This Mid Cap Stock Grew 20.52% In 3 Months, Buy For 15% Upside, Dividend Declared: ICICI Direct

Leading brokerage firm ICICI Direct maintains buy rating on Supreme Industries Limited (SIL) with a target price of Rs 2,600 per share. The brokerage, with the given target price, claims a potential upside of 15% in share price. SIL is a mid-cap plastic sector company with a market cap of Rs 28,750.63 crore.

Business Overview

SIL is India's leading plastic processing company with a presence in four major segments including piping systems, packaging products, industrial products & consumer product category with revenue contribution of 63%,16%, 16% & 5%, respectively.  Market leader in the PVC pipe industry with a value market share of 15%. Robust balance sheet with RoE & RoCE of 24% & 27% (five-year average), respectively, with stringent working capital policy.

Stock Outlook, Returns & Dividend

The stock today opened at Rs 2,241.25 per share, 0.30% up as compared to its previous close. The stock is currently trading at Rs 2,270.05 per share, while the previous close was Rs 2,263.35 per share. The stock recorded its 52 week high on 10 November 2021 at Rs 2,492.55 per share and 52 week low on 23 June 2022 at Rs 1,666.25 per share, respectively.

The stock has performed well in terms of returns over the past 5 years. In a week it has given 10.58% positive return, whereas, in the past 1 and 3 months, the stock surged by 6.09% and 19.33%, respectively. However, over the past 1 year, it has given 2.66% negative returns. In the past 3 years, it gave 99.18% positive return and in the past 5 years 95.54% positive return on investments.

The company announced an interim dividend of Rs 6 per share on 20 October 2022 with a record date of 9 November 2022.

Q2FY23 Results

According to the brokerage, SIL reported above expectations topline growth, inventory losses drag margin. SIL reported revenue growth of 8.2% YoY (vs. I-direct estimate: -6%) to Rs 2086.6 crore led by ~9% volume growth. Piping segment volume, value was up 9.3%, 2.2% YoY, respectively. Gross margins came in lower by 830 bps YoY (down 324 bps QoQ) due to inventory losses amid a sharp fall in PVC prices. A steep fall in gross margin as well as rise in other expenses dragged EBITDA margin down by 906 bps YoY (down 514 bps QoQ) to 7.1%. PAT declined 64.1% YoY to ~Rs 82 crore, tracking lower EBITDA.

Buy for a target price of Rs 2,600 per share

SIL's share price has given 88% return in the past five years. "We maintain our BUY rating on the stock. We value the stock at 32x P/E FY24E EPS and revise our target price to Rs 2600," the brokerage has said.

Key triggers for future price performance

• The government's flagship 'Nal Se Jal' scheme (with an outlay of ~Rs 3 lakh crore over the next five years) is a big booster for the domestic plastic piping industry over the long term.
• Rising contribution of value added product in overall topline (increased from 35% in FY18 to ~38% in FY22) to keep EBITDA margin elevated.
• The company is planning a capex of Rs 700 crore in FY23E to increase manufacturing facility by 11% YoY to ~8 lakh tonnes.
• Model revenue CAGR of 12% led by 17% volume CAGR over FY22-24E.

Disclaimer

The stock has been picked from the brokerage report of ICICI Direct. Greynium Information Technologies, the Author, and the respective Brokerage house are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before making any investment decision.