Stock Pick Of The Week: Supreme Industries Ltd

Supreme Industries scores well on all investment parameters. It has a Return On Capital Employed (ROCE) of about 45%, a debt : equity ratio of about 0.20, a dominant position in the market place, highly respected management and reasonable valuations. It also has an excellent stock market record. It deserves pride of place in every long-term investor's portfolio

Supreme Industries Limited is India’s leading processors of plastics, offering a wide and comprehensive range of plastic products in India. Supreme operates in various segments viz. Plastics Piping Systems, Protective Packaging Products, Industrial Components, Material Handling Systems, Cross Laminated Polyethylene Films & Products thereof, Furniture and Performance Packaging Films. Supreme Industries has 20 technologically advanced manufacturing facilities located at various places spread across the country.

Supreme Industries has a dominant position in the plastic processing industry. Its’ USP is that it is a steady performer, churning out decent returns quarter after quarter, year after year. The stock markets like consistent performers which do that which is predicted. In the past one year itself, the stock has given a return of 70%. In 3 years, the return has been 250% and in 5 years, the return has been 684%.

Supreme Industries’ Past Performance

	2008-09	2009-10	2010-11	2011-12
Polymers Processed (MT)	172746	191704	224673	245700
Net Sales	165192.87	200573.76	243573.40	292704.73
Other Income	904.53	1621.55	4294.66	4917.25
Total Income	166097.40	202195.31	247868.06	297621.98
Operating Profit	24698.97	30556.28	36709.23	48281.54
Net Profit	9738.61	14483.02	17497.00	24051.59
Paid up Equity Captial	2540.54	2540.54	2540.54	2540.54
Reserves and Surplus*	25990.94	35136.56	46278.92	61472.49
Shareholders’ Funds	28531.48	37677.10	48819.46	64013.03
Loans	41571.19	38736.42	51123.74	34844.47
Capital Employed	64101.50	63231.75	81373.58	90596.65
Net Fixed Assets	54024.26	56118.37	74027.37	73804.86
EPS	7.67	11.40	13.77	18.93
Cash Earning Per Equity Share (v )	11.80	15.56	18.65	24.64
Book Value (v )	22.46	29.66	38.43	50.39
Dividend (%)	120.00	180.00	215.00	300.00
ROACE (%)	27.83	38.09	39.80	44.69
ROANW (%) (PAT / Average Net Worth)	36.55	43.72	40.24	42.63
Debt : Equity (Long Term Debt /Total Net Worth)	1.02	0.49	0.50	0.29
Debt: Equity (Total Debt / Total Net Worth)	1.46	1.03	1.05	0.54

Supreme Industries’ Present Performance

In FY 2012-2013 (June year ending), Supreme Industries has continued its’ strong performance. In Q3FY13, Supreme Industries’ revenues grew by 19.4% YOY (13% QoQ) to Rs. 917 crore. The adjusted PAT increased by 39% YOY (14% QoQ) to Rs. Rs. 75.83 crore.

(Rs cr)	Mar 2013	Mar 2012	YOY
Operating Income	917.68	768.54	19.41
Total Expenses	783.33	663.80	18.01
Operating Profit	134.35	104.74	28.27
Other Income	0.06	0.31	-80.65
PBDIT	134.41	105.05	27.95
PBT	108.83	78.18	39.20
Adjusted Net Profit	75.83	54.68	38.68

Supreme Industries’ Future Prospects

Supreme is presently implementing expansion plans involving a total capital outlay of about Rs.
400 crores. The status of these projects is as under:

(a) New Unit at Hosur in Tamilnadu for Protective Packaging Products has already commenced production during 1st quarter of the current year.

(b) New Unit for expanding capacities of Cross laminated Film at Halo! (Gujarat) is progressing as per schedule. First Production line of 4000 MT capacity which went into trials during October, 12 is fully stabilised. Second Production line of 4000 MT capacity has commenced trials during second half of January, 2013. The third production line of similar capacity has commenced in February, 2013.

(c) State of the Art plant for production of Composite Cylinders and Pipes has commenced trial production during February – March, 2013.

(d) First phase capacity of Plastic Piping System manufacturing facility being set up at its earlier closed down PVC Film business unit at Malanpur near Gwalior (M.P.) has started in February, 2013.

Supreme Industries has indicated that there will be an annual growth in volume and product value of about 16% and 25% respectively in the current year.

Valuations of Supreme Industries Ltd

In the 9 months ended 31st March 2013, Supreme Industries had an EPS of Rs. 14.26. In the 9 months ended 31st March 2012, the EPS was Rs. 11.53 while the full year EPS was Rs. 19.03. If one extrapolates the present 9 months EPS to 12 months, the EPS for the whole year should be in the region of Rs. 25. This means that at the CMP of Rs. 350, the stock is quoting at about 14 or 15 times FY 2012-13 earnings.

If you peer forward to FY 2013-2014 and FY 2014-2015, when, apart from the normal accretion, the expansion of capacity will create strong growth in revenues & profitability and contribute to the EPS over the next two years, the valuations look very attractive indeed.