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Supreme Inds: Interest cost balloons

Nov 2, 2011

Supreme Industries declared the results for the first quarter of financial year 2012 (1QFY12). The company reported 5.9% YoY growth in sales, while net profit has fallen by 28.9% YoY during the quarter. Here is our analysis of the result.

Performance summary
  • Net sales grew by 5.9% YoY during 1QFY12.
  • Operating margins reduced to 14.2% from 16.5% in Q1FY11.
  • Interest charges almost doubled to Rs 133m.
  • Net Profits fell by 28.9% YoY during the quarter.

Standalone financial snapshot
(Rs m) 1QFY11 1QFY12 Change
Net sales 4,734 5,012 5.9%
Expenditure 3,952 4,301 8.8%
Operating profit (EBDITA) 782 711 -9.1%
EBDITA margin (%) 16.5% 14.2%  
Other income 32 9 -70.4%
Interest 68 133 95.0%
Depreciation & amortisation 143 172 20.0%
Profit before tax 603 416 -31.1%
Tax 200 138 -31.3%
Profit after tax before minority 403 278 -31.0%
Share of associates (55) (47)  
Profit after tax 458 325 -28.9%
Net profit margin (%) 9.7% 6.5%  
No. of shares (m)   127.0  
Diluted earnings per share (Rs)*   13.4  
P/E (x)   14.2  
(*trailing twelve month earnings)

What has driven performance in 1HFY12?
  • Top line grew by 5.9% YoY during the quarter. This was largely led by growth in mainstream plastics business which grew by 9%. Construction business (sale of premises) saw a de growth of 42% YoY.

  • The quarter saw raw material costs go up by 7.9%. However, employee expenses jumped by more than 22%. This caused the operating profits to fall by 9% YoY during the quarter.

  • Cost break-up
    (% of sales) 1QFY11 1QFY12 Change
    Increase / Decrease in stock in trade -511 -540 5.7%
    Raw materials consumed 3394 3662 7.9%
    Staff cost 206 251 22.4%
    Other expenses 863 928 7.5%
    Total expeneses 3952 4301 8.8%

  • Higher operating expenses and lower growth in sales shrunk operating margins by 2.3% to 14.2% at present.

  • Higher interest costs (up by 95%) and depreciation (up by 20%) led to a fall in net profits by 28.9%. PAT margins are down by 3.2%.

What to expect?
Supreme Industries' expansion plans are progressing well. It is also betting majorly on the new venture of making plastic cylinders to store liquefied petroleum gas. At present, In India steel cylinders are being used for this purpose. Our major concern is the increased debt on the books which caused interest charges to nearly double this quarter. At CMP of Rs 191, the stock is trading at nearly 8 times our FY14 expected earnings. We maintain our "Hold" view on the stock.

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Jun 25, 2021 03:35 PM


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