Supreme Industries - To Gain from India’s New infrastructural policies and reforms around sewage, irrigation, and housing

Summary

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• Favorable drivers in housing and real estate for Plastic Piping System Division in India
• Resilient demand for daily use items
• Diversified product portfolio with established Brand Equity

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Supreme Industries is a leading player in the Indian plastic and piping industry. The company offers a comprehensive range of plastic products in India. It is engaged in the processing of polymers and resins into finished plastic products. Supreme holds a 30% stake in Supreme Petrochem Ltd and has 100% ownership in Supreme Industries Overseas. 

Supreme owns an extensive network of facilities for R&D and new product development and 25 advanced plants spread across the country. It also has more than 4,000 active channels partners. The company operates through seven business divisions and has forayed into different types of plastic processing in Injection Moulding, Rotational Moulding (ROTO), Extrusion, Compression Moulding, Blow Moulding, etc.

The company has a presence across different industry segments and operates through four major products groups - Consumer Products, Packaging Products, Industrial Products, and Plastics piping systems. Total export sales totaled worth US$ 18.35 million in the last year.

 

Supreme Industries Positives

i) Accredited Plastic company in India - As the country's largest plastics processor, the company handles over 3,20,000 tonnes of polymers annually. It is one of the largest plastic processors in India, with a sale of above 4 lakh MT annually. Supreme is credited with pioneering several products in India such as Cross- Laminated Films, HMHD Films, Multilayer Films, SWR Piping Systems, etc. Its Plastic Pipe System’s product portfolio is the largest and has reached 8774 in number increasing by 460 products in the last year itself.

ii) Wide range of products - Supreme offers a variety of applications in Moulded Furniture, Storage & Material Handling Products, XF Films & Products, Performance Films, Industrial Moulded Products, Protective Packaging Products, Composite Plastic Products, Plastic Piping systems & Petrochemicals. Most of the products supplied by the company are functional products and are of day-to-day use. Hence the demand for the same is quite resilient. Supreme Industries has operations across Plastic Piping systems, XF, Industrial Products, Protective Packaging, molded furniture divisions, material handling products, performance films, composite LPG cylinders.

iii) Largest Plastics piping solutions - Supreme Industries is a one-stop shop for complete piping solutions. The company is the leader in this segment as has the largest portfolio of products. Its multilayered cross-laminated film is the toughest plastic sheet available. The company caters to diversified industries like automotive, consumer electronics, home appliances, and special industrial applications.

iv) Capacity and Distribution Expansion plans -  Despite COVID, Supreme Industries did not reduce its Capex plan for FY 2021-22 and it incurred Capex of Rs. 225 crore during the year. Investments were directed towards various plants to build more capacities and increase range. The company is expecting brownfield expansion and new products at the existing plants. It is also establishing two new plastic products complex in the states of Orissa and Tamilnadu and setting up a Plastic Pipe Systems manufacturing facility in the state of Assam. Supreme Industries is focusing to penetrate maximum Tehsils with a larger base of retailers to reach out to customers extensively. It successfully expanded its dealer networks in hundreds of Tehsils during the last year in order to expand its distribution network.

Valuation and Metrics

Supreme Industries’ market capitalization value has grown nearly ten folds in the last decade, with net sales almost doubling to Rs. 6.35 billion and profits increasing by three times, at the end of FY21. Its OPM has also remained stable over the years. It has considerably reduced its debt and is almost debt-free now. Supreme has delivered a solid profit growth of 34% CAGR in the last five years and also has a healthy dividend payout ratio of ~34%. Supreme Industries has rewarded its shareholders with consecutive dividends payments over the years. The company sports a Total Shareholder Return of 27.8% CAGR for the last 10 years.

 

Supreme Industries has a market capitalization value of Rs. 27,510 crores. The company has a strong liquidity position and adequate cash flows to fund expansion plans. Its share price has increased from near Rs.300 mark at the end of 2013 to Rs.2165 currently, registering a gain of almost 600%.

Source: Money Control

Future Opportunities 

• Growing Consumer Demand should boost demand for Supreme’s products - Supreme Industries has a large packaging division and should benefit from a range of packaging solutions for various industries including industrial, toys, healthcare, construction, automobile, etc. The demand for packaging solutions and material handling products is poised to grow as consumer demand for goods increases. The company is also focusing on economical packaging solutions.
• Favorable Indian government policies - Supreme Industries is well-positioned to gain from Indian governments’ missions and policies like Jal Jeevan Mission, Swatch Bharat Abhiyan, Sanitation and affordable houses to all, and development of 100 smart cities in India. Demand for real estate and affordable housing should act as a solid growth driver for Supreme Industries.
• Development of futuristic and innovative products and solutions - Given its manufacturing expertise and five decades-long industry experience, Supreme is favorably placed to develop new and innovative products for the future. For instance, the company has launched a Premium range of Water Tanks branded as “Weather Shield” with added features such as superior thermal insulation, and a Chrome Plated range in the AQUAKRAFT Bath Fittings. It is focusing on the production of Double Wall Corrugated HDPE Pipes, a variety of specialized valves such as Butterfly Valves, Swing Check Valves, Ball-type non-return Valves, etc designed for different applications like Industrial, Agriculture, and Plumbing segments. The company is also trying to boost its export business of Piping Systems in several markets.
• COVID Impact

Supreme Industries suffered as a result of the closure of most of its plants during the pandemic. Discretionary demand for furniture products also fell.

Challenges

a) Raw material price - Though Supreme has the ability to pass on price fluctuations to consumers, its profitability is susceptible to volatility in prices of its key raw materials - polyvinyl chloride resin, polyethylene, and polypropylene which are crude derivatives. PVC is the predominant raw material in Supreme’s Plastic Pipe business, the price for which witnessed a sharp hike in the last year. The raw materials are sourced locally as well as imported. This has affected the country’s PVC consumption and the company also had a de-growth of ~3% in PVC piping systems by volume. In short, the company’s profit margins are closely related to the crude oil prices which are highly volatile.

b) Intense Competition - The plastics industry is considered to be highly fragmented in India. Supreme Industries competes with the likes of popular companies like Finolex Industries, Astral, Prince Pipes, Nilkamal, etc, and also from unorganized players in India.

 

	Estimated Market Size (in Rs. crores)	Supreme's Market Share
Plastic Piping	42,000	10%
Consumer products	2,750	14%
Industrial products	2,000	12%

Bottom Line

Diversified revenues, leading market share position, and strong capital position form a wide moat around Supreme Industries. The company continues to invest in strengthening its infrastructure and facilities and building capacities and capabilities across its product lines. It expects to expand its existing capacity to 8,00,000 MT by 2022-23. It is focusing on launching a wide range of valves for industrial usage and large varieties of products in bath fittings in the current year. The company is taking initiatives to enhance the share of the high-margin specialty products in its portfolio. It also delivered consistent returns in the last five years.

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Stock Disclosures:

The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Author Disclosures:

This Article represents the Author's own personal views. The Author did not receive any compensation and do not have any business relationship with any of the companies mentioned in the Article.