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Geojit Financial Services
Supreme Industries (Accumulate)
CMP: ₹982.6
Target: ₹1,126
The Supreme Industries Limited is engaged in the manufacturing of plastic products. The company operates in two segments: Plastics and Construction. Its product groups include plastics piping system, which includes unplasticised poly vinyl chloride (uPVC) pipes, injection moulded polyvinyl chloride (PVC) fittings and handmade fittings, among others.
Supreme Industries’ Q4FY20 revenue de-grew by 7 per cent y-o-y, on account of shutdown due to Covid-19 impact. But profit after tax grew by 4 per cent y-o-y on account of higher operating margin. EBITDA margin improved by 590 bps y-o-y to 19.1 per cent led by yearly discounts from raw material supplier and better product mix.
Going ahead, we expect construction demand to be muted in the near term. However, led by gradual improvement in rural and agriculture demand, we expect revenue growth to pick up from H2FY21E. We believe that near-term weakness has already factored in stock prices.
Given Supreme Industries’ strong brand recall, distribution network and healthy margin profile, we continue to remain constructive. We value Supreme Industries at P/E of 28x with a target price of ₹1,126 and recommend to ‘Accumulate’.
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