CRISIL IER

Independent Equity Research

Enhancing investment decisions

The Supreme Industries Ltd

Detailed Report
Explanation of CRISIL Fundamental and Valuation (CFV) matrix

The CFV Matrix (CRISIL Fundamental and Valuation Matrix) addresses the two important analysis of an investment making process – Analysis
of Fundamentals (addressed through Fundamental Grade) and Analysis of Returns (Valuation Grade) The fundamental grade is assigned on a
five-point scale from grade 5 (indicating Excellent fundamentals) to grade 1 (Poor fundamentals) The valuation grade is assigned on a five-point
scale from grade 5 (indicating strong upside from the current market price (CMP)) to grade 1 (strong downside from the CMP).

CRISIL CRISIL
Fundamental Grade Assessment Valuation Grade Assessment
5/5 Excellent fundamentals 5/5 Strong upside (>25% from CMP)
4/5 Superior fundamentals 4/5 Upside (10-25% from CMP)
3/5 Good fundamentals 3/5 Align (+-10% from CMP)
2/5 Moderate fundamentals 2/5 Downside (negative 10-25% from CMP)
1/5 Poor fundamentals 1/5 Strong downside (<-25% from CMP)

Research Analysts

Bhaskar Bukrediwala
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Sayan Das Sharma

[email protected]

Client servicing desk

+91 22 3342 3561
[email protected]
The Supreme Industries Ltd June 06, 2016
Entrenching supremacy
Fundamental Grade: 5/5 (Excellent fundamentals) Valuation Grade: 4/5 (CMP has upside)
Industry: Plastic products Fair Value: ₹995 CMP: ₹877

Strong fundamentals and well-entrenched competitive advantages place The Supreme CFV MATRIX
Industries Ltd (Supreme) favorably to capitalise on the robust long-term industry prospects.
Excellent
Substitution of other materials (such as metals, woods) by plastic products for various Fundamentals
applications and growth in key end-user industries (consumer durables, autos, agriculture,
5
packaging and construction) are likely to drive consumption of plastic products in India, which

Fundam ental Grade

is much lower by the global average. A diversified, innovative product basket, wide distribution 4
reach across the country, rising share of value-added products, a strong balance sheet and an
experienced management team should help Supreme maintain its apex position in the plastic- 3

processing industry. Rising competitive pressure notwithstanding, we remain positive on the 2

long-term growth prospects for Supreme. We maintain our fundamental grade of 5/5.
1
Bolstering competitive advantages through concerted efforts
Through a number of steps, the company has bolstered its well-entrenched competitive Poor
1 2 3 4 5
Fundamentals
advantages in the process plastic products industry. It has commissioned a new plant in West
Bengal in FY16, which has translated into market share gain in the under-penetrated market. Valuation Grade

Dow nside
It plans to add three plants in Rajasthan, Assam and South India over the next couple of years

Strong

Upside
Strong
to expand its pan-India presence. By launching new, innovative products across segments, the
company has managed to increase the share of value-added products to 37% in FY16 from
32% in FY13, and we expect this to increase further. We expect these competitive advantages
to help the company maintain its position in the industry. KEY STOCK STATISTICS
NIFTY/SENSEX 8201/26777
Plastic pipes, packaging products to drive growth
NSE/BSE ticker SUPREMEIND
Over FY16-18E, plastic pipes and packaging products are expected to be the key revenue
drivers. Expectations of a normal monsoon, coupled with higher government spending in water Face value (₹ per share) 2
supply, sanitation, and affordable housing, augur well for plastic-pipes demand. A revival in Shares outstanding (mn) 127.0
consumption spending is likely to augment demand for protective packaging and cross- Market cap (₹ mn)/(US$ mn) 111,345/1,661
laminated films. Expanding distribution reach, along with new products, is expected to help Enterprise value (₹ mn)/(US$ mn) 113,377/1,691
Supreme gain market share in these segments. We expect revenue from these two segment 52-week range (₹)/(H/L) 1,004/520
to grow at 23% and 20% over FY16-18E. Beta 0.7
We raise our fair value estimate to ₹995 per share Free float (%) 50.3%
We have increased our earnings estimates for FY17E and FY18E by 3.5% each. We have also Avg daily volumes (30-days) 163,281
increased our long-term growth and margin projections, considering the robust industry Avg daily value (30-days) (₹ mn) 145
prospects and Supreme’s competitive advantages. Consequently, we have raised our fair value
estimate to ₹995 per share from ₹855 (including its 30% stake in Supreme Petrochem, valued SHAREHOLDING PATTERN
at ₹26 per share). Our new fair value estimate implies 28.8x FY17E EPS and 24.3x of FY18E 100%
90%
EPS. At the current price of ₹877, our valuation grade is 4/5. 21.7% 21.7% 21.7% 21.7%
80%
6.4% 7.4% 11.2% 11.2%
70%
KEY FORECAST 60% 22.3% 21.2% 17.4% 17.4%
50%
(₹ mn) FY14 FY15 FY16 (9M)# FY17E FY18E 40%
Operating income 38,935 41,147 29,748 52,556 62,002 30%
49.7% 49.7% 49.7% 49.7%
EBITDA 5,477 5,639 4,612 8,143 9,334 20%
10%
Adj net income 2,818 3,316 2,290 4,433 5,229
0%
Adj EPS (₹) 22.2 26.1 17.9 34.9 41.2 Jun-15 Sep-15 Dec-15 Mar-16
Promoter FII DII Others
EPS growth (%) (2.4) 17.7 (8.6) 46.2 18.0
Dividend yield (%) 0.9 1.0 0.6 1.6 1.9
PERFORMANCE VIS-À-VIS MARKET
RoCE (%) 31.2 27.3 32.3 38.4 40.4
RoE (%) 29.4 29.5 24.0 31.1 31.4 Returns
PE (x) 39.5 33.6 36.7 25.1 21.3 1-m 3-m 6-m 12-m
P/BV (x) 10.7 9.2 8.5 7.2 6.2 Supreme 8% 16% 33% 32%
EV/EBITDA (x) CNX 500 5% 10% 4% 2%
21.1 20.1 17.2 13.9 12.0
NM: Not meaningful; CMP: Current market price
Source: Company, CRISIL Research estimates

For detailed initiating coverage report please visit: www.ier.co.in

CRISIL Independent Equity Research reports are also available on Bloomberg (CRI <go>) and Thomson Reuters.
Table 1: Supreme - Business environment
Consumer
Product / segment Plastic piping system Packaging products Industrial products
products
Revenue contribution
55% 23% 7% 14%
(FY16)*
Revenue contribution
57% 23% 6% 14%
(FY18E)*
Product / service PVC (polyvinyl chloride), Performance films, Moulded furniture ● Moulded parts, such as
offering CPVC (chlorinated polyvinyl protective packaging films, dashboards and other interior
chloride), PPRC cross laminated films and exterior parts, for
(polypropylene random co- automobiles
polymer) and HDPE (high- ● Plastic body for consumer-
density polyethylene) pipes, durable products
injection moulded and ● Material handling products,
handmade fittings such as pallets, crates and
bins
Market position The second largest domestic One of the major players in Second largest Preferred supplier to OEMs
player with a wide product protective packaging; market domestic player
offering and distribution reach leader in cross-laminated
films
Sales growth 5% (11.3% volume CAGR, 9.3% (10.7%
9.8% (10.7% volume CAGR, Flat (5% volume CAGR,
(FY14-FY16 – 2-yr realisation declined at 5.6% volume CAGR,
realisation remained largely realisation declined at a similar
CAGR) CAGR due to a fall in raw realisation declined
flat) rate)
material prices) at 1.4% CAGR)
Sales forecast 17% (12% volume
(FY16-FY18E – 2-yr CAGR, realisations
CAGR) to grow at 5%
23% (20% volume CAGR, 20% (18% volume CAGR, 16% (14% volume CAGR, 2%
CAGR augmented
3% realisation CAGR) 2% realisation CAGR) realisation CAGR)
by higher
contribution from
premium products)
Key competitors ● PVC - Finolex Industries Large players such as Uflex, Nilkamal Ltd (which Large and medium-sized
Ltd, Jain Irrigation Essel Propack, Jindal Poly, has a 30-35% competitors such as Tata Auto
Systems Ltd, Kisan SRF and unorganised share), WimPlast Comp Systems Ltd, Varroc
Mouldings Ltd, Prince players Group, Motherson Sumi Systems
Pipes and Fittings Pvt. Ltd, Sintex Industries Ltd, Mutual
Ltd Industries Ltd, Nilkamal and Time
● CPVC – Astral Technoplast
Polytechnic, Ashirvad
Pipes, Ajay Industrial
Corporation Ltd
Key risks ● Entry of new players in ● Competition from the unorganised segment ● Decline in demand from
the plastic pipes segment ● Increase in raw material prices clients for whom the
● Prolonged slowdown in company has set up
fresh real estate supply dedicated plants
● Slowdown in end-user
industries, i.e. auto and
consumer durables
● Increase in raw material
prices
* Balance is contributed by real estate sales and subsidy income
Source: Company, CRISIL Research

2
Grading Rationale
Supreme fundamentals
Despite intensifying competition and industry headwinds, Supreme’s strong fundamentals
remain intact: 1) sound business model, characterised by diversified revenue streams
underpinning low concentration risk, and healthy cash flow generation; 2) presence in
industries with attractive growth potential, such as plastic pipes, consumer plastic products,
and packaging; 3) distinct competitive advantages, such as a diversified product basket, vast
distribution reach, and healthy brand recall; 4) innovation capability, as reflected in
continuous product launches, including value-added products; and 5) a healthy balance
sheet, characterised by a lean working-capital cycle and low financial leverage. The
company’s fundamental strength sets it apart from peers and translates into its industry-
leading financials.

Table 2: Better fundamentals reflected in superior financials

Parameters Supreme Astral Finolex Jain Irrigation Nilkamal
Revenue CAGR (FY11-15) 14.1% 36.6% 5.7% 10.8% 9.5%
Average EBITDA margin (FY11-15) 14.3% 13.7% 12.1% 13.9% 9.4%
PAT (FY11-15) 14.4% 23.1% 5.8% (17.6%) 0.2%
Average RoE (FY11-15) 36.5% 24.7% 17.4% 8.8% 36.5%
Average RoCE (FY11-15) 32.5% 28.4% 13.6% 11.2% 32.5%
Average working capital days (FY11-15) 28 48 58 183 28
Average debt/EBITDA (FY11-15) 0.7x 1.2x 2.9x 5.3x 0.7x
Average gross asset turnover (FY11-15) 2.5x 3.3x 1.3x 1.8x 2.5x
Operating cash flow/PAT (FY11-15) 1.5x 0.8x 1.1x (10.6x) 1.4x
Source: Company, CRISIL Research

Strong brand equity enables Supreme to pass on increase in raw material

prices

Over the past few years, the company has demonstrated its ability to pass on increase in Realisation growth shows high
raw material prices, due to brand strength. When domestic PVC prices rose sharply over correlation with raw material
FY13-14, the company was able to successfully pass on most of the increase to consumers, prices
showing its brand strength and insulating its realisations from sharp volatility in commodity
prices.

3
 Figure 1: Material prices and realisations show close correlation
(%)
40.0%

30.0%

20.0%

10.0%

0.0%

-10.0%

-20.0%
Sep-12
Nov-12

Sep-13
Nov-13

Sep-14
Nov-14

Sep-15
Nov-15
Jan-13

Jan-14

Jan-15

Jan-16
May-13

May-14

May-15
Mar-13

Mar-14

Mar-15

Mar-16
Jul-13

Jul-14

Jul-15
Change in domestic PVC prices Change in Supreme's plastic pipes realisations

Source: Company, CRISIL Research

Bolstering competitive advantages through concerted efforts

Over the past few years, the company has taken several steps to bolster its well-entrenched competitive
advantages – a wide product portfolio, vast distribution reach, and innovation capability - in the plastic
products industry.

Boosting product portfolio through new innovative products

Building on its track record in product innovation, the company continues to focus on new launches
across segments. It has recently introduced a variety of products – pipe fittings, bath fittings, including
electroplated products, a range of solvents, fusion furniture, patented cross-laminated plastic films,
industrial valves, CPVC pipe systems with industrial applications, among others. According to Technological collaboration with

management, consumer acceptance for most of these products have been positive. Bath-fitting products foreign partners enables new
initially faced some issues, but they have been resolved. product development

To enhance innovation capability, the company has entered into technical tie-ups with various
international companies. These collaborations help it in improving product quality and create strong
brand recall.

Table 3: Technological tie-ups with foreign partners enhance innovation capability

Company Country Products
Rasmussen Polymer Development Switzerland Cross-laminated films
Wavin Netherlands Plastic pipes
Foam Partner Switzerland Reticulated PU foam
Sanwa Kako Japan Two-stage foam
PE Tech South Korea Cross-linked foam
Kumi Kasai Co. Ltd. Japan Automotive components
Kautex GMBH Germany Composite cylinders
Spears Mfg. Co. The US Fire sprinkler pipes from CPVC
Calcamite Sanitary Services South Africa Septic tanks
Source: Company

4
Rising contribution from value-added products is encouraging

Through sustained launch of products with niche applications, the company has also been able to ramp
up its portfolio of value-added products (which fetches 17%+ EBITDA margin) across segments.
Revenue contribution from these products has grown to 37% in FY16 from 32% in FY13. We expect this
share to go up to ~40% , augmented by the launch of innovative products with specific applications. The
rising share of value-added products is likely to be a key growth driver, supporting margin expansion.

Table 4: Contribution of value-added products rising steadily across segments

Segment FY14 FY15 FY16 (9M) FY20E*
Plastic piping 27.7% 30.3% 33.4% 30%
Moulded furniture 48.6% 47.6% 48.3% 65%
Cross laminated films 100% 100% 100% 100%
Protective packaging 31.7% 30.4% 32.7% 45%
Composite cylinder - 100% 100% 100%
Others 1.6% 2.5% 2.3% NA
Total 32.3% 34.2% 36.7% >35%
NA = Not Available; * Management guidance
Source: Company

Expanded distribution reach

Supreme is strengthening its distribution reach across the country. In FY16, it commissioned
the plastic piping manufacturing plant in Kharagpur, West Bengal. Previously, the company
had four facilities for plastic pipe manufacturing – in Gadegaon and Jalgaon, Maharashtra;
Kanpur, Uttar Pradesh; and Malanpur, Madhya Pradesh, which catered to the eastern
region. The new facility has reduced the lead time for customers and freight cost. It has also Plans to commission
enabled the company to tap smaller vendors in the eastern region; earlier, catering to them manufacturing plants in
was not feasible from the Mulanpur facility. Considering that none of the other organised
Rajasthan, Assam and South
pipe manufacturers – Ashirvad, Astral, Prince, Finolex and Jain Irrigation – has a
India over the next 2-3 years
manufacturing plant in the eastern region; we believe Supreme can capture a significant
share of this underpenetrated market.

Over FY16-18E, the company plans to expand its presence, by commissioning

manufacturing facilities in Rajasthan and Assam (plastic pipes) and Southern India (plastic
pipes, protective packaging and furniture). Further, it has expanded the distributor base - to
2,700 by FY16 from 2,250 in FY14 – which is one of the widest in the industry. The
unmatched distribution reach, after the commissioning of these facilities, is expected to be a
key growth enabler.

5
 Figure 2: Wider distribution reach than peers Table 5: Manufacturing plants spread across the country

Company Plant locations

Maharashtra, UP, MP, Rajasthan, West
Supreme
Bengal, Assam, Gujarat, Tamil Nadu
Astral Gujarat, HP, Tamil Nadu
3,000
2,700 Jain Irrigation Maharashtra, Gujarat, Tamil Nadu
Finolex Maharashtra, Gujarat
1,700 1,600 Ashirvad Karnataka
Prince Pipes Maharashtra, Tamil Nadu, Uttarakhand
600

Supreme Astral Jain Irrigation Finolex Ashirvad

Source: Company, CRISIL Research Source: Company, CRISIL Research

Plastics processing in India: Healthy growth potential

Plastics processing – comprising commodity, engineered, and speciality plastics – offers
huge potential, as it remains underpenetrated. Despite strong growth, India’s per-capita
Per-capita consumption of
plastic consumption remains 10 kg, much below the global average of 30 Kg. Substitution of
plastics is 10kg/annum in India
other materials (such as metals and wood) due to cost and other benefits of the latter, along
versus the global average of 30kg
with growth in key end-user industries (consumer durables, retail, automobiles, agriculture,
packaging, and construction), secure demand for plastic products over the next 5-10 years.

All four major business segments of Supreme – plastic pipes, packaging products, consumer
products, and industrial products – offer a healthy growth potential.

Table 6: Outlook of industry prospects by business segment

Market Supreme’s
Segment size (₹ mn) market Near-term outlook Long-term demand drivers
share (%)
● Higher government spending on key end-user
Growth is likely to improve from FY16,
segments, such as irrigation, real estate, and
due to higher government spending on
water supply and sanitation
irrigation and expectation of a normal
monsoon. Faster execution of some ● Substitution of galvanised iron pipes by plastic
Plastic ongoing real estate projects is likely to pipes, because of higher durability and cost
225,000 14% advantage
pipes provide impetus to plumbing demand.
Prices have declined following a decline ● Organised players to outpace industry growth,
in raw material prices, leading to an due to the rising preference of branded products
increase in affordability of branded ● Implementation of Goods and Services Tax
products (GST) to provide a fillip to organised players
Consumer spending is expected to pick
up over the next few quarters, driven by
Consumer higher government payouts and benign ● Increase in organised retail penetration
29,000 ~10%
products inflation. Accordingly, we expect demand ● Rising preference for branded products
from consumer moulded-plastic products
to improve

6
 Market Supreme’s
Segment size (₹ mn) market Near-term outlook Long-term demand drivers
share (%)
● Protective packaging – A pick-up in key end-user
industries - construction, white goods, food grain
A normal monsoon in FY17, and higher production
~15,000 government spending on rural infra is
Packaging ● Performance films – growth in branded,
(protective NA likely to aid rural incomes. This is
products packaged food
packaging) expected to drive demand for cross-
laminated films
● Cross-laminated films – wide application of these
films, coupled with superior quality versus
conventional tarpaulin
Material
Muted; offtake from OEMs to remain
handling:
muted until demand for the specific
Industrial ~15% ● Growth in key end-user industries – automobiles,
16,000 models it caters to improves; however,
products Industrial and soft drinks
offtake from the beverage industry is
products:
likely to pick up
NA
Source: Company, CRISIL Research

Plastic piping (54% of revenue): Industry upturn, expanding

reach to drive strong growth
Led by an expected upturn in demand, along with its expanding presence in the eastern
states, we expect Supreme’s plastic-pipes segment to record strong growth.

In FY16, the segment posted healthy growth of 14% y-o-y, driven by 19% volume growth.
Realisation declined 5%, due to soft raw material prices. Operating margin expanded 300
bps y-o-y, to 14.2% from 11.1% a year ago. This sturdy volume growth was driven by: 1) Segmental revenue to grow at

market share gain in the eastern region after the commissioning of the Kharagpur plant; 2) 23% CAGR over FY16-18E
increased affordability, as lower prices spurred growth for organised players; 3) higher
government spending on sewage lines; and 4) higher retail sales in tier-I and tier-II cities.

We expect pipes demand to improve in FY17, as a normal monsoon is likely to spur

agricultural demand. Moreover, higher budgetary allocation for irrigation also augurs well for
the industry. In the longer run, replacement of traditional pipes, rising preference for branded
products, and the government’s focus on increasing sanitation, water supply and affordable
housing is likely to drive double-digit growth for the organised segment. With a wide product
basket, innovation capability, and expanding distribution reach; the company is well poised
to capitalise on this healthy industry prospects. We have factored in a 23% CAGR over
FY16-18E. A higher share of value-added products and soft material prices are likely to
protect margins.

7
 Figure 3: Expect segmental revenue to grow at a CAGR of Figure 4: Revenue from industrial products to grow at a
23% over FY16-18E CAGR of 15% over FY16-18E
(₹ mn)
40,000 30% Supreme
25.8% 3.8%
35,000 22.9% 25%
30,000 19.9%
20% Jain Irrigation
-0.6%
25,000

20,000 15%
21,131 Finolex 1.3%
15,000
8.5% 10%
10,000
1.7% 5%
5,000 Astral 3.1%
20,780 16,050 28,851 34,578
- 0%
FY14 FY15 FY16 (9M) FY17E FY18E -1.0% 0.0% 1.0% 2.0% 3.0% 4.0%
Revenues from plastic pipes y-o-y growth (RHS) Mar-Dec 15 (y-o-y revenue growth)

Source: Company, CRISIL Research Source: Company, CRISIL Research

Packaging products (23% of revenue): A pick-up in rural

income, end-user industries to provide growth
Subdued rural offtake impacted growth of this segment in FY16. Sales grew 7% y-o-y in
volume terms and 6% y-o-y in value terms. Higher government investment on rural
infrastructure and normal monsoons is expected to partially alleviate rural stress in FY17.
This, in turn, is expected to provide fillip to growth for cross-laminated films. Protective
packaging sales are likely to benefit from a pick-up in consumption spending and end-user
industries, such as automobiles and computer products. We forecast a 22% revenue CAGR
over FY16-18E in this segment. Packaging product revenue to
grow at 20% CAGR over FY16-
● Cross-laminated films: Supreme has licensed the rights to manufacture and distribute
18E
cross-laminated (XF) films from Rasmussen Polymer Development. Currently, it is the
only player in the country to market the products. It sells its products under SILPAULIN
brand, which accounts for 50% of the packaging segment revenue. This has several
advantages over the conventional tarpaulin – such as durability, less weight, wide
applications – which is likely to help this product gain popularity among consumers.
Since XF films are primarily used for warehousing and packaging, demand for such
products are contingent on agricultural output. With expectations of a normal monsoon,
agricultural output is likely to improve in FY17, providing a fillip to demand for XF films.

● Protective packaging: We expect growth of this segment to be in line with the end-user
industries – automobile, electronics. Launch of a number of products is also expected
to aid growth.

8
 Figure 5: Packaging product revenue likely to grow at 20% CAGR over
the next two years
(₹ mn)
4,500 20.0%
16.5% 16.5%
4,000
12.2% 15.0%
3,500

3,000 10.0%
6.5%
2,500
5.0%
2,000

1,500 0.0%

1,000 -5.7%
-5.0%
500
2,594 2,763 2,170 3,611 4,206
- -10.0%
FY14 FY15 FY16 (9M) FY17E FY18E
Revenues from consumer products y-o-y growth (RHS)

Source: Company, CRISIL Research

Industrial products (14% of revenue): Near-term growth to

remain sluggish
Revenue from the industrial products segment (comprising industrial components and
material handling) declined 16% in FY16, due to muted offtake from the auto and consumer
durable OEMs. Although the commercial vehicles industry has been growing steadily,
according to the company, specific models it caters to are not generating sufficient traction, Growth recovery is contingent on

leading to muted demand for its products. demand pick-up in end-user

industries, such as autos and
Growth revival in this segment hinges on the recovery in underlying demand of the end-user
consumer durables
industries – auto, consumer durables, and soft drinks industries. We expect the next couple
of quarters to remain challenging from the company. Consumption spending is expected to
pick-up from H2FY17, translating into higher demand for these industries. With a wide
product portfolio, and a strong client base, Supreme is likely to capitalise on these long-term
opportunities. We forecast the revenue of this segment to grow at a 15% CAGR over FY16-
18E.

9
 Table 7: End-user industry demand to pick up from Figure 6: Revenue from industrial products to grow at a
H2FY17 onwards CAGR of 15% over FY16-18E
(₹ mn)
9,000 17.3% 20.0%
Industry Outlook 8,000
15.0%
Cars and UV = 8-10% y-o-y (FY17E); 11- 7,000
14.2%
13% (FY16-20E) 6,000 8.1% 10.0%
Medium-heavy commercial vehicles = 16-
Auto 5,000
18% (FY16-17E); 10-12% (FY16-20E) 5.0%
4,000
Light commercial vehicles = 7-9% (FY16-
3,000 0.0%
17E); 11-14% (FY16-20E) 4,160
10-11% y-o-y (FY17E); 11-12% (FY16- 2,000 -1.2%
Consumer durables -8.4% -5.0%
20E) 1,000
6,000 6,486 6,971 7,964
Soft drinks 10-11% over the next three years - -10.0%
FY14 FY15 FY16 (9M) FY17E FY18E
Revenues from industrial products y-o-y growth (RHS)

Source: Company, CRISIL Research Source: Company, CRISIL Research

Consumer Segment (7% of revenue): New products to augment

growth
After registering a meagre 1.4% CAGR over FY11-15, due to a strategy of moving away
from commodity products, revenue growth of consumer products bounced back to 14% y-o-
y in FY16. Volume grew a healthy 16.8% y-o-y. Due to the rising share of value-added
Plans to launch 18-20 SKUs in
products, operating margin also expanded to 16.8% from 11.9% in 9MFY15.
FY17 in the consumer products
Launch of premium products remains at the forefront of Supreme’s growth strategy in this
segment
segment. The company plans to launch 18-20 new SKUs in FY17. Further, it has also
invested ₹300 mn in commencing a greenfield facility in Kharagpur, West Bengal, to
manufacture a new range of furniture. To support product launches, the company is also
expanding its dealer network. We expect these strategies to catalyse growth. We expect this
segment to grow at a CAGR of 17% over the next couple of years. However, increase in
competition from organised players (Nilkamal and WimPlast), as well as from the
unorganised segment, pose a downside risk to our estimates.

The share of value-added products has grown to 50% in 9MFY16 from 33% in FY11, due to
the focus on premium products. This has also benefitted the operating margin. We expect
this share to inch up to 65% over the next few years, aiding margin expansion.

10
 Figure 7: Consumer-product sales are expected to grow Figure 8: Increasing share of value-added products has
at two-year CAGR of 17% aided operating margin expansion
(₹ mn) (%)
4,500 20.0% 60%
16.5% 16.5%
50%
4,000 48% 48%
12.2% 15.0% 50%
42%
3,500 38%
3,000 10.0% 40%
6.5%
2,500 30%
5.0%
2,000
16.8%
20% 14.0% 13.0% 14.8%
1,500 0.0%
9.4%
1,000 -5.7% 10%
-5.0%
500
2,594 2,763 2,170 3,611 4,206 0%
- -10.0% FY12 FY13 FY14 FY15 FY16 (9M)
FY14 FY15 FY16 (9M) FY17E FY18E Share of value-added products
Revenues from consumer products y-o-y growth (RHS) Operating margins of consumer products
Source: Company, CRISIL Research Source: Company, CRISIL Research

Composite cylinder: offtake expected in FY17

FY17-18 are likely to be the years of transformation for the composite-cylinders industry,
following clearance of regulatory obstacles. Supreme has established a manufacturing
facility with capacity of 450,000 cylinders per annum, comprising various cylinder capacities,
ranging from 5-15 kg, in Halol, Gujarat. Despite obtaining all the necessary approvals from Received trial orders from HPCL

Petroleum and Explosive Safety Organisation (PESO) in India, and international agencies, for four sizes (5, 7.5, 10 and 15
offtake has been negligible in FY15-16, as regulatory obstacles prevented oil-marketing Kgs) of composite cylinders
companies (OMCs) from using these products. However, the Ministry of Petroleum has
recently announced its intention to launch composite cylinders in FY17, alongside the
existing steel cylinders, to distribute LPG. Hindustan Petroleum Corporation Ltd (HPCL) has
placed a trial order with Supreme and other manufacturers, and a full-fledged rollout is
expected by the end of FY17. This is likely to increase the company’s utilisation.

Considering the advantages of composite cylinders over steel cylinders – 1) explosion-proof,

2) immunity to corrosion and rust, 3) light weight (40% less bulky), and 4) translucency – we
expect customer acceptance for this product to be positive; despite higher cost. Industry
sources estimate that 280-300 mn cylinders are in circulation in India, and OMCs buy 25-30
mn every year. Considering the large opportunity, along with Supreme’s wide product range,
we expect the company to reach peak utilisation within 2-3 years of launch. Further, the
company is focusing on expanding its presence in the export markets – currently it sells its
products to only in South Korea.

Supreme Petrochem to benefit from improving polystyrene

demand
Supreme Petrochem – an associate company of Supreme – is expected to benefit from
growth in domestic polystyrene demand. The company has a strategic investment in
Supreme Petrochem (30% stake), and jointly promotes it with Rajan Raheja Group. Supreme
Petrochem is the largest producer of polystyrene, with a capacity of 2,72,000 tonne, which
is 60% of India’s installed capacity.

11
After growing at a CAGR of 8% over FY11-15, Supreme Petrochem’s revenue growth
Polystyrene demand in India is
moderated to 5% y-o-y in 9MFY16, mainly due to muted realisation. Over the next five years,
expected to grow at 8% CAGR
we expect demand for polystyrene to pick up substantially – 8% CAGR over FY16-18E,
over FY16-18E
compared with a moderate 0.4% CAGR over FY11-16 – driven by electrical/electronics and
thermoforming/extrusion segments, which would be spurred by demand from end-user
industries, such as automobiles and packaging. Being the largest domestic producer,
Supreme Petrochem is expected to benefit from this demand revival - we expect the
company’s earnings to grow at a CAGR of 15% over FY16-18E. However, its contribution to
Supreme’s earnings is likely to remain low.

Figure 9: Supreme Petrochem’s revenue grew 5% y-o-y in Figure 10: To benefit from growth in polystyrene demand
FY16; operating margin expanded 140 bps y-o-y over the next five years
(₹ mn) (%) ('000 tonnes)
35,000 5.3% 6.0% 450
5.0% 400
30,000 5.0%
4.2% 350
25,000 3.6% 300
4.0%
20,000 2.8% 250
3.0% 200 381
15,000
150 278 299
2.0% 253 243 258
10,000 100
1.0% 50
5,000
22,742 29,657 32,702 26,496 20,681 0
FY11

FY15

FY18P
FY16E

FY17P

FY21P
- 0.0%
FY12 FY13 FY14 FY15 FY16 (9M)
Supreme Petrochem revenues
Supreme Petrochem EBITDA margin (RHS) Polystyrene demand

Source: Company, CRISIL Research Source: CRISIL Research

Balance sheet quality remains intact; internal accrual to fund

capex
Supreme has a strong balance sheet. Its lean working-capital cycle leads to a healthy
operating cash flow (OCF) and low short-term funding requirement. The healthy OCF is
sufficient for capex, leading to moderate leverage. In FY16, the company’s debt-EBITDA
ratio was a healthy 0.4x.

We expect Supreme to maintain the quality of its balance sheet. It plans to invest ₹1.5 bn for
commissioning four manufacturing plants over the next four years. Healthy internal accruals
and real estate monetisation are likely to be sufficient to fund capex and to reduce debt. We
expect the debt-EBITDA ratio to decline to 0.1x by FY18.

12
Key Risks
Threat from substitute products/technology
If one of the domestic or global competitor comes up with a substitute product/technology,
which is more cost-effective and easier to install than PVC/CPVC, it may hurt Supreme’s
plastic-pipes business. For example, HDPE pipes are technologically better than PVC pipes,
but are 25-30% costlier. If for some technological advancement, HDPE pipes become cost-
effective, they may substitute PVC pipes, impacting the existing players.

Inefficient utilisation of cash

Based on our forecast, we expect the company to keep generating both operating and free
cash flows over the next few years. In case the company is unable to invest this cash in new
business opportunities with similar RoCEs to the existing business, it may impact the overall
RoCE of the company.

Dependence on a single supplier for CPVC resin

The company’s sources CPVC resin fully from Japan-based Kaneka Corporation. An
alteration in Kaneka’s supply policy or its inability to supply due to production disruption or
geopolitical disturbances may impact Supreme’s production of CPVC pipes.

13
Financial Outlook
Revenue to grow at a two-year CAGR of 21%
Revenues is expected to grow at a CAGR of 21% CAGR over the next couple of years
Volumes are likely to grow at a CAGR of 19%, while realisation may post a moderate 2% Core revenue growth over FY14-

CAGR over FY16-18E. The plastic-pipes segment is expected to grow the fastest at 23% 16 to be driven by the plastic-

CAGR, driven by higher government spending on irrigation and sanitation, wider distribution pipes segment

reach and new products. The packaging and consumer-products segments are likely to post
healthy CAGRs of 20% and 17% over FY16-18E, augmented by demand traction in cross-
laminated films and an uptick in consumption spending. We expect a revival in key end-user
industries – automobiles and soft drinks – to boost demand for industrial products (16%).

Figure 11: Revenue growth to pick up in FY17 Figure 12: Share of plastic pipes segment to grow
(₹ mn) (%)
23.7%
70,000 25% 100%
16.0% 16.4% 14.2% 13.5% 13.1%
90%
60,000 7.4% 7.0% 6.9%
18.0% 20% 80% 6.9% 7.0%
50,000 15.3% 70% 23.5% 23.2%
21.6% 23.1% 23.4%
15% 60%
40,000
50%
30,000 10% 40%
5.7% 30% 55.9% 56.8%
20,000 55.5% 53.5% 54.9%
3.3% 20%
5%
10,000 10%
38,935 41,147 29,748 52,556 62,002
- 0% 0%
FY14 FY15 FY16 (9M) FY17E FY18E FY14 FY15 FY16 (9M) FY17E FY18E
Plastic products Packaging products
Revenue y-o-y growth (%) (RHS) Consumer products Industrial products
Source: Company, CRISIL Research Source: Company, CRISIL Research

Limited scope for further margin expansion in the near term,

expect operating margin at 15.1% in FY18
In FY16, a drop in PVC resin prices, coupled with a rise in the share of value-added products
(37% in FY16 versus 35% in FY15) drove a 180 bps y-o-y expansion in EBITDA margin. We EBITDA margin to contract

see limited scope for margin expansion in the near term – we expect margin to contract 40 marginally by 40 bps over FY16-

bps over the next two years to 15.1%, as PVC resin prices are likely to increase. However, 18E

a rising share of value-added products is likely to protect margins from contracting further.

PBT (excluding real estate) to grow at a strong 24% CAGR over

FY16-18E
Driven by higher top line, PBT (excluding proceeds from the sale of real estate, which is
classified under other income) is likely to grow at a two-year CAGR of 24%. Adjusted PAT
is forecast to grow at a 23% CAGR. We have factored in other income from the sale of real
estate to the tune of ₹1,130 mn (assumed ₹565 mn each in FY17E and FY18E). Including
this, PAT is expected to grow at a robust two-year CAGR of 26% to ₹5.2 bn by FY18E. PAT
margin is expected to increase to 8.3% in FY18, from 7.1% in FY16, despite lower EBITDA

14
margin due to lower interest cost as a percentage of sales and contribution from the sale of
real estate.

Figure 13: EBITDA margin to contract 40 bps over FY16- Figure 14: PAT expected to post strong growth
18E
(₹ mn) (₹ mn)
46.2%
10,000 16.0% 6,000 50.0%
15.5% 15.5%
9,000
15.5% 5,000 40.0%
8,000 15.1%

7,000 15.0% 30.0%

4,000 18.0%
17.7%
6,000 14.5% 20.0%
5,000 14.1% 3,000
13.7% 14.0% 10.0%
4,000
2,000 -2.4%
3,000 13.5% 0.0%
-8.6%
2,000
13.0% 1,000 -10.0%
1,000
5,477 5,639 4,612 8,143 9,334 2,818 3,316 2,290 4,433 5,229
- 12.5% - -20.0%
FY14 FY15 FY16 (9M) FY17E FY18E FY14 FY15 FY16 (9M) FY17E FY18E

EBITDA EBITDA margin (RHS) Adjusted PAT y-o-y growth (RHS)

Source: Company, CRISIL Research Source: Company, CRISIL Research

Return ratios to expand

Driven by the expanding PAT margin and increase in gross asset turnover, return ratios are Expanding PAT margin to

expected to expand further – RoE and RoCE are expected to expand to 41% and 32% by boost return ratios

FY18E, respectively, from 32% and 24% in FY16.

Figure 15: RoE, RoCE to expand… Figure 16: …driven by expanding PAT margin
(%) (x)
45.0 40.4 3.0 9.0%
38.4
40.0 8.4% 8.4%
2.3 2.3
32.3 2.5 8.5%
35.0 31.2 2.1
29.5 31.1 31.4 2.5
2.3
30.0 2.0 8.0%
24.0 8.1%
29.4
25.0 27.3
1.5 7.2% 7.5%
7.1%
20.0
15.0 1.0 7.0%
10.0 0.5x
0.3x
0.5 0.2x 0.1x 6.5%
5.0 0.0x
- - 6.0%
FY14 FY15 FY16 (9M) FY17E FY18E FY14 FY15 FY16 (9M) FY17E FY18E
RoE RoCE Gross asset turnover Debt/equity PAT margin

Source: Company, CRISIL Research Source: Company, CRISIL Research

15
Earnings estimates revised upwards
Particulars Unit FY17E FY18E
Old New % change Old New % change
Total Revenue (₹ mn) 53,299 52,556 (1.4) 62,913 62,002 (1.4)
EBITDA (₹ mn) 7,923 8,143 2.8 9,110 9,334 2.5
EBITDA margin % 14.9% 15.5% 63bps 14.5% 15.1% 57bps
PAT (₹ mn) 4,274 4,433 3.7 5,083 5,229 2.9
PAT margin % 8.0% 8.4% 42bps 8.1% 8.4% 35bps
Source: CRISIL Research estimates

Reasons for changes in estimates

Line item FY17E FY18E
Revenues Lowered marginally as the growth recovery has been lower than our expectations
EBITDA margins Share of value-added products have increased faster than we expected
Adjusted PAT Increased in line with EBITDA

16
Management Overview
CRISIL's fundamental grading methodology includes a broad assessment of management
quality, apart from other key factors, such as industry and business prospects, and financial
performance.

Experienced top management

The company’s top management team comprises Mr M. P. Taparia, Managing Director, Mr
S. J. Taparia, Executive Director, and Mr V. K. Taparia, Executive Director. The team has a
wide experience in the plastic processing and related industries. It has turned the company New product development and
into one of the leading players in the plastic pipes industry. the strategy to move away from
competitive segments have

Support from a second line enabled Supreme to maintain

profitability and market position
While the promoters hold key management positions, the second line, which has industry
professionals with domain expertise, manages all the business segments. Based on our
interaction, we believe the second line ably supports the top management team.

Track record of performance

Over the past decade, management has established a track record in delivering strong
financial performance, despite volatility in raw material prices and rising competition. By
entering into and scaling up new businesses, the company has been able to grow its revenue
and EBITDA in each of the previous ten years. Additionally, it has also diversified its revenue
streams and developed sustainable competitive advantages.

17
Corporate Governance
CRISIL’s fundamental grading methodology includes a broad assessment of corporate
governance and management quality, apart from other key factors such as industry and
business prospects, and financial performance. In this context, CRISIL Research analyses
the shareholding structure, board composition, typical board processes, disclosure
standards and related-party transactions. Any qualifications by regulators or auditors also
serve as useful inputs while assessing a company’s corporate governance.

Overall, corporate governance at Supreme is good and is supported by superior disclosure,

good board practices and an independent board.

Superior disclosure levels; transparent management

Based on the information furnished in the annual reports, presentations, websites and
quarterly earnings call, we believe Supreme’s disclosure levels are superior. For instance,
the segment-wise, operating-level details are furnished on a quarterly basis. We believe the
information provided is sufficient to analyse various aspects of the business. Also, based on
our interactions over the past few years, we believe that management is transparent, follows
ethical practices and is open to share information.

Healthy dividend payment, quality of earnings key positives

Healthy quality of earnings: Supreme has a strong quality of earnings, which is reflected
in healthy operating cash flows, and moderate increase in working capital requirement over
the past few years despite healthy profit growth.

Maintained healthy dividend payout: Over the past few years, the company has
maintained a healthy dividend payout of 35-40% of profits. Additionally, it had also bought
Supreme’s quality of earnings is
back shares in FY09.
perceived to be healthy
Transparent systems and processes: Based on our interaction with the company over the
past few years, we opine that its governance systems and processes are adequate. It has
all the necessary committees in place – audit, remuneration, and investor grievances.

18
Valuation Grade: 4/5
We have increased our earnings estimates for FY17-18E by 3.5%. Considering the long-
term prospects of the company, we have revised our long-term revenue and margin
estimates. Consequently, we have increased our fair value to ₹995 per share from ₹855 per We increase our fair value to ₹995
share (including Supreme’s 29.9% stake in Supreme Petrochem, valued at ₹26 per share). per share from ₹855 per share
Our latest fair value implies P/E multiples of 28.6x and 24.2x on FY17E and FY18E EPS,
respectively. At the current price of ₹877, our valuation grade is 4/5.

Break-up of fair value

Particulars (₹)
Standalone business 979
Supreme Petrochem 26
Fair value 995

Key DCF assumptions

● We have taken FY18 as the base year and have discounted the estimated free cash
flows from FY17E to FY26E.

● We have assumed a terminal growth rate of 4% beyond the explicit forecast.

WACC computation
FY17-26E Terminal value
Cost of equity 12.6% 12.6%
Cost of debt (post-tax) 8.0% 8.0%
WACC 11.9% 11.9%
Terminal growth rate 4.00%

One-year forward P/E band One-year forward EV/EBITDA band

(₹) (₹ mn)
900 180,000
800 160,000
700 140,000
600 120,000
500 100,000
400 80,000
300
60,000
200
40,000
100
20,000
0
0
Aug-12

Sep-15
Apr-12

Dec-12

Nov-13

Oct-14
Jan-12

Jun-14

May-15

Jan-16

May-16
Jul-13
Mar-13

Mar-14

Feb-15

Apr-12

Aug-12

Dec-12

Nov-13

Mar-14

Oct-14

Sep-15
Mar-13
Jan-12

Jun-14

May-15

Jan-16

May-16
Jul-13

Feb-15

Supreme 5x 10x
15x 20x 25x EV 5x 10x 15x 20x

Source: NSE, CRISIL Research Source: NSE, CRISIL Research

19
P/E – premium / discount to CNX 500 Forward P/E chart
80% (Times)
45
60% 40
40% 35
30
20% +1 std dev
25
0% 20

-20% 15
10
-40% -1 std dev
5
-60% 0
Dec-12

Nov-13

Oct-14

Dec-12
Apr-12

Aug-12

Sep-15

Apr-12

Aug-12

Nov-13

Oct-14

Sep-15
Jan-12

Jun-14

Jan-16

Jan-12

Jun-14

Jan-16
May-15

May-16

May-15

May-16
Mar-13

Mar-14

Mar-13

Mar-14

Feb-15
Jul-13

Jul-13
Feb-15

Premium/Discount to CNX 500 1yr Fwd PE (x) Median PE

Median premium/discount to CNX 500
Source: NSE, CRISIL Research Source: NSE, CRISIL Research

Stock performance vs. NIFTY 50 Fair value movement since initiation

800 (₹) ('000)

700 1,200 3,000

600 1,000 2,500

500 800 2,000

400
600 1,500
300
400 1,000
200
200 500
100
0 0
0
Oct-11

Sep-12
Dec-12
Apr-13

Oct-13

Sep-14
Dec-14
Apr-15

Nov-15
May-14
May-12

May-16
Jul-11

Feb-12

Jul-13

Feb-14

Jul-15

Feb-16
Oct-14
Apr-11
Aug-11
Dec-11
Apr-12

Nov-12

Nov-13

Sep-15
Jan-11

Jun-14

Jun-15

Jan-16
May-16
Mar-13
Jul-12

Jul-13

Feb-14

Feb-15

Supreme NIFTY 500 Total Traded Quantity (RHS) CRISIL Fair Value Supreme

Source: NSE, BSE, CRISIL Research

20
CRISIL IER reports released on The Supreme Industries Ltd
Fundamental Valuation CMP
Date Nature of report grade Fair value grade (on the date of report)
14-Jul-11 Initiating coverage 4/5 ₹239 4/5 ₹192
28-Jul-11 Q4FY11 result update 4/5 ₹239 4/5 ₹209
10-Nov-11 Q1FY12 result update 4/5 ₹239 4/5 ₹194
24-Feb-12 Q2FY12 result update 4/5 ₹239 4/5 ₹197
04-May-12 Q3FY12 result update 4/5 ₹239 4/5 ₹210
23-Jul-12 Q4FY12 result update 4/5 ₹291 4/5 ₹237
12-Sep-12 Detailed report 4/5 ₹291 3/5 ₹286
31-Oct-12 Q1FY13 result update 4/5 ₹291 3/5 ₹291
24-Jan-13 Q2FY13 result update 4/5 ₹291 3/5 ₹302
03-May-13 Q3FY13 result update 4/5 ₹370 4/5 ₹326
23-Jul-13 Q4FY13 result update 4/5 ₹370 3/5 ₹374
12-Aug-13 Detailed report 4/5 ₹370 3/5 ₹337
01-Nov-13 Q1FY14 result update 4/5 ₹370 3/5 ₹390
27-Jan-14 Q2FY14 result update 4/5 ₹370 2/5 ₹420
29-Apr-14 Q3FY14 result update 4/5 ₹471 3/5 ₹460
31-Jul-14 Q4FY14 result update 4/5 ₹600 3/5 ₹606
23-Sep-14 Detailed report 5/5 ₹620 3/5 ₹650
28-Oct-14 Q1FY15 result update 5/5 ₹620 3/5 ₹587
02-Feb-15 Q2FY15 result update 5/5 ₹620 3/5 ₹585
11-May-15 Q3FY15 result update 5/5 ₹620 3/5 ₹670
14-Aug-15 Q4FY15 result update 5/5 ₹690 3/5 ₹646
01-Dec-15 Q1FY16 result update 5/5 ₹690 3/5 ₹644
03-Feb-16 Q2FY16 result update 5/5 ₹855 4/5 ₹736
10-May-16 Q3FY16 result update 5/5 ₹855 3/5 ₹837
06-Jun-16 Detailed report 5/5 ₹995 4/5 ₹877

21
Company Overview
Mumbai-based Supreme is one of the leading players in the domestic plastic processing Plastic piping system is the

industry. It has a diversified product portfolio, including plastic piping systems, packaging largest business segment with
films, industrial products, consumer products and composite products. The company has 23 53% revenue contribution in FY16
manufacturing facilities across India.

Details of business segments

Segment Products
Plastic piping system UPVC pipes, plastic fittings, HDPE pipes, CPVC pipes system,
PPRC pipes system, LLDPE pipes
Packaging products Speciality, protective packaging and cross laminated films
Industrial products Industrial components for auto and consumer durables, material
handling products
Consumer products Furniture
Composite products Composite cylinders
Source: Company, CRISIL Research

Business segment-wise contribution in FY16

Others
4%

Plumbing
10% Irrigation
45%

Sewerage
12%

Water supply
29%

Source: Company, CRISIL Research

Technical collaborations
Company Country Products
Rasmussen Polymer Development Switzerland Cross laminated films
Sapac Packaging Solution Belgium Instant packaging solution
Foam Partner Switzerland Reticulated PU foam
Sanwa Kako Japan Two-stage foam
PE Tech Korea Cross linked foam
Wavin Overseas Holland Plastic piping system
Industrie Polieco MPB SRL Italy Sewerage system
Kumi Kasai Co. Ltd Japan Automotive components
NBL Corporation Japan Composite pipes
Source: Company, CRISIL Research

22
Annexure: Financials
Income statement Balance Sheet
(₹ m n) FY14 FY15 FY16 (9M) FY17E FY18E (₹ m n) FY14 FY15 FY16 (9M) FY17E FY18E
Operating incom e 38,935 41,147 29,748 52,556 62,002 Liabilities
EBITDA 5,477 5,639 4,612 8,143 9,334 Equity share capital 254 254 254 254 254
EBITDA m argin 14.1% 13.7% 15.5% 15.5% 15.1% Reserves 10,138 11,861 12,899 15,115 17,729
Depreciation 1,015 1,390 1,046 1,778 1,974 Minorities - - - - -
EBIT 4,462 4,249 3,566 6,365 7,360 Net w orth 10,392 12,115 13,153 15,369 17,984
Interest 789 602 276 389 211 Convertible debt - - - - -
Operating PBT 3,673 3,647 3,290 5,976 7,150 Other debt 4,726 3,929 2,321 2,279 779
Other income 453 1,066 10 362 348 Total debt 4,726 3,929 2,321 2,279 779
Exceptional inc/(exp) 17 (279) (77) - - Deferred tax liability (net) 1,168 895 1,053 895 895
PBT 4,143 4,434 3,223 6,338 7,498 Total liabilities 16,286 16,939 16,526 18,544 19,658
Tax provision 1,400 1,504 1,178 2,183 2,575 Assets
Share of profit in associate 91 107 167 278 306 Net fixed assets 10,820 10,151 12,348 13,087 13,613
PAT (Reported) 2,834 3,037 2,213 4,433 5,229 Capital WIP 300 1,333 - - -
Less: Exceptionals 17 (279) (77) - - Total fixed assets 11,120 11,484 12,348 13,087 13,613
Adjusted PAT 2,818 3,316 2,290 4,433 5,229 Investm ents 1,074 1,207 1,262 1,541 1,847
Current assets
Ratios Inventory 4,217 4,324 5,586 5,231 6,285
FY14 FY15 FY16 (9M) FY17E FY18E Sundry debtors 2,348 2,380 2,362 3,168 3,737
Grow th Loans and advances 2,614 1,739 2,150 2,628 2,480
Operating income (%) 15.3 5.7 3.3 23.7 18.0 Cash & bank balance 238 790 289 115 156
EBITDA (%) 4.5 3.0 16.8 23.6 14.6 Marketable securities 36 1,028 - - -
Adj PAT (%) (2.4) 17.7 (8.6) 46.2 18.0 Total current assets 9,453 10,262 10,388 11,142 12,658
Adj EPS (%) (2.4) 17.7 (8.6) 46.2 18.0 Total current liabilities 5,420 6,188 7,645 7,399 8,634
Net current assets 4,033 4,074 2,742 3,743 4,024
Profitability Intangibles/Misc. expenditure 59 174 174 174 174
EBITDA margin (%) 14.1 13.7 15.5 15.5 15.1 Total assets 16,286 16,939 16,526 18,544 19,658
Adj PAT Margin (%) 7.2 8.1 7.1 8.4 8.4
RoE (%) 29.4 29.5 24.0 31.1 31.4 Cash flow
RoCE (%) 31.2 27.3 32.3 38.4 40.4 (₹ m n) FY14 FY15 FY16 (9M) FY17E FY18E
RoIC (%) 32.0 38.0 25.5 36.5 37.2 Pre-tax profit 4,217 4,820 3,300 6,616 7,804
Total tax paid (1,139) (1,777) (1,020) (2,341) (2,575)
Valuations Depreciation 1,015 1,390 1,046 1,778 1,974
Price-earnings (x) 36.5 31.0 33.9 23.2 19.6 Working capital changes (1,478) 1,504 (198) (1,174) (241)
Price-book (x) 9.9 8.5 7.8 6.7 5.7 Net cash from operations 2,616 5,938 3,128 4,879 6,961
EV/EBITDA (x) 19.6 18.6 15.9 12.9 11.1 Cash from investm ents
EV/Sales (x) 2.8 2.6 2.5 2.0 1.7 Capital expenditure (1,418) (1,869) (1,909) (2,517) (2,500)
Dividend payout ratio (%) 35.9 37.5 33.4 40.5 40.5 Investments and others 29 (1,126) 973 (278) (306)
Dividend yield (%) 1.0 1.1 0.7 1.7 2.1 Net cash from investm ents (1,389) (2,995) (936) (2,795) (2,806)
Cash from financing
B/S ratios Equity raised/(repaid) - - - - -
Inventory days 49 47 69 48 49 Debt raised/(repaid) 28 (798) (1,608) (42) (1,500)
Creditors days 48 51 78 56 55 Dividend (incl. tax) (1,189) (1,372) (844) (2,217) (2,614)
Debtor days 20 19 22 22 22 Others (incl extraordinaries) (27) (221) (240) - 0
Working capital days 28 27 21 21 22 Net cash from financing (1,188) (2,391) (2,692) (2,258) (4,114)
Gross asset turnover (x) 2.3 2.3 2.1 2.3 2.5 Change in cash position 39 552 (501) (174) 41
Net asset turnover (x) 3.7 3.9 3.8 4.1 4.6 Closing cash 238 790 289 115 156
Sales/operating assets (x) 3.6 3.6 3.3 4.1 4.6
Current ratio (x) 1.7 1.7 1.4 1.5 1.5
Debt-equity (x) 0.5 0.3 0.2 0.1 0.0 Quarterly financials
Net debt/equity (x) 0.4 0.2 0.2 0.1 0.0 (₹ m n) Q3FY15 Q4FY15 Q1FY16 Q2FY16 Q3FY16
EBITDA/interest (x) 6.9 9.4 16.7 20.9 44.3 Net Sales 11,517 12,780 7,728 10,017 12,003
EBIT/interest (x) 5.7 7.1 12.9 16.4 34.9 Change (q-o-q) 8% 11% -40% 30% 20%
EBITDA 1,981 2,579 908 1,551 2,153
Per share Change (q-o-q) 54% 30% -65% 71% 39%
FY14 FY15 FY16 (9M) FY17E FY18E EBITDA m argin 17.2% 20.2% 11.7% 15.5% 17.9%
Adj EPS (₹) 22.2 26.1 17.9 34.9 41.2 PAT 1,022 1,598 245 821 1,146
CEPS 30.2 37.0 24.9 48.9 56.7 Adj PAT 1,022 1,598 245 821 1,223
Book value 81.8 95.4 103.5 121.0 141.6 Change (q-o-q) 190% 56% -85% 235% 49%
Dividend (₹) 8.0 9.0 5.4 14.1 16.7 Adj PAT m argin 8.9% 12.5% 3.2% 8.2% 10.2%
Actual o/s shares (mn) 127.0 127.0 127.0 127.0 127.0 Adj EPS 8.1 12.6 1.9 6.5 9.6

Source: CRISIL Research

23
Focus Charts
Revenue growth to pick up in FY17 Share of plastic pipes segment to grow
(₹ mn) (%)
23.7%
70,000 25% 100%
16.0% 16.4% 14.2% 13.5% 13.1%
90%
60,000 7.4% 7.0% 6.9%
18.0% 20% 80% 6.9% 7.0%
50,000 15.3% 70% 23.5% 23.2%
21.6% 23.1% 23.4%
15% 60%
40,000
50%
30,000 10% 40%
5.7% 30% 56.8%
20,000 55.5% 53.5% 54.9% 55.9%
3.3% 20%
5%
10,000 10%
38,935 41,147 29,748 52,556 62,002
- 0% 0%
FY14 FY15 FY16 (9M) FY17E FY18E FY14 FY15 FY16 (9M) FY17E FY18E
Plastic products Packaging products
Revenue y-o-y growth (%) (RHS) Consumer products Industrial products
Source: Company, CRISIL Research Source: Company, CRISIL Research

EBITDA margin to contract 40 bps over FY16-18E PAT expected to post strong growth
(₹ mn) (₹ mn)
46.2%
10,000 16.0% 6,000 50.0%
15.5% 15.5%
9,000
15.5% 5,000 40.0%
8,000 15.1%

7,000 15.0% 30.0%

4,000 18.0%
17.7%
6,000 14.5% 20.0%
5,000 14.1% 3,000
13.7% 14.0% 10.0%
4,000
2,000 -2.4%
3,000 13.5% 0.0%
-8.6%
2,000
13.0% 1,000 -10.0%
1,000
5,477 5,639 4,612 8,143 9,334 2,818 3,316 2,290 4,433 5,229
- 12.5% - -20.0%
FY14 FY15 FY16 (9M) FY17E FY18E FY14 FY15 FY16 (9M) FY17E FY18E

EBITDA EBITDA margin (RHS) Adjusted PAT y-o-y growth (RHS)

Source: Company, CRISIL Research Source: Company, CRISIL Research

Fair value movement since initiation Share price movement vs. NIFTY 500
(₹) ('000) 800
1,200 3,000 700

1,000 2,500 600

800 2,000 500

400
600 1,500
300
400 1,000
200
200 500
100
0 0
0
Oct-11

Apr-15
Sep-12
Dec-12
Apr-13

Oct-13

Sep-14
Dec-14

Nov-15
May-14
May-12

May-16
Jul-11

Feb-12

Jul-13

Feb-14

Jul-15

Feb-16

Oct-14
Apr-11
Aug-11
Dec-11
Apr-12

Nov-12

Nov-13

Sep-15
Jan-11

Jun-14

Jun-15

Jan-16
May-16
Mar-13
Jul-12

Jul-13

Feb-14

Feb-15

Total Traded Quantity (RHS) CRISIL Fair Value Supreme Supreme NIFTY 500
-Indexed to 100
Source: Company, CRISIL Research Source: Company, CRISIL Research

24
CRISIL Research Team

Senior Director
Nagarajan Narasimhan CRISIL Research +91 22 3342 3540 [email protected]

Analytical Contacts
Prasad Koparkar Senior Director, Industry & Customised Research +91 22 3342 3137 [email protected]

Binaifer Jehani Director, Customised Research +91 22 3342 4091 [email protected]

Manoj Damle Director, Customised Research +91 22 3342 3342 [email protected]

Jiju Vidyadharan Director, Funds & Fixed Income Research +91 22 3342 8091 [email protected]

Ajay Srinivasan Director, Industry Research +91 22 3342 3530 [email protected]

Rahul Prithiani Director, Industry Research +91 22 3342 3574 [email protected]

Bhaskar S. Bukrediwala Director +91 22 3342 1983 [email protected]

Miren Lodha Director +91 22 3342 1977 [email protected]

Business Development
Prosenjit Ghosh Director, Industry & Customised Research +91 99206 56299 [email protected]

Megha Agrawal Associate Director +91 98673 90805 [email protected]

Neeta Muliyil Associate Director +91 99201 99973 [email protected]

Dharmendra Sharma Associate Director (North) +91 98189 05544 [email protected]

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Priyanka Murarka Regional Manager (East) +91 99030 60685 [email protected]

Sanjay Krishnaa Regional Manager (Tamil Nadu & AP) +91 98848 06606 [email protected]
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