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Supreme Ind.: Focus on value added products - Views on News from Equitymaster

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Supreme Ind.: Focus on value added products
May 5, 2012

Supreme Industries declared the results for the third quarter of financial year 2012 (3QFY12). The company reported 16% YoY growth in sales and 13.3% YoY growth in net profit during the quarter. Here is our analysis of the result.

Performance summary
  • Net sales were up by 16% YoY during the quarter and by 18.5% YoY during the 9 month period ended March 31, 2012.
  • Operating profits increased by 25% YoY during the quarter and by 21.7% YoY during the year so far.
  • Operating margins expanded by nearly 1% in the third quarter. On a 9 month basis, operating margins remained at 14% levels.
  • Net profits increased by 13.3% YoY for the quarter. For 9 months period, net profits were up by 8.1% YoY.


Financial Performance Snapshot
(Rs m) 3QFY11 3QFY12 Change 9mFY11 9mFY12 Change
Net sales 6,625 7,686 16.0% 17,212 20,394 18.5%
Expenditure 5,788 6,638 14.7% 14,778 17,433 18.0%
Operating profit (EBDITA) 837 1,048 25.2% 2,434 2,962 21.7%
EBDITA margin (%) 12.6% 13.6%   14.1% 14.5%  
Other income 0 3 563.0% 33 24 -26.9%
Interest 129 152 17.3% 302 427 41.2%
Depreciation & amortisation 164 172 4.8% 458 514 12.2%
Profit before tax 544 727 33.6% 1,707 2,045 19.8%
Tax 150 235 56.7% 550 660 20.0%
Profit after tax before minority 394 492 24.9% 1,157 1,385 19.7%
Share of associates (88) (54)   -199 -80  
Profit after tax 483 547 13.3% 1,356 1,465 8.1%
Net profit margin (%) 7.3% 7.1%   7.9% 7.2%  
No. of shares (m)         127.0  
Diluted earnings per share (Rs)*         16.28  
P/E (x)         12.63  
(*On a trailing 12-month basis)

What has driven performance in 3QFY12?
  • Top line grew by 16% YoY during the quarter and by 18.5% YoY during the 9 month period. This The company did not report any revenue from the construction business in the quarter. Overall volumes grew by 6% and value growth was 18% YoY.

  • The raw material expenses moved higher by 11.4% YoY during the quarter. The company is expecting raw material prices and crude oil prices in particular to stabilize going forward. Other operating expenses increased by 17% YoY during the March quarter and by 10.4% during the nine month period. Total operating expenses were up by 14.7% YoY.

    Cost break-up...
    (% of sales) 3QFY11 3QFY12 Change 9mFY11 9mFY12 Change
    Increase / Decrease in stock in trade -95 14 -115.0% -756 -570 -24.6%
    Raw materials consumed 4521 5039 11.4% 11,662 13,675 17.3%
    Staff cost 230 258 12.3% 658 778 18.3%
    Other expenses 1132 1327 17.2% 3,215 3,550 10.4%
    Total expeneses 5788 6638 14.7% 14778 17433 18.0%

  • Operating margins were 13.6% for the third quarter. This implies an expansion of nearly 1% over the numbers recorded in same quarter last year.

  • Depreciation was marginally up by 4.8% YoY and interest expenses jumped by nearly 17% YoY.

  • Net profits were up by 13.3% YoY during the March quarter. For the 9 month period, net profits increased by 8.1% YoY.

What to expect?
At CMP of Rs 206, the stock is trading at nearly 9 times our FY14 expected earnings. Supreme Industries' latest initiative of manufacturing composite cylinders is on track. The company expects to start production by October 2012. The company wants to increase the share of value added products in its overall product mix especially furniture. Thus, the company is at present focusing more on value growth rather than volume growth. This could result in better profit margins for the company. We maintain our hold view on the stock with an unchanged target price of Rs 313.

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