Home / Markets / Stock Markets /  Debt-free multibagger stock to pay 300% dividend, analysts see new high ahead

With a market valuation of 28,417.18 crore, Supreme Industries Ltd (SIL). is a large-cap industrial firm. With seven business divisions, Supreme Industries Limited is the leading plastic processing company in India. The company has ventured in a variety of plastic processing techniques, including extrusion, rotational moulding (ROTO), compression moulding, blow moulding, and injection moulding. In India's plastics sector, Supreme is widely recognised as a pioneer. The largest plastics processors in the nation efficiently handle quantities of over 3,50,000 tonnes of polymers yearly. Supreme Industries is a debt-free firm, according to Value Research's statistics, but the cherry on top is that it will soon pay a 300% dividend.

“We wish to inform you that the Board of Directors of the company at its meeting held on Monday, the 31st October, 2022, inter- alia, approved payment of Interim Dividend @ 300 % i.e. 6/- per Share on 12,70,26,870 Nos. of Equity Shares of Rs. 2/- each (face value)," the company has said in a stock exchange filing.

“We have to state that the Company has fixed Wednesday, the 9th November, 2022, as the "Record Date", for the purpose of ascertaining the eligibility of the Shareholders for payment of Interim Dividend, if and to the extent as may be declared, by the Board of Directors at its meeting, scheduled to be held on Monday, the 31st October, 2022, the Board of Directors of the company informed stock exchanges.

The research analysts of the broking company ICICI Direct Research said in a note that “SIL’s share price has given 88% return in the past five years. We maintain our BUY rating on the stock. We value the stock at 32x P/E FY24E EPS and revise our target price to 2600."

The government’s flagship ‘Nal Se Jal’ scheme (with an outlay of ~ 3 lakh crore over the next five years) is a big booster for the domestic plastic piping industry over the long term, rising contribution of value added product in overall topline (increased from 35% in FY18 to ~38% in FY22) to keep EBITDA margin elevated, the company is planning a capex of 700 crore in FY23E to increase manufacturing facility by 11% YoY to ~8 lakh tonnes and model revenue CAGR of 12% led by 17% volume CAGR over FY22-24E, are the key triggers for stock’s future price performance as per the analysts.

“Supreme Industries’ Q2FY23 performance was weak on the EBITDA margin front. Inventory losses amid sharp fall in the PVC prices (fall by 40% from April 2022) has dragged consolidated EBITDA margin down to 7.1% (vs. ~15% pre-Covid margin). We cut our FY23 EBITDA margin estimate by 180 bps YoY to 12.8% (factoring in sharp fall in Q2FY23 EBITDA margin). We believe, EBITDA margins will bottom out in FY23 and be back to its pre-Covid level by FY24 onwards supported by stable PVC prices, new product launches in the value added product segment and improved operating leverage. On the revenue front, Q2FY23 piping segment volume growth of 9% was much ahead of our estimate of a decline by ~2%. The management expects strong demand of piping products from H2FY23 led by recovery in the rural demand. We believe SIL’s piping segment will report a volume CAGR of 19% over FY22-24E supported by revival in agri, housing and infrastructure pipe demand. We believe government sponsored schemes such as Nal Se Jal Mission, Swatch Bharat Abhiyan, sanitation, affordable housing, can be the key catalysts for SIL’s volume growth. We build in revenue, earnings CAGR of 12%, 3%, respectively, over FY22-24E led by piping segment revenue CAGR of 12%. We maintain our BUY rating on the stock considering strong growth outlook in the company’s core business and robust balance sheet condition. We value the stock at 32x PE of FY24E EPS and revise our target price to 2600/share," said the research analysts of the broking firm ICICI Direct Research.

The research analysts of the broking firm Anand Rathi said in a note that “Driven by volume growth, Supreme’s Q2 revenue grew 8.2% y/y to Rs21bn (in line with ARe) even as blended realisations continued soft. Inventory losses led by a steep fall in raw material prices curbed profitability. The gross, EBITDA and PAT margins shrank respectively 830bps, 906bps and 793bps y/y to 23.2%, 7.1% and 3.9%."

They further added that “The encouraging demand outlook and margin tailwinds would boost the H2 FY23 performance. Management expects Rs90bn revenue and a 12-12.5% EBITDA margin for FY23. We introduce FY25 earnings and expect 12% and 9% revenue and earnings CAGRs respectively over FY22-25. We retain our Buy rating, and raise our target price to Rs.2,730 (from Rs.2,467) based on 27.5x (unchanged) FY25e earnings."

“We have revised downward our FY23 and FY24 figures to factor in the healthy volume growth in plastic piping and the continuing margin pressures (from inventory losses) in H1 FY23. We also introduce FY25 earnings and expect 12% and 9% revenue and earnings CAGRs respectively over FY22- 25. We maintain a Buy rating, and raise our target price to Rs2,730 (from Rs2,467) based on 27.5x (unchanged) FY24e earnings," said the research analysts of the broking firm Anand Rathi.

The shares of Supreme Industries closed today at 2,240.00 apiece, up by 1.78% from the previous close of 2,200.75. On the NSE, the stock had touched a 52-week-high of 2,492.55 on (10-November-2021) and a 52-week-low of 1,666.25 on (23-June-2022). However, if the stock reaches the target price established by the aforementioned brokerage companies, it will set a new record high.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.


Vipul Das

Vipul Das is a Digital Business Content Producer at Livemint. He previously worked for Goodreturns.in (OneIndia News) and has over 5 years of expertise in the finance and business sector. Stocks, mutual funds, personal finance, tax, and banking are among his specialties, and he is a professional in industry research and business reporting. He received his bachelor's degree from Dr. CV Raman University and also have completed Diploma in Journalism and Mass Communication (DJMC).
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