Q4FY19 result highlights
Key positives: Packaging margins have possibly bottomed out.
Key negatives: Weak EBITDA margins across segments
Impact on financials: FY20E/21E earnings estimates cut by 10%/9%
Valuations & view
We believe SI’s margin weakness, especially in high competitive segments like packaging and consumer, have bottomed out. Although input price volatility and the consequent inventory loss was sharper than expected in Q4, we believe this should iron out over the coming quarters, thus reducing unpredictability of margins. Future outlook remains healthy across SI’s product segments and initiatives taken in terms of new product launches should hold the company in good stead. While earnings was weak over the last two years (FY17-19 negative CAGR of ~5.5%), we believe the stage is set for an improvement from current levels (FY19-21E CAGR of 20.0%). We continue to appreciate SI’s razor-sharp focus on profitable growth and its strong track record. Maintain Outperformer with a revised SOTP target price of Rs1,240 (30x FY21E core earnings + 30% discount on SI’s Supreme Petrochem holding; 28.7x implied FY21E 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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