Supreme Industries (SIL) reported muted Q2 operational performance largely led by sluggish performance of the packaging product segment. SIL reported core PAT of Rs 702 million (I-Sec: Rs 713 mn), up 17% y-o-y, largely aided by higher-than-expected other income and lower tax outgo.
Ebitda margin came in at 12.9% vs our estimate of 13.4%, led by 200bps y-o-y decline in gross margin. This was largely attributed to decline in share of VAPs, decline in SILPAULIN volumes and higher contribution from the lower-margin industrial segment.
SIL’s revenues stood at `12.4 billion, up 17% y-o-y, largely led by higher revenue growth in plastic piping (20% y-o-y) and industrial segment (37% y-o-y). Factoring-in the weak operational performance during the quarter along with tapering off of margin guidance for the current fiscal, we have reduced our margin assumption by 110/ 150bps for FY19/FY20, leading to decline in FY19/FY20 PAT by 12.4%/13.7%, respectively.
We now expect the company to report revenue and PAT CAGRs of 15.3%/11.4%, respectively, over FY18-FY20. We maintain our ‘Add’ rating on the stock with a revised SoTP-based target price of Rs 1,093 per share, valuing SIL’s core business at 27x FY20E earnings vs 30x earlier.
SIL reported 17% revenue growth y-o-y to Rs 12.4 billion, led by 5.2% volume growth y-o-y to 83,175te, while realisations grew 11.8% y-o-y. The volume growth was largely led by plastic piping (7% growth y-o-y) and industrial products (8.5% growth y-o-y). With the lower-than-expected volume off-take in Q2FY19, the management has lowered its volume guidance to 10% for FY19 vs 10-12% earlier. With higher than expected Q2FY19 realisations, SIL has increased revenue guidance from Rs54-56bn to Rs 57-59 bn for FY19.
SIL reported Q2FY19 Ebitda margin at 12.9% against our estimate of 13.4%, down 70bps y-o-y and 90bps q-o-q. This has been largely attributed to adverse mix in plastic piping segment, decline in SILPAULIN volumes and higher contribution from lower-margin industrial segment. Management has also lowered its FY19 Ebitda margin guidance to 14.5-15% vs the 15.5-16% guided earlier.