scorecardresearchSupreme Industries tanks 20% so far in 2022; Jefferies sees a 43% upside

Supreme Industries tanks 20% so far in 2022; Jefferies sees a 43% upside

Updated: 08 Jul 2022, 09:35 AM IST
TL;DR.
Using Wednesday's closing price, the stock is only 9.39% away from its 52-week low of 1,666.2. The stock has fallen by 8.53% since its Q4 results were announced.
The grey market is an unofficial market wherein traders buy or sell IPO shares and applications even before they are officially launched for trading on the stock exchange.

The grey market is an unofficial market wherein traders buy or sell IPO shares and applications even before they are officially launched for trading on the stock exchange.

Shares of Supreme Industries Ltd. rose as much as 4.46% to 1,850.15 on the BSE in Thursday's trade, after the global brokerage firm Jefferies initiated a 'buy' call on the stock with a target price of 2,540/share, implying a 43.42% upside potential from the last closing price of 1771.

"The trend in the softening of PVC prices from peak 2021 levels is broadly on expected lines." However, the quantum of fall over Apr-Jun22 was sharper than expected. Thereby, We reduce FY23-25e EPS by 3%. We estimate FY23 OPM lower at 15.8%, down -440bps vs peak FY21 OPM. However, beyond the near-term impact, correcting PVC prices can be viewed as a long-term positive, as this is expected to improve affordability and support demand, "Jefferies said.

In a core industrial business such as pipes, an entrenched footprint acts as a strong moat, aiding competitive pricing. SI's total capacity stands at 725K MT in FY22, much higher than peers, and is expected to expand by +75K MT to 800K MT by FY23e. 

Supreme Industries has pegged its FY23 Capex at 7 bn. The first phase in Cuttack (East) and Erode (South) plants is likely to commence in Q2FY23, it added. 

Supreme Industries Ltd is a mid-cap stock with a market capitalization of 23,338.01 crore. The company offers a wide range of plastic products with a variety of applications, including plastic piping systems, packaging, and industrial and consumer products. Handling volumes of over 3,50,000 tonnes of polymers annually effectively makes the company country's largest plastics processor, its website shows.

So far this year, Supreme Industries' share price has tanked 20.51 per cent, and it fell 14.97% in the last one year. Using Wednesday's closing price, the stock is only 9.39% away from its 52-week low of 1,666.2. The stock has fallen by 8.53% since its Q4 results were announced.

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Stock price chart of Supreme Industries Ltd.

In the March 2022 quarter, company margins were impacted by high RM costs. It reported a 28.1% fall in consolidated net profit to 323.86 crore from 450.38 crore posted in Q4 FY21.

Profit before tax in the fourth quarter stood at 408.8 crore in Q4 FY22, declining 22.6% from 528.48 crore reported in the same period last year. Total expenses spiked by 36.3% to Rs. 2226.36 crores in Q4 FY22 over Q4 FY21.

The company reported a cash surplus of 518 crore as of March 31, 2022, against a cash surplus of 759 crore as of March 31, 2021.

On June 30, 2022, Geojit Financial Services initiated coverage on the company with a 'Buy' rating and a target price of around 2,015.

Meanwhile, Supreme Industries Ltd. has declared 39 dividends since Sept. 20, 2000. In the past 12 months, it has declared an equity dividend amounting to 24.00 per share.

At the current share price of 1843.15, the dividend yield stands at 1.30%. The company had a return on equity ratio of 25%.

FIIs have been bullish on the company for a long time. This is clear given their increased exposure to the stock over the last four quarters. FIIs held a stake of 9.0% in Supreme Industries back in March 2021. The exposure now stands at 16.2%. The majority of the increase happened in the December quarter. The promoters hold 48.85 per cent of the shares in the company. Mutual Funds increased holdings from 17.02% to 17.11% in the March 2022 quarter.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie.

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First Published: 08 Jul 2022, 09:35 AM IST