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Supreme Ind.: Growth momentum continues - Views on News from Equitymaster

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Supreme Ind.: Growth momentum continues
Apr 30, 2013

Supreme Industries declared the results for the third quarter of financial year 2012-2013 (3QFY13). It's a June ending company. The company reported 19.4% YoY growth in sales and 38.7% YoY growth in net profits during the quarter. Here is our analysis of the result.

Performance summary
  • Net sales increased by 19.4% YoY during the quarter and by 15.2% YoY during the 9 month period ended March 31, 2013.
  • Supreme Industries was able to contain the rise in operating expenses to 18% YoY this quarter implying an increase of 28.3% YoY in operating profits. Operating profit margins expanded by 1% at 14.6%.
  • The company reduced its interest cost by 9.3% YoY during the quarter.
  • Net profits were higher by 38.7% YoY during the quarter and by 23.6% YoY during the 9 month period. Net profit margins increased by 1.2% during the quarter and by 0.5% during the 9 month period.

Financial performance snapshot
(Rs m) 3QFY12 3QFY13 Change 9MFY12 9MFY13 Change
Net sales 7,686 9,177 19.4% 20,394 23,503 15.2%
Expenditure 6,638 7,833 18.0% 17,433 20,118 15.4%
Operating profit (EBDITA) 1,048 1,343 28.3% 2,962 3,385 14.3%
EBDITA margin (%) 13.6% 14.6%   14.5% 14.4%  
Other income 3 1 -79.0% 24 1 -95.0%
Interest 152 137 -9.3% 427 390 -8.5%
Depreciation & amortisation 172 197 14.9% 514 573 11.5%
Profit before tax 727 1,010 38.8% 2,045 2,423 18.5%
Tax 235 330 40.4% 660 790 19.7%
Profit after tax before minority 492 680 38.0% 1,385 1,633 17.9%
Share of associates (54) (79)   (80) (179)  
Profit after tax 547 758 38.7% 1,465 1,812 23.6%
Net profit margin (%) 7.1% 8.3%   7.2% 7.7%  
No. of shares (m)           127.0
Diluted earnings per share (Rs)*           21.7
P/E (x)           14.9
(*trailing twelve month earnings)

What has driven performance in 3QFY13?
  • Net sales increased by 19.4% YoY during the quarter and by 15.2% YoY during the 9 month period ended March 31, 2013. The growth came from all segments. However, automobile sector saw some sluggishness in demand.

  • The share of value added products now stands at 31.64% and the focus shall be on these products that earn higher margins in future too.

  • Operating expenses grew by 18% YoY which implies a lower increase as compared to the increase in sales. Thus, operating profits increased by 28.3% YoY during the quarter. Operating profit margins expanded by 1% from 13.6% to 14.6%.

  • The company reduced its interest cost by 9.3% YoY during the quarter. Same was down by 8.5% YoY for the 9 month period.

  • Although depreciation was up by 14.9% YoY, a good performance at topline level helped the company report 38.7% growth in net profits for the quarter. For the 9 month period, net profits grew by 23.6% YoY. Net profit margins expanded by 1.2% during the quarter.

    Cost break-up
    (% of sales) 3QFY12 3QFY13 Change 9MFY12 9MFY13 Change
    Increase / Decrease in stock in trade 14 -19 -231.0% -570 -743 30.3%
    Raw materials consumed 5,039 6,023 19.5% 13,675 16,247 18.8%
    Staff cost 258 308 19.5% 778 675 -13.2%
    Other expenses 1,327 1,520 14.6% 3,550 3,939 11.0%
    Total expeneses 6,638 7,833 18.0% 17,433 20,118 15.4%

What to expect?
Supreme Industries' strategy of focusing on value added products works well for the company. Thus, even if the company adds newer products to its range of offerings, the high margin yielding products ensure that profitability is maintained. The company would soon launch an entirely new product segment of bathroom fittings. It is also banking on the demand for composite products that it will begin to manufacture next year onwards including composite pipes, cylinders and other products used in the automotive industry. At the current price of Rs 325, the stock is trading at a multiple of 10 times our estimated FY 15 earnings. We had earlier given a buy recommendation and since then the stock has run up by 12%. However, in our opinion there still is enough upside potential in the stock and we reiterate our buy view.

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