Supreme Industries

Background

Supreme Industries Limited is india’s leading plastic processing company with seven business divisions. The company has forayed into different types of plastic processing in Injection Moulding, Rotational Moulding (ROTO), Extrusion, Compression Moulding, Blow Moulding etc.
Supreme Industries limited offers wide range of plastic products with a variety of applications in Mulded Furniture, Storage & Material Handling Products, XF Films & Products, Performance Films, Industrial Moulded Products, Protective Packaging Products, Plastic Piping System & Petrochemicals

Main Products/Segments

Supreme Industries operates in 4 major product segments as below. The segment contribution in terms of value are as follows:

  1. Plastics Piping System [~44%]
  2. Consumer products (furniture, mats) [~12%]
  3. Industrial products [~20%]
  4. Packaging products [~24%]

Main Markets/Customers

  • Plastics Piping Systems – Farming Sector for water supply, irrigation and borewell applications; Real Estate Housing sector mainly for plumping applications, Telecom sector for Cable ducting applications, Urban Infrastructure sector for water supply and sanitation applications. The specialty products division has developed complete solutions for water supply, plumbing, sanitation, rain water harvesting with some 17 system solutions for different applications.
  • Furniture & Mats – 168 exclusive Franchise showrooms for “Supreme” brand all over India to cater to the retail sector. For Mats exports contribute majorly
  • Industrial Products – Automobile sector, Appliances & Entertainment Electronics sector. Material Handling products like Crates and pallets are supplied to diverse set of industries
  • Packaging Products -packaging films, protective packaging products, and cross laminated films find application Food, Electronics, textiles, healthcare, sports and construction sectors.

Bullish Viewpoints

  • Established market leader and pioneer in the Plastics Industry known for quality products and innovation, constantly introducing new technology and products to suit market requirements. It is the largest plastic processor in India handling more than 1,70,000 tonnes of polymers annually.
  • In the last three years, Supreme Industries has made a capital expenditure in excess of Rs. 400 crores across all product segments. With the investment already in place and economic activity picking up, the company should witness good volume growth.
  • Reduction in Excise Duty from 14% to 8% has made plastic products more cheaper and affordable (e.g. plastic pipes) than conventional and recycled materials.
  • Supreme has a strong established network of distributors spread all over India. It also has 168 exclusive Franchised showrooms for its Furniture Products
  • The budget for the year 2009-2010 also announced that the outlay for Jawaharlal Nehru National Urban Renewal Mission (JNNURM) for improving infrastructure in 63 urban cities has been stepped up by 87% i.e. to Rs. 12887 crores. The Government has further announced it’s intention to spend Rs. 100,000 crores over a period of 7 years to improve the infrastructure in these 63 urban cities. A large portion of this amount will be spent on improving the drinking water supply and sanitation facilities. Plastics pipes are increasingly used in these applications in urban areas.
  • The 2009-10 Union Budget also announced plan outlay of Rs 3,973 crores to construct more than 500,000 houses to make India slum free. Supreme Industries enjoys the reputation of supplying complete piping system solutions under one roof for housing and should see significant business growth from these schemes.
  • Supreme Industries has a good dividend paying track record. Dividends have grown at a CAGR of over 26% in last 5 years
  • Construction of Supreme Industries ultra modern 10‐storied commercial complex at its Andheri, Mumbai land has been completed (ready for fit out possession). In Q2FY10, SIL has realized Rs. 20.45 Cr from sale of 13,106 square feet out of total saleable area. Additional Sales during the year will add to botomline.

Bearish Viewpoints

  • Any volatility in crude oil prices can lead to volatility in polymer prices affecting margins
  • Any variation in tax structures and excise rates can also affect profits and margins
  • Delay in initiation of government projects could affect growth
  • Competition from local manufacturers who use recycled plastic as raw material

Barriers to entry

Over the years Supreme has carved a niche for itself in the business and achieved a large size and consequent economies of scale. Although, there are no major entry barriers for the industry as such, it will not be easy for new players to establish industrial relationships and retail brand easily.


Interesting Viewpoints

Supreme is a consistent dividend payer and also has land in various parts on India (Andheri, Kolkata) where the plan is to develop and sell commercial real estate.


Disclosure(s)

Abhishek Basumallick: Less than 5% of Portfolio in the Company; Holding for more than 2 years