Markets have been moving in a tight range for a couple of weeks now. Several stocks are reacting to their results on account of the ongoing earning season. Here is a stock that has recently declared a dividend of 900% and has a buy call by broking firm Sharekhan.
Strong volume growth at Supreme Industries
Supreme Industries saw net revenues stood at Rs. 2,557 crore, up 22.7% y-o-y (up 31.5% q-o-q), which was much higher than our estimates. Volumes rose by 15.6% y-o-y led by strong growth in plastic piping volumes (+27% y-o-y).
"The revival in Agri demand along with growth in CPVC segment drove overall growth. Turnover from valueadded products rose by 20% y-o-y to Rs. 972 crore. Revenues from Plastic Piping/Packaging/Industrial/ consumer products rose 34%/3%/2%/-5% y-o-y to Rs. 1800/319/300/118 crore. Overall value growth was 6% y-o-y. OPM came in lower than estimates at 15.3% (down 915 bps y-o-y, down 103 bps q-o-q) of account of a change in the product mix. Gross profit margins declined by almost 1100 bps y-o-y at 27.9%. Lower OPM led to a 23% y-o-y decline in operating profit and 28% y-o-y decline in net profit, although they were higher than our expectations," Sharekhan said in a report.
Demand for products slated to be strong
According to Sharekhan, the demand environment to be strong in FY2023. "The management remains optimistic on demand from the housing and agriculture segment and expects to achieve minimum 15% y-o-y volume growth with 15-15.5% OPM for FY2023. The company has a capital expenditure plan of Rs. 700 crore (including Rs. 280 crore carry-forward commitments), majorly in increasing plastic piping systems capacities. The company's progress in putting up plants at Guwahati, Cuttack and Erode are moving smoothly. The first phase at Cuttack and Erode will be operational by August-September 2022. The company is undertaking Rs. 55-60 crore capex for doubling the composite cycling capacity to make around one million cylinders per year by November 2022. Once the said expansion is complete, it can generate Rs. 200-250 crore revenues per annum. It is also adding new product range and investing in rooftop solar energy generation plants at various locations," Sharekhan has said.
Buy with a price target of Rs 2500
Sharekhan says that it has retained a buy on the stock with a price target of Rs 2500, which is approximately 25% from the current levels. Supreme Industries has been continuously gaining market share led by healthy demand environment and continuous capacity expansion. PVC prices are expected to be rangebound during FY2023 driving overall demand. The company's aggressive expansion plans which are funded entirely through internal accruals is expected to keep its balance sheet strong. A healthy demand outlook along with incremental capacity additions is likely to provide healthy double digit revenue growth over FY2022-FY2024. SIL is expected to benefit from strong housing demand and government schemes such as 'Nal se Jal'. We retain a Buy rating on the stock with an unchanged price target of Rs. 2,500," the brokerage has said.
The company has fixed June 21 as the ex date for the dividend declared by the company.