Q3FY20 result highlights
Key positives: Margin improvement across segments
Key negatives: Pipes/Industrial revenue weakness
Impact on financials: FY20E/21E EBITDA up 5%/3%. Introduce FY22E.
Valuations & view
Margin improvement has been far sharper than anticipated in Q3 and SI’s improved guidance on the same for FY20E is encouraging and possibly a sign that margin pressures in Packaging and Industrial have bottomed out. Pipes performance was disappointing, but business has rebounded from mid-November and remains on track to grow at 13-15%. New capacity expansion on the value-added side, especially on pipes, should ensure higher margins in the medium-term and this is in-sync with the company’s focused approach towards profitable growth. Margin sustenance would remain a key monitorable in the near-term however. We roll-over our valuation to FY22E and increase our SOTP target price to Rs1,452 (28.6x implied FY22E P/E).
Supreme Industries is engaged in the manufacture and sale of a range of plastic products in India. Co. has forayed into different types of plastic processing in Injection Moulding, Rotational Moulding (ROTO), Extrusion, Compression Moulding, Blow Moulding etc. Co. offers a range of plastic products with a variety of applications in Mulded Furniture, Storage & Material Handling Products, XF Films & Products, Performance Films, Industrial Moulded Products, Protective Packaging Products, Composite Plastic Products, Plastic Piping System & Petrochemicals. Co. handles volumes of over 320,000 tonnes of polymers annually.
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