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Supreme Ind.: Subdued sales growth - Views on News from Equitymaster
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Supreme Ind.: Subdued sales growth
Jan 24, 2013

Supreme Industries declared the results for the second quarter of financial year 2012-2013 (2QFY13). The company reported 5.9% YoY growth in sales and 11.9% YoY growth in net profits during the quarter. Here is our analysis of the result.

Performance summary
  • Net sales increased by 5.9% YoY during the quarter and by 12.7% YoY during the half year period.
  • Growth in operating expenditure exceeded the growth in sales and resultantly operating profits declined marginally by 0.8% YoY during the quarter. Operating profit margins shrank by 1%.
  • Supreme Industries did not report any other income during the quarter and interest costs continued to decline (down by 2.5% YoY) in this quarter too.
  • Net profits were higher by 11.9% YoY with net profit margins hovering around 8%, slightly up from previous quarter's 7.7%.
  • The company has declared interim dividend of Rs 2 per share implying a dividend yield of 1%.

Financial performance snapshot
(Rs m) 2QFY12 2QFY13 Change 1HFY12 1HFY13 Change
Net sales 7,697 8,150 5.9% 12,709 14,326 12.7%
Expenditure 6,494 6,956 7.1% 10,795 12,285 13.8%
Operating profit (EBDITA) 1,203 1,194 -0.8% 1,914 2,041 6.6%
EBDITA margin (%) 15.6% 14.6%   15.1% 14.2%  
Other income 11 - -100.0% 21 1 -96.9%
Interest 142 138 -2.5% 275 253 -8.1%
Depreciation & amortisation 171 190 11.2% 342 376 9.8%
Profit before tax 902 865 -4.1% 1,318 1,413 7.3%
Tax 288 283 -1.7% 425 460 8.2%
Profit after tax before minority 615 583 -5.2% 893 953 6.8%
Share of associates 22 (81)   (26) (100)  
Profit after tax 593 664 11.9% 918 1,053 14.7%
Net profit margin (%) 7.7% 8.1%   7.2% 7.4%  
No. of shares (m)           127.0
Diluted earnings per share (Rs)*           20.1
P/E (x)           14.7
(*trailing twelve month earnings)

What has driven the performance in 2QFY13?
  • Net sales increased by 5.9% YoY during the quarter and by 12.7% YoY during the half year period. The sales growth seems a little subdued mainly on account of higher base effect as Supreme had recorded almost 32% YoY growth in same quarter last year.

  • All the segments have been doing well for the company. The company's focus on value added products continues.

  • Operating expenditure was up by 7% YoY during the quarter. Company's efficient business practices have enabled it to record almost flat growth in raw material consumption as compared to last year same quarter as well as slight drop in other expenses.

  • Operating profits declined slightly by 0.8% YoY during the quarter. Operating profit margins shrank by 1%.

  • Supreme Industries did not report any other income during the quarter and interest costs continued to decline (down by 2.5% YoY) in this quarter too.

  • Net profits were higher by 11.9% YoY for the quarter and by 14.7% YoY for the half year. Net profit margins hovered around 8%, slightly up from previous quarter's 7.7%.

  • The company has declared interim dividend of Rs 2 per share implying a dividend yield of 1%.

    Cost break-up...
    (% of sales) 2QFY12 2QFY13 Change 1HFY12 1HFY13 Change
    Increase / Decrease in stock in trade -44 388 -973.0% -584 -474 -18.8%
    Raw materials consumed 4975 4989 0.3% 8636 9774 13.2%
    Staff cost 268 287 7.0% 520 567 9.1%
    Other expenses 1295 1293 -0.1% 2223 2419 8.8%
    Total expeneses 6494 6956 7.1% 10795 12285 13.8%

What to expect?
Raw material costs have been a concern for Supreme in terms of crude prices being quite high. Further, the same are not expected to come down any time soon due to geo political concerns in some Middle East countries. However, company is able to pass on the hike in raw materials to consumers through increase in product prices. There is sustainable demand for company's products especially from the housing space. Also, Supreme's expansion plans are well on track and the company is expecting the production to start soon in newer products. At the current price of Rs 295, the stock is trading at a multiple of 9 times our estimated FY 15 earnings. We maintain our Buy view on the stock.

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