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March 17, 2015
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 Stock Update >> Supreme Industries
 Stock Update >> IRB Infrastructure Developers
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investor’s eye
stock update
Supreme Industries
Reco: Hold
Stock Update
Early signs of recovery, OPM to improve; PT revised to Rs750
Key points
Company details
Price target:
Rs750
Market cap:
Rs9,101 cr
52-week high/low:
Rs725/425
NSE volume:
(No of shares)
CMP: Rs716
0.8 lakh
BSE code:
509930
NSE code:
SUPREMEIND
Sharekhan code:
SUPREMEIND
Free float:
(No of shares)
6.4 cr
Shareholding pattern
 Recovery on cards; better H2: Supreme Industries (Supreme) is witnessing an
improvement in the demand for PVC pipes on the back of an uptrend in the PVC prices
and the seasonality factor (Q3 and Q4 are better for the business). The distributors
have also regained confidence and started rebuilding the inventory level to meet the
demand. Recently, the company hiked the prices of PVC pipes by 10-15% (during the
period January-March 2015) on account of an increase in the PVC prices globally. Though
the company is expecting an inventory loss in Q3FY2015 (roughly to the tune of Rs8-9
crore), the loss would be offset by better realisation and volume growth during H2FY2015.
 OPM to expand sharply in H2: The company had witnessed a muted volume growth
and a sharp decline in the operating profit margin (OPM; of 300-400 basis points) in
Q2FY2015, led by inventory losses. At the same time, PVC prices had also declined
by 25-30% which had worsened the operating performance significantly. However,
during March 2015, PVC prices recovered sharply by 16% from their bottom owing to
demand recovery. This will help Supreme to report a sharp improvement in the OPM
sequentially in the coming quarters. As we continue to believe in the structural
growth story of the company on account of its strong fundamentals, we expect the
company to report an improvement in the margins and earnings (at 18% compounded
annual growth rate in FY2014-17) driven by better operating leverage, focus on
innovative product-mix and increasing share of value-added products.
 Real estate revenue booking; acceleration in cylinder business: Supreme is
expected to book real estate transaction revenues of Rs93.3 crore during Q3 while
the pending export order of 38,000 cylinders would be accounted for in FY2015. It
got approval for 10kg cylinder from the regulatory authority and is in an advanced
stage of getting the product approval for the 5kg cylinder. Its bathroom fitting
business continues to witness an accelerated pace of growth.
 Valuation—price target revised Rs750: The recent sharp run-up of 20% in the stock
price from the date we published our last update on the company, ie January 22,
2015, has been possible because of anticipation of a faster than expected recovery in
the financial performance (a combination of a pick-up in volumes and an increase in
PVC prices) of the company. We believe all these positives are factored in the current
stock price. Though we revise our earnings estimates upward for FY2016 and FY2017
(up 7% each) to reflect the better growth visibility (margin expansion and earnings),
we retain our Hold rating on the stock with a revised price target of Rs750 (price/
earnings of 21x on FY2017E earnings).
Price chart
Valuations: Consolidated results (a June-ending fiscal)
Particulars
Price performance
(%)
1m
3m
6m 12m
Absolute
3.3
19.9
3.5
53.0
Relative
5.7
to Sensex
12.7
-3.8
15.6
Revenues (Rs cr)
EBITDA (Rs cr)
EBITDA margin (%)
Adjusted PAT* (Rs cr)
Adj. net margin (%)
Adjusted EPS (Rs)
RoCE (%)
RoE (%)
P/E (x)
D/E (x)
P/BV (x)
Sharekhan
2
FY2013
FY2014
FY2015E
FY2016E
FY2017E
3,404
536
15.7
268
7.9
21.1
31.5
30.5
33.6
0.5
6.1
3,962
589
14.9
274
6.9
21.6
30.0
26.4
32.9
0.5
5.1
4,366
540
12.4
240
5.5
18.9
23.2
20.2
37.6
0.4
4.5
5,041
695
13.8
342
6.8
26.9
28.7
24.3
26.4
0.3
3.8
5,953
867
14.6
455
7.6
35.8
33.0
26.7
19.8
0.2
3.1
March 17, 2015
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investor’s eye
stock update
IRB Infrastructure Developers
Reco: Buy
Stock Update
Outlook positive; use dips to buy
Key points
Company details
Price target:
Rs320
Market cap:
Rs7,671 cr
52 week high/low:
Rs289/92
NSE volume:
(no. of shares)
33.2 lakh
BSE code:
532947
NSE code:
IRB
Sharekhan code:
IRB
Free float:
(no. of shares)
CMP: Rs231
12.9 cr
Shareholding pattern
 IRB Infrastructure Developers (IRB) showed an impressive surge in its toll
revenues in Q3FY2015 on the back of increased traffic movement on its BOT
road projects. We believe that the growth in the construction revenues would
also pick up meaningfully with the financial closure of two large projects (the
Solapur-Yedeshi and Yedeshi-Aurangabad projects worth over Rs1,956 crore).
Two more projects are also expected to commence construction soon.
 Project awarding by the NHAI almost doubled to 2,132km in M10FY2015 as
against 1,041km in M10FY2014. As was expected, the EPC segment maintained
its dominance in the projects being awarded but the BOT segment still comprised
31% of the total projects awarded in the quarter in value terms. Further, our
interaction with industry players suggests an increase in project awards during
the next two to three months. We expect EPC road project awards to benefit
players like Ashoka Buildcon, Sadbhav Engineering and Gayatri Projects.
However, a few large project awards through the BOT route would be beneficial
to players like Larsen and Toubro, IL&FS Transportation Networks and IRB.
 IRB is well funded to meet the Rs2,600-crore equity requirement for the next
three years from internal accruals. An improving macro environment (better
visibility of the tendering business, potential easing of interest rates etc) and a
potential upside from a better than expected growth in traffic on the back of
an economic revival are the key re-rating triggers for the stock. IRB has corrected
by around 10% during the current month which provides an opportunity to enter
the stock with a medium- to long-term horizon to benefit from the structurally
positive scenario building up in the road construction sector. We maintain our
Buy rating on the stock with a price target of Rs320.
Price chart
Valuations
Particulars
FY2012
FY2013
FY2014
FY2015E
FY2016E
Sales (Rs cr)
3,130.5
3,687.2
3,731.9
3,859.0
4,576.2
% Y-o-Y growth
EBITDA (Rs cr)
Margins %
Adjusted net profit (Rs cr)
Price performance
(%)
Absolute
1m
3m
6m 12m
-9.3
-4.4
-8.2 135.0
Relative -7.2 -10.1 -14.7
to Sensex
77.5
28.4
17.8
1.2
3.4
18.6
1,373.3
1,633.3
1,753.7
2,195.1
2,635.9
43.9
44.3
47.0
56.9
57.6
495.8
556.7
459.1
545.8
692.0
% Y-o-Y growth
9.6
12.3
(17.5)
18.9
26.8
Shares in issue (cr)
33.2
33.2
33.2
33.2
33.2
EPS (Rs)
14.9
16.7
13.8
16.4
20.8
9.6
12.3
(17.5)
18.9
26.8
% Y-o-Y growth
PER (x)
15.7
14.0
16.9
14.2
11.2
Book value (Rs)
86.0
98.0
107.1
118.9
135.0
P/BV (Rs)
2.7
2.4
2.2
2.0
1.7
RoCE (%)
13.9
11.9
10.4
10.8
13.1
RoNW (%)
18.7
18.2
13.5
14.5
16.4
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investor’s eye
stock update
Yedishi-Aurangabad tollway project achieves financial closure
value (BOT projects account for 31% of the total projects
awarded). We expect road projects to be awarded for at
least a year through the engineering, procurement and
construction (EPC) route which may benefit players like
Ashoka Buildcon, Sadbhav Engineering and Gayatri Projects.
However, a few large project awards through the BOT route
would be beneficial to players like Larsen and Toubro, IL&FS
Transportation Networks and IRB.
IRB has achieved the financial closure for its YedeshiAurangabad tollway project by tying up finance of Rs1,756
crore. The total cost of this project is Rs3,177 crore (viability
gap funding of Rs558 crore, equity of Rs863 crore and debt
of Rs1,756 crore). The average cost of debt for this project
is approximately 11.75% per annum. The concession period
for the project is 26 years. A consortium of lenders comprising
IDBI Bank, the lead institution, India Infrastructure Finance
Company, IDFC, Indian Overseas Bank, Union Bank of India
and Andhra Bank has financed this project.
Conclusion
IRB is well funded to meet the Rs2,600-crore equity
requirement for the next three years from internal
accruals. An improving macro environment (better
visibility of the tendering business, potential easing of
interest rates etc) and a potential upside from a better
than expected growth in traffic on the back of an
economic revival are the key re-rating triggers for the
stock. We continue to like IRB, which could offer
handsome gains over the next 12-18 months. We maintain
our Buy rating on the stock with a price target of Rs320.
Project award activity doubled during M10FY2015
We saw an increase in the project award activity during
M10FY2015 with the National Highways Authority of India
(NHAI) awarding 2,132km in the period (worth Rs13,318
crore) as against 1,041km (worth Rs5,620 crore) during
M10FY2014. Though the share of the build-operate-transfer
(BOT) projects has been reducing as per expectation, BOT
projects still form a sizeable component in terms of project
Projects awarded during April 2014 to January 2015
Stretch
Apr-14
NH^ no.
Total length
(in km)
Funded
by
TPC*
(Rs cr)
Agency
1
4-laning of Aurangabad-Yedishi section
2
2/4 laning of Jaisalmer-Barmer section of NH- 15
3
Tirumayam to Manamadurai section
4
Jodhpur to Pachpadra
112
86
EPC
265
Sadbhav Engineering
5
Bagundi to Barmer
112
74
EPC
206
GR Infra Projects
1
4-laning of Kaithal-Rajasthan border section
65
166
IRB Infrastructure
2
Construction of flyover at Bahalgarh and
additional 2-lane bridge near Rasoi
Jun-14
1
2-laning of Chappra-Rewaghat-Muzaffarpur section
Aug-14
1
Bikaner-Phalodi to 4-lane and 2-laning of NH-15
Sep-14
1
2-laning of Thanjavur-Pudkottai section
Oct-14
1
2/4-laning of Talchar-Dubari-Chandikhole
section
2
May-14
190
BOT
1875
IRB Infrastructure
15
131
EPC
482
GR Infra Projects
226
78
EPC
401
Dilip Buidcon
1
BOT
1393
EPC
78
Gawar Construction
102
73
EPC
416
Supreme Infrastructure
15
160
BOT
823
Ltd
M/s IRCON International
226
55
EPC
283
M/s Gayatri SPL
23 &
200
132
EPC
1477
M/s Corson Corivam
Construction SA
2/4-laning of Phalodi-Jaisalmer
15
160
EPC
568
M/s Corson Corivam
Construction SA
3
4-laning of Patna-Gaya-Dhobi
83
127
EPC
2016
4
2-laning of Karaikudi-Ramanathapuram
210
80
EPC
452
M/s Transstroy (India) Ltd
5
2-laning of Sitarganj-Tanakpur
125
52
EPC
226
M/s H.G. Infra
Engineering (P) Ltd
Nov-14
1
4-laning of Ludhiana-Talwandi Bhai section
Dec-14
1
2-laning of Jodhpur-Pokaran section
2
2-laning of Chas-Ramgarh
1
2-laning of Bijapur-Gulgarga-Homnabad
2
2-laning of Barmer-Sanchor-Gujarat border section
3
4-laning of Varanasi Bypass
Jan-15
211
95
6
EPC
47
M/s Ceigall India Ltd
114
139
EPC
456
M/s GR Infraprojects
23
78
EPC
342
M/s Dilip Buildcon
218
220
EPC
709
M/s L&T
15
106
EPC
538
M/s Monte carlo ltd
29 &
56
17
EPC
267
M/s Apco Infratech Pvt
Ltd
Total
^NH - National Highway
M/s IL&FS Engineering
and Construction
2,132
13,318
* TPC - Total project cost
Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a position in the companies mentioned in the article.
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