CD Equisearch has given Buy recommendation for The Supreme Industries with a target price of Rs. 2644 in its research report issued on Jun 23, 2021
CD Equisearch’s research report on The Supreme Industries
Much of the growth in revenues (45.7%) in Q4 bear little resemblance to underlying growth for Supreme’s plastics goods volumes grew by a measly 7.8% with dispatches of the flagship plastics piping products business declining by 1.7% (its revenues grew by some 44%) as the company amassed market share from unorganized players. Revenues of other businesses too rally with revenues of consumer products business rising the least at 30.6%. Record surge in OPMs in Q4 (24.5% Vs 19.1%) veils much of the perilousness of inventory gains (Rs 80-100 crs in Q4, constituting 4-5% of sales) thus underscoring the fragility of overall margin sustainability. Supreme’s plastic piping products business is no exception as its EBIT margin surged to 26.5% last quarter from 18% in the same period a year ago, thus inventory gains markedly diminishing seeming “velocity” in gains.
Taking in to account moderation in free cash flows this fiscal and next and visible catalysts for business growth, we recommend buying the stock with revised target of Rs 2644 (previous target: Rs 1457) based on 36xFY23e earnings.