,424)
Valuations Depreciation 525 529 563 781 953
Price-earnings (x) 7.6 9.3 13.2 11.5 8.4 Working capital changes 839 (1,251) 686 213 1,064
Price-book (x) 2.1 3.5 4.6 3.8 3.1 Net cash from operations 2,336 889 3,103 3,121 4,908
EV/EBITDA (x) 3.5 5.6 7.9 6.8 5.1 Cash from investments
EV/Sales (x) 0.5 0.8 1.1 1.0 0.8 Capital expenditure (1,525) 39 (2,850) (2,600) (3,100)
Dividend payout ratio (%) 39.3 34.2 32.7 40.9 38.0 Investments and others 40 (197) (199) (223) (249)
Dividend yield (%) 5.5 3.7 2.5 3.6 4.5 Net cash from investments (1,486) (158) (3,049) (2,823) (3,349)
Cash from financing
B/S ratios Equity raised/(repaid) (268) - - - -
Inventory days 49 68 62 58 43 Debt raised/(repaid) 74 (959) 800 600 100
Creditors days 98 87 95 95 95 Dividend (incl. tax) (357) (534) (607) (870) (1,098)
Debtor days 25 24 24 24 24 Others (incl extraordinaries) 109 78 (103) (148) (187)
Working capital days (7) (2) 2 (4) (10) Net cash from financing (441) (1,414) 90 (418) (1,185)
Gross asset turnover (x) 1.9 2.2 2.2 2.0 2.0 Change in cash position 410 (683) 144 (120) 374
Net asset turnover (x) 3.3 3.6 3.6 3.2 3.2 C losing cash 870 187 331 211 584
Sales/operating assets (x) 2.8 3.3 3.5 3.1 3.1
Current ratio (x) 1.0 1.2 1.0 1.0 0.9 Quarterly financials
Debt-equity (x) 1.1 0.6 0.6 0.6 0.5 (Rs mn) Q3FY10 Q4FY10 Q1FY11 Q2FY11 Q3FY11
Net debt/equity (x) 0.8 0.5 0.5 0.5 0.4 Net Sales 5,120 6,712 4,734 5,852 6,625
Interest coverage 3.0 7.2 8.7 8.0 9.8 Change (q-o-q) 5% 31% -29% 24% 13%
EBITDA 739 1,008 814 816 837
Per share Change (q-o-q) 2% 36% -19% 0% 3%
FY09 FY10 FY11E FY12E FY13E EBITDA margin 14.4% 15.0% 17.2% 13.9% 12.6%
Adj EPS (Rs) 6.7 12.2 14.6 16.7 22.8 PAT 371 520 403 412 395
CEPS 10.8 16.4 19.0 22.9 30.3 Adj PAT 371 520 371 412 395
Book value 23.9 32.6 41.6 50.3 63.0 Change (q-o-q) 3% 40% -29% 11% -4%
Dividend (Rs) 2.8 4.2 4.8 6.8 8.6 Adj PAT margin 7.2% 7.7% 7.8% 7.0% 6.0%
Actual o/s shares (mn) 127.0 127.0 127.0 127.0 127.0 Adj EPS 2.9 4.1 2.9 3.2 3.1
© CRISIL Limited. All Rights Reserved. CRISIL RESEARCH | 22
The Supreme Industries Ltd
Focus Charts
RoE and RoCE to remain strong Revenue and growth trend
Source: Company, CRISIL Equities Source: Company, CRISIL Equities
Share Price Movement EBITDA and EBITDA margin trend
-indexed to 100
Source: Company, CRISIL Equities Source: Company, CRISIL Equities
PAT and PAT margins to improve Shareholding pattern over the quarters
Source: Company, CRISIL Equities Source: Company, CRISIL Equities
29.6
43.3
39.4
36.4 40.2
33.2
38.4 39.0
36.2
41.2
25
27
29
31
33
35
37
39
41
43
45
FY09 FY10 FY11E FY12E FY13E
(%)
ROE ROCE
16,587 20,155 24,000 27,933 33,543
26.4%
21.5%
19.1%
16.4%
20.1%
0%
5%
10%
15%
20%
25%
30%
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
FY09 FY10 FY11E FY12E FY13E
(Rs mn)
Revenues growth % (RHS)
0
100
200
300
400
500
600
Mar-07
May-07
Aug-07
Nov-07
Feb-08
May-08
Aug-08
Nov-08
Feb-09
May-09
Jul-09
Oct-09
Jan-10
Apr-10
Jul-10
Oct-10
Jan-11
Apr-11
Jul-11
Supreme NIFTY
2,547 2,974 3,447 4,121 5,459
15.4%
14.8%
14.4%
14.8%
16.3%
13%
14%
14%
15%
15%
16%
16%
17%
0
1,000
2,000
3,000
4,000
5,000
6,000
FY09 FY10 FY11E FY12E FY13E
(Rs mn)
EBITDA EBITDA Margin (RHS)
852
1,5551,855
2,126
2,890
5.1%
7.7% 7.7% 7.6%
8.6%
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
0
500
1,000
1,500
2,000
2,500
3,000
3,500
FY09 FY10 FY11E FY12E FY13E
(Rs mn)
PAT PAT Margin (RHS)
49.6% 49.6% 49.6% 49.6%
3.9% 4.1% 4.2% 6.8%0.4% 0.5% 1.1%1.3%
46.0% 45.8% 45.1% 42.3%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Jun-10 Sep-10 Dec-10 Mar-11
Promoter FII DII Others
© CRISIL Limited. All Rights Reserved.
CRISIL Research Team
Senior Director
Mukesh Agarwal +91 (22) 3342 3035 [email protected]
Analytical Contacts Tarun Bhatia Director, Capital Markets +91 (22) 3342 3226 [email protected]
Prasad Koparkar Head, Industry & Customised Research +91 (22) 3342 3137 [email protected]
Chetan Majithia Head, Equities +91 (22) 3342 4148 [email protected]
Sudhir Nair Head, Equities +91 (22) 3342 3526 [email protected]
Jiju Vidyadharan Head, Funds & Fixed Income Research +91 (22) 3342 8091 [email protected]
Ajay D'Souza Head, Industry Research +91 (22) 3342 3567 [email protected]
Ajay Srinivasan Head, Industry Research +91 (22) 3342 3530 [email protected]
Sridhar C Head, Industry Research +91 (22) 3342 3546 [email protected]
Manoj Mohta Head, Customised Research +91 (22) 3342 3554 [email protected]
Business Development
Vinaya Dongre Head, Industry & Customised Research +91 (22) 33428025 [email protected]
Ashish Sethi Head, Capital Markets +91 (22) 33428023 [email protected]
CRISIL’s Equity Offerings
The Equity Group at CRISIL Research provides a wide range of services including:
� Independent Equity Research
� IPO Grading
� White Labelled Research
� Valuation on companies for use of Institutional Investors, Asset Managers, Corporate
Other services by the Research group include
Funds & Fixed Income Research
� Mutual fund rankings
� Wealth Tracking and Financial Planning tools for asset managers, wealth managers and IFAs
� Valuation for all debt instruments
� Developing and maintaining debt and hybrid indices
� Consultancy and research support to retirement funds
Industry & Customized Research
� Provide comprehensive research coverage across 65 sectors
� Customised research on market sizing, demand modelling and entry strategies
� Customised research content for Information Memorandum and Offer Documents
© CRISIL Limited. All Rights Reserved.
About CRISIL Limited
CRISIL is a global analytical company providing ratings, research, and risk and policy advisory services. We are
India's leading ratings agency. We are also the foremost provider of high-end research to the world's largest banks
and leading corporations.
About CRISIL Research CRISIL Research is the country’s largest independent and integrated research house with strong domain expertise
on Indian economy, industries and capital markets. We leverage our unique research platform and capabilities to
deliver superior perspectives and insights to over 1200 domestic and global clients, through a range of research
reports, analytical tools, subscription products and customised solutions.
Head Office: CRISIL House, Central Avenue, Hiranandani Business Park, Powai, Mumbai - 400 076 Phone : 91-22-3342 3000 Web: www.crisil.com Download reports from: www.ier.co.in
Ashish Sethi – Head, Business Development
Email : [email protected] I Phone : 9920807575
To know more about CRISIL IER, please contact our team members:
Sagar Sawarkar – Senior Manager, Business Development
Email : [email protected] I Phone : 9821638322
Regional Contacts:
Vinaya Dongre – Head, Business Development
Email : [email protected] I Phone : 9920225174
Hyderabad Kaliprasad Ponnuru - Manager, Business Development
Email : [email protected] I Phone : 9642004668
Kolkata / Delhi Priyanka Agarwal - Manager, Business Development
Email : [email protected] I Phone : 9903060685
Ahmedabad / Mumbai / Pune Vishal Shah - Manager, Business Development
Email : [email protected] I Phone : 9820598908
Bengaluru / Chennai Anand Krishnamoorthy - Manager, Business Development
Email : [email protected] I Phone : 9884704111