CMP: Rs 293.65
Target: Rs 385
Supreme Industries (SIL), the leading player in Indian plastics industry with over 7,000 products and strong brand equity, is likely to post a volume-driven 21.5 per cent CAGR over FY12-FY15E on the back of Rs 950.2 crore capex and robust demand, aided by product innovation and launch of new products. With healthy operating cash flow of Rs 852.2 crore, the D/E (debt-equity) ratio is likely to fall to 0.2x from 0.5x over FY12-FY15E and dividend payout to stay robust. Strong revenue CAGR of 21.5 per cent aided by working capital efficiency and debt reduction may drive profitability CAGR by 20.2 per cent, generate Rs 852.2 crore operating cash flow over FY12-FY15E and improve RoCE by 492 bps over FY11-FY15E, thereby calling for further expansion of valuation multiple. We have assigned a ‘Buy’ rating to SIL with a SOTP-based target price of Rs 385, valuing it at 14.9x and 8.3x FY14E P/E and EV/Ebitda, respectively.