Hold Supreme Industries, target price Rs 1,040: ICICI Direct
The brokerage says the FY21E performance of the company is likely to be impacted by less spending in construction and infra related works owing to Covid-19 pandemic.
ICICI Direct has given a hold rating to Supreme Industries with a 12-month target price of Rs 1,040 based on 35 times FY21E, 24 times FY22E.
Supreme Industries fourth quarter revenue (down ~8 per cent year on year) was hit by packaging and industrial segments (together contributes ~30 per cent of topline) with revenue de-growth of ~22 per cent in each segment during Q4FY20, much lower than our estimate of 7 per cent year on year. However, core business performance i.e. piping segment remained satisfactory with almost flat revenue year on year, up 17 per cent quarter on quarter, despite lockdown in March 2020.
Investment Rationale
The brokerage says the FY21E performance of the company is likely to be impacted by less spending in construction and infra related works owing to Covid-19 pandemic. However, a slow recovery in demand of core business would drive the performance from FY22E onwards. It has cut its revenue and earnings estimate by ~15 per cent, ~29 per cent for FY21E and ~20 per cent, 16 per cent for FY22E, respectively. Considering a slow recovery in demand of piping business and challenging conditions for industrial product categories, the brokerage downgraded the rating from buy to hold. According to the brokerage, a delay in construction activities and recovery in industrial products demand would lead to a slow recovery for Supreme in the coming period.
Financials
For the quarter ended March 31, 2020, the company reported consolidated crore of Rs 1430.49 crore, up 4.16 per cent from last quarter crore of Rs 1373.32 crore and down -6.56 per cent from last year's same quarter crore of Rs 1530.91 crore. The company reported net profit after tax of Rs 110.31 crore in the latest quarter.
Promoter/FII Holdings
Promoters held 49.94 per cent stake in the company as of March 31, 2020, while FIIs held 15.92 per cent, DIIs 16.12 per cent and public and others 18.03 per cent.
Supreme Industries fourth quarter revenue (down ~8 per cent year on year) was hit by packaging and industrial segments (together contributes ~30 per cent of topline) with revenue de-growth of ~22 per cent in each segment during Q4FY20, much lower than our estimate of 7 per cent year on year. However, core business performance i.e. piping segment remained satisfactory with almost flat revenue year on year, up 17 per cent quarter on quarter, despite lockdown in March 2020.
Investment Rationale
The brokerage says the FY21E performance of the company is likely to be impacted by less spending in construction and infra related works owing to Covid-19 pandemic. However, a slow recovery in demand of core business would drive the performance from FY22E onwards. It has cut its revenue and earnings estimate by ~15 per cent, ~29 per cent for FY21E and ~20 per cent, 16 per cent for FY22E, respectively. Considering a slow recovery in demand of piping business and challenging conditions for industrial product categories, the brokerage downgraded the rating from buy to hold. According to the brokerage, a delay in construction activities and recovery in industrial products demand would lead to a slow recovery for Supreme in the coming period.
Financials
For the quarter ended March 31, 2020, the company reported consolidated crore of Rs 1430.49 crore, up 4.16 per cent from last quarter crore of Rs 1373.32 crore and down -6.56 per cent from last year's same quarter crore of Rs 1530.91 crore. The company reported net profit after tax of Rs 110.31 crore in the latest quarter.
Promoter/FII Holdings
Promoters held 49.94 per cent stake in the company as of March 31, 2020, while FIIs held 15.92 per cent, DIIs 16.12 per cent and public and others 18.03 per cent.