Supreme Industries

Supreme Industries, founded in 1942, is one of India’s leading manufacturers of plastic products today. Given its dedication to sustainable production and the implementation of a variety of efforts to lessen environmental impact, the company’s products have been favourably positioned in India and other countries [EasyDNNnews:PaidContentStart]

Thanks to the strengthening economic conditions and strong FII inflows, Indian benchmark indices have managed to reach all-time highs on the bourses. While the indices set new records in back-to-back trading sessions, many stocks gained strength, reflecting market optimism, and reached 52-week highs. In particular, the shares of Supreme Industries drew attention from investors due to their robust uptrend and back-to-back new 52-week highs. The question is whether it is appropriate to ride the bull. Let’s discover more about the company, its financial performance, the prospects for the industry it belongs to and the most recent developments. 

Supreme Industries, founded in 1942, is one of India’s leading manufacturers of plastic products today. It began as a trading company before diversifying into the production of plastic items. The company manufactures products in a number of different product categories, including plastic piping systems, cross laminated films and products, protective packaging products, industrial moulded components, moulded furniture, storage and material handling products, performance packaging films, and composite LPG cylinders. The company’s products are used in a range of industries, including automotive, construction, electrical and agricultural.

It operates in eight business verticals and has 28 manufacturing plants throughout the country. It processes more than 500,000 metric tonnes of plastic polymer annually and also has a wide distribution network of over 4,000 distributors and exports to over 55 countries. The company has established certain knowledge centres to provide visiting experts with the opportunity to enhance their knowledge and abilities while also demonstrating the product line and its applications. The company is dedicated to sustainable production and has implemented a variety of efforts to lessen its environmental impact. In all its plastic product divisions, the mission of the company is to be the most value-driven solution provider with the goal of delivering value to customers’ daily lives. 

Sector Overview

The Indian plastic industry is one of the most significant contributors to the country’s economy. Over 4 million people are employed by the industry, which has expanded significantly since its inception and is now a major global player. The industry employs more than 2,000 exporters, has over 20,000 processing units, and is widespread throughout the country. In 2021, the size of the global plastic market was estimated at USD 440 billion. According to projections, the market may grow from USD 457 billion in 2022 to USD 643 billion in 2029. 

India’s consumption of plastic has surged 23-fold to almost 21 million tonnes over the past three decades. Currently, India is the third-largest consumer of plastics after China and the United States, using about 6 per cent of the world’s total quantity. The United States, China, United Arab Emirates, Germany, Italy and the United Kingdom are the key markets for India’s exports of plastic and associated goods. If we break down exports by category, plastic raw materials were the most popular export and made up 30 per cent of all exports in 2021-2022. The second-largest category, totalling 15 per cent of exports, was plastic films and sheets.

The industry produces polymer materials known as plastics and provides services that are crucial to a number of sectors including packaging, building and construction, electronics, aircraft and transportation. There is no sector in the country that does not use plastic, and this is why the Indian plastic companies are enjoying a healthy capitalisation. Floor coverings, fishnets, furniture, medical equipment, packaging supplies, plastic films, pipes and other raw materials are among the numerous plastic products manufactured. In fact, such is the widespread use of plastic in all spheres that several campaigns calling for its ban have not led to any significant changes. 

Sector Outlook

Due to the lockdowns brought on by the pandemic, the demand for plastic in the building, construction and automobile sectors fell drastically. While the plastic industry was in a crisis, the medical industry rescued it by providing enormous opportunities. In addition, improved hygiene awareness and a rise in the buying of disposable goods designed to lower the risk of viral infections have revived the industry. It has significantly increased consumer demand for plastic food and beverage containers. To improve the country’s output of plastic manufacturing and to create employment, numerous plastic parks are being established in stages across the country. Meanwhile, the six approved plastic parks are in Madhya Pradesh, Assam, Tamil Nadu, Odisha and Jharkhand. Funds of up to 50 per cent of the project costs, or a maximum cost of `40 crore per project, are available under the plastic park schemes. In order to advance the country’s petrochemical technology and promote a research environment essential to the industry, the government has also initiated a programme for establishing centres of excellence. This will assist in promoting and creating new applications for plastics and polymers in the country. As public awareness over the environmental harm that polymers cause has grown, more strict government laws have been implemented.

Straws, ear buds,

Straws, ear buds, plastic sticks and other items with limited utility but a tendency to be left lying around were among the single-use plastic goods that the Indian government urged the population to get rid of. Businesses must pay attention to the applicable laws and regulations in order to survive and avoid disruptions to their operations. Many companies and governments have started to use more environmentally friendly and non-plastic alternatives to avoid the negative impact on the environment, signalling a shift in the industry’s direction. In the case of Supreme Industries, there is no such potential threat as the company’s products have long-term utility and it focuses on sustainable production to minimise negative environmental impact. 

Financial Overview

Considering the company’s quarterly performance, on a consolidated basis it reported a modest growth in revenue of 1.61 per cent from ₹2,557.09 crore registered in Q4FY22, recording total revenue of ₹2,598.30 crore in Q4FY23. The operating profit surged 22.91 per cent when compared to the same quarter last year. The consolidated net profit for the fourth quarter of FY23 grew 10.98 per cent from ₹323.86 crore to ₹359.43 crore. In terms of annual performance, the consolidated net profit of the company fell, registering decline of 10.65 per cent to ₹865.33 crore as against ₹968.45 crore during the previous year. 

Net sales, on the other side, climbed by 18.38 per cent to ₹9,201.59 crore as against ₹7,772.82 crore during the previous year ended on March 2022. At the time of writing, the company was valued on the market at ₹44,460 crore, with the promoters holding a sizeable 48.85 per cent of the company. Institutional investors have a stake of 36.16 per cent, out of which foreign portfolio investors (FPIs) owned a significant 19.06 per cent. While the company’s higher PE ratio compared to its competitors and the industry average may be cause for concern, the company’s 20 per cent ROE and 27 per cent ROCE demonstrate its strong profitability position.

Furthermore, the company is debt-free aend had a cash surplus of ₹738 crore by the end of March 2023. With an EPS of 68, it also has a high dividend payout ratio and frequently announces a healthy dividend. The company paid a final dividend of 1,000 per cent, or ₹20 per equity share of ₹2 each, for the financial year ending March 31, 2023, which, when combined with the interim dividend of 300 per cent, or ₹6 per equity share, totals 1,300 per cent, or ₹26 per equity share for the current financial year. The company plans to commit capex of roughly ₹750 crore this year, including ₹153 crore in carry forward commitments at the start of the year.

The capex is intended to expand capacities and develop new product lines across all segments. The capital expenditure plan also includes establishing a facility in Malanpur, near Gwalior. The company also stated that the entire capex will be paid by internal accruals. Its shares have gained more than 30 per cent in the last three months, giving stellar returns of around 82 per cent in just one year! While the stock displays higher PE and PB ratios indicating its overvaluation or expensiveness in comparison to its competitors and the industry average, the company’s future plans and strong financial health are driving the optimism wave. Hence, we recommend HOLD.

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