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CD Equisearch
Supreme Industries (Accumulate)
CMP: ₹1,393.1
Target: ₹1,615
Margins in the illustrious plastic piping systems business have seen some transformation of sorts (9MFY20 — 14.5 per cent vs 12.8 per cent ) not least due to Supeme Industries’ growing focus on value added products, same as that for consumer products business. Shoved by recovery in consumer demand next fiscal, margins in all its businesses would see an uptick, thus elevating overall operating margins to 14.8 per cent from 14.2 per cent this year.
The stock currently trades at 35.5x FY20e EPS of ₹39.30 and 30.2x FY21e EPS of ₹46.14. Subdued volume growth of all but plastic piping systems business this fiscal would preclude striking margin expansion thus stoking pre-tax earnings growth to a mere 1.8 per cent . Yet rebound in volumes coupled with margin expansion would help post tax earnings to expand in high double digit next year. Thence, return on capital would improve, though not immodestly, due to fledgling state of newly enhanced capacities, mainly in plastic piping systems business. Assumingly, overall margin stress so far this fiscal has been lessened by growing share of value added products — its revenue is up by some 9 per cent in 9MFY20. On balance, we retain our ‘accumulate’ rating on the stock with revised target of ₹1,615.
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