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Supreme Ind.: Great finish to the year - Views on News from Equitymaster

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Supreme Ind.: Great finish to the year
Jul 24, 2012

Supreme Industries declared the results for the fourth quarter of financial year 2012 (4QFY12, fiscal year ending June 2012). The company reported 23.8% YoY growth in sales and 57.8% YoY growth in net profit during the quarter. Here is our analysis of the result.

Performance summary
  • Net sales were up by 23.8% YoY during the quarter and by 20.1% YoY during the year ended June 30, 2012.
  • Operating profits increased by 54.1% YoY during the quarter and by 32% YoY during the year.
  • Operating margins expanded by nearly 4% in the quarter. On a 12 month period, the same were up by 1.5%.
  • Other income registered a fall of 65.6% YoY during the quarter and 37.3% YoY during the year 2011-12.
  • Net profits showed a healthy growth of 57.8% YoY during the quarter on the back of lower interest costs. For the full year too, net profits were up by 23.4% YOY.
  • The company has declared final dividend of Rs 4.5 per share which implies a dividend yield of 2%.

Financial performance snapshot
(Rs m) 4QFY11 4QFY12 Change FY11 FY12 Change
Net sales 7,484 9,263 23.8% 24,695 29,656 20.1%
Expenditure 6,345 7,507 18.3% 21,121 24,938 18.1%
Operating profit (EBDITA) 1,139 1,756 54.1% 3,574 4,719 32.0%
EBDITA margin (%) 15.2% 19.0%   14.5% 15.9%  
Other income 12 4 -65.6% 45 28 -37.3%
Interest 123 121 -1.2% 425 548 28.9%
Depreciation & amortisation 161 211 30.9% 619 725 17.1%
Profit before tax 867 1,428 64.6% 2,575 3,474 34.9%
Tax 327 490 49.8% 877 1,150 31.1%
Profit after tax before minority 540 937 73.6% 1,697 2,324 36.9%
Share of associates (62) (13)   -261 -93  
Profit after tax 602 950 57.8% 1,958 2,417 23.4%
Net profit margin (%) 8.0% 10.3%   7.9% 8.1%  
No. of shares (m)         127.0  
Diluted earnings per share (Rs)*         19.02  
P/E (x)         12.67  
(*trailing twelve month earnings)

What has driven performance in 4QFY12?
  • Net sales were up by 23.8% YoY during the quarter and by 20.1% YoY during the year ended June 30, 2012.

  • Segment wise, Industrial segment had a growth of 10%, consumer segment of 9%, packaging of 20% and piping of 33%. The margin of Industrial Products stood at 17%, consumer segment at 20%, plastic pipe at 17% and packaging at 24% on YoY basis for 4QFY12.

  • The raw material expenses moved higher by 19% YoY during the quarter. Staff expenses and other expenses were up by 12% YoY and 13% YoY respectively. This resulted in total operating costs going up by 18.3% YoY in the last quarter of year 2011-12.

    Segment-wise performance (Standalone)
    (% of sales) 4QFY11 4QFY12 Change FY11 FY12 Change
    Increase / Decrease in stock in trade 570 720 26.2% -186 150 -180.4%
    Raw materials consumed 4479 5326 18.9% 16,142 19,001 17.7%
    Staff cost 312 350 12.1% 968 1,125 16.2%
    Other expenses 983 1111 13.0% 4,197 4,662 11.1%
    Total expeneses 6345 7507 18.3% 21121 24938 18.1%

  • Operating profits increased by 54.1% YoY during the quarter and by 32% YoY during the year. This was largely due to higher production, increase in sales of value added products and inventory gain. 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.

  • Other income registered a fall of 65.6% YoY during the quarter and 37.3% YoY during the year 2011-12. We may note here that other income includes extra ordinary income on account of sale of capital assets and investments which was lower this year. Depreciation was marginally up by 4.8% YoY and interest expenses jumped by nearly 17% YoY.

  • Debt to equity ratio as at the end of June 2012 stood at 0.55 times.

  • Net profits showed a health growth of 57.8% YoY during the quarter on the back of lower interest costs. For the full year too, net profits were up by 23.4% YOY. Net profit margins expanded by 2.2% during the quarter and marginally by 0.2% during the year 2012.

What to expect?
Supreme Industries is in an expansionary phase and has huge capex plans lined up for next 5 years. The company had recently ventured into a new business of manufacturing composite cylinders which would replace the existing steel cylinders. This project is on track and the production for these cylinders would start by the end of this year. The company is uncertain about domestic demand of these cylinders but foresees huge demand for these cylinders in the export market. The company is expected to start production of composite pipes (used in oil exploration) from November 2012. Supreme Industries is looking at couple of more opportunities in the composite space.

At the current price of Rs 241, the stock is trading at a multiple of 13 times its trailing twelve month earnings. In view of the above mentioned developments, we are in the process of revising our estimates for the stock and shall soon update investors.

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