Supreme Industries Ltd (SIL) reported healthy set of numbers for Q4FY18. While revenue growth of 14.7% YoY was in line with our projections, the company surprised positively on the profit front with a strong growth of 19.5% & 21.8% in operating profit & PAT respectively. EBITDA margin expansion of 78bps YoY (at 19.5%), led by improved product mix and operating leverage, was encouraging. Going forward, we remain positive on SIL’s growth prospects, given the robust outlook of plastics industry and company's continued efforts towards brand building, capacity expansion and enhanced product offerings. We maintain BUY on the stock with target price of Rs 1,473.
Q4FY18 Result Update:
* Consolidated Net Revenue grew by 14.7% YoY to Rs 1,471.3cr, led by a combination of healthy volume offtake (+8%) and improved realizations, driven by price hikes. Segment-wise, volume growth in plastic piping segment was slightly muted, impacted by lower demand in agri segment. However, the growth in industrial & consumer segments stood healthy at 16.5% & 17% respectively, helped by demand uptick for consumer appliances and industrial products. For FY18, revenue grew by 11.3%, largely volume led.
* EBITDA grew by 19.5% YoY to Rs 286.8cr, while EBITDA margins improved by 78bps YoY to 19.5%, aided by improved product mix and operating leverage. Significant margin expansion was witnessed in plastic piping (+108bps YoY) and consumer segments (+618bps YoY). Consolidated PAT grew by 21.8% YoY, led by flat growth in depreciation, higher other income and decline in the effective tax rate.
* Other key highlights: i) Composite cylinders should see good demand both in domestic & exports in FY 19; ii) The management expects volume growth of around 12-13% and margins of around 16% in FY 19; iii) The focus would remain on increasing the share of value added products across segments; iv) During FY19, the company has envisaged total CAPEX in the range of Rs 300-350cr, which involves expanding capacities across plastic piping, protective packaging & industrial products.
Outlook & Valuation:
Led by demand revival, steady capacity additions and enhanced product offerings, SIL’s consolidated Net Revenue & PAT are estimated to grow by 15.6% & 18.2% CAGR over FY18-20E. Volume offtake is likely to improve across the business segments. Further, with launch of premium products and selective price hikes, we expect the realizations to remain firm. Government’s initiatives like implementation of GST & Rera should benefit the company immensely over medium to long term. Revival in rural infra spend and normal monsoon would result in improved demand from rural sector. While EBITDA margins declined in FY18, largely impacted by input cost inflation and lower contribution from value added products, we expect the same to improve gradually over the next two years, led by operating leverage and higher contribution from value added products. This, along with improved profits from Supreme Petrochem (in which SIL holds 29.99% stake) and declining interest cost would boost the PAT growth. Premium valuations are justified, given the market leadership, leverage free balance sheet, healthy cash flows, superior return ratios and steady dividend payouts. Based on strong performance in Q4, we have upgraded our earnings estimates for FY19E & FY20E. However, we are keeping our price target unchanged and will review the same in the coming quarters. We maintain a BUY on the stock with target price of Rs 1,473.
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