Debt-free multibagger stocks to pay 300% dividend, analysts see new high ahead

With a market valuation of 28,417.18 crores, Supreme Industries Ltd (SIL). is a large-cap industrial company. With seven business divisions, Supreme Industries Limited is the leading plastic processing company in India. The company has ventured into a variety of plastic processing techniques including extrusion, rotational molding (ROTO), compression molding, blow molding and injection molding. In the plastics industry in India, Supreme is widely recognized as a pioneer. The nation’s largest plastics processors efficiently process quantities of over 3,50,000 tons of polymers per year. Supreme Industries is a debt-free company, according to statistics from Value Research, but the icing on the cake is that it will soon pay a 300% dividend.

“We wish to inform you that the Board of Directors of the company, during its meeting held on Monday October 31, 2022, has, among other things, approved the payment of an interim dividend of 300%, i.e. 6/- per share on 12,70,26,870 number of equity shares of Rs. 2/- each (par value),” the company said in a stock filing.

“We must declare that the Company has set Wednesday, November 9, 2022 as the “record date”, for the purpose of verifying the eligibility of shareholders for the payment of an interim dividend, if and to the extent that this may be declared , by the Board of Directors at its meeting, scheduled to be held on Monday, October 31, 2022, the Company’s Board of Directors has informed the stock exchanges.

Research analysts at brokerage firm ICICI Direct Research said in a note that “SIL’s stock price has returned 88% over 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 price target to 2600.”

The government’s flagship program “Nal Se Jal” (with an expenditure of ~ 3 lakh crore in the next five years) is a great boost for the domestic plastic piping industry in the long run, the increasing contribution of value-added product in the overall turnover (increased by 35% in in FY18 to ~38% in FY22) to maintain high EBITDA margin, the company expects a capex of 700 crores in FY23E to increase manufacturing facility by 11% YoY to ~8,000,000 tons and a CAGR of 12% in model revenue led by a CAGR of 17% in volume on the fiscal year 22-24E, are the main drivers of future stock price performance according to analysts.

“Supreme Industries’ performance in Q2FY23 was weak on the EBITDA margin front. Inventory losses in the context of a sharp drop in PVC prices (40% decrease compared to April 2022) led to a drop in the consolidated EBITDA margin to 7.1% (vs. ~15% margin before Covid). We reduced our FY23 EBITDA margin estimate by 180 basis points year-on-year to 12.8% (taking into account the sharp decline in FY23 second quarter EBITDA margin ). We expect EBITDA margins to bottom out in FY23 and return to pre-Covid levels by FY24, supported by stable PVC prices, new product launches in the value-added products and better operating leverage. From a revenue perspective, Q2FY23 Piping segment volume growth of 9% was well above our estimate of a decline of around 2%. Management expects strong demand for piping products from H2FY23, driven by the recovery in rural demand. We expect SIL’s pipe segment to post a volume CAGR of 19% in fiscal year 22-24E, supported by the recovery in demand for pipes for agriculture, housing and infrastructure. We believe that government sponsored programs such as Nal Se Jal Mission, Swatch Bharat Abhiyan, sanitation, affordable housing, can be the major catalysts for SIL volume growth. We include revenue, profit CAGR of 12%, 3%, respectively, in fiscal 22-24E, led by piping segment revenue CAGR of 12%. We maintain our BUY rating on the stock given the strong growth prospects in the company’s core business and the strength of its balance sheet. We value the stock at 32x PE of FY24E BPA and revise our target price to 2600/share,” said analysts at brokerage firm ICICI Direct Research.

Research analysts at brokerage firm Anand Rathi said in a note that “Driven by volume growth, Supreme’s second-quarter revenue grew 8.2% year-on-year to Rs 21 billion (in line with the ARe), even if the mixed achievements remained soft. Inventory losses caused by a sharp drop in raw material prices weighed on profitability. Gross, EBITDA and PAT margins decreased by 830bps, 906bps and 793bps y/y to 23.2%, 7.1% and 3.9% respectively.”

They further added that “encouraging demand outlook and margin tailwinds would drive H2 FY23 performance. Management expects Rs 90 billion revenue and EBITDA margin 12-12.5% ​​for FY23. We introduce FY25 revenue and forecast revenue and revenue CAGRs of 12% and 9% respectively in FY22-25. our buy rating and raise our target price to Rs 2,730 (from Rs 2,467) based on 27.5x (unchanged) 25th year earnings.”

“We have revised our FY23 and FY24 figures downward to reflect healthy plastic pipe volume growth and continued margin pressures (due to inventory losses) in the first half of FY23. We also introduce FY25 earnings and forecast revenue and earnings CAGR of 12% and 9% respectively in FY22-25. We maintain a buy rating and increase our target price to Rs 2,730 (from Rs 2,467) based on 27.5x (unchanged). 24th fiscal year earnings,” said research analysts at brokerage Anand Rathi.

Shares of Supreme Industries closed today at 2,240.00 each, up 1.78% from the previous close of 2,200.75. On the NSE, the stock had hit a 52-week high of 2,492.55 on (November 10, 2021) and a 52-week low of 1,666.25 on (Jun 23, 2022). However, if the stock hits the target price set by the aforementioned brokerage firms, it will set a new all-time high.

Disclaimer: The opinions and recommendations made above are those of individual analysts or brokerage firms, and not of Mint.

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