Supreme Industries Limited
January 25, 2012
“The Supreme Industries Limited
Conference Call”
January 25, 2012
Moderators:Mr. Kashyap Pujara
Mr. M.P. Taparia
Mr. P.C. Somani
Moderator:Ladies and gentlemen, good day, and welcome to the Q2 FY'12 Conference Call of the Supreme Industries Limited hosted by Enam Securities Private Limited. As a reminder all participants’ lines will be in the listen-only mode and there will be an opportunity for you to ask questions at the end of today’s presentation. Should you need any assistance during this conference call please signal an operator by pressing “*” and then “0” on your touchtone telephone. Please note that this conference is being recorded. I would like to hand the conference over to Mr. Kashyap Pujara. Thank you and over to you Sir.
Kashyap Pujara:Good evening everyone. Thank you for standing by. It is a pleasure to have with us the management of Supreme Industries Limited from the management side we are represented by Mr. MP Taparia, who is the Managing Director and Mr. P. C. Somani, who is the Executive Vise President. We will begin the conference call with some remarks on the results, which will be followed by Q&A session. I would like to hand over first to Taparia ji, over to you sir. Thank you.
MP. Taparia:Thank you very much Mr. Pujara. Good evening all the participants. I am MP Taparia, Managing Director of the Supreme Industry Limited. I welcome all the participants who are participating in the discussion of unaudited financial results of our company for the second quarter half year that ended December 31, 2011.
First of all I will give the highlights, which are as under:
The net revenue of the company for the 2nd Quarter under review was Rs. 769.71 crores as against Rs. 585.28 crores for the preceding 2nd Quarter of the previous year.
The net revenue of the Company for the half year ended 31st December, 2011 was Rs.1270.89 crores as against Rs.1058.72 crores for the corresponding half year of the previous year.
The Company processed 1,11,455 MT of polymers and achieved net product turnover of Rs. 1158.95 Crores during the 1st half of the current year against processing of 1,01,852 MT and net product turnover of Rs 976.11 crores in the corresponding period of previous year achieving volume & product value growth of about 9% and 19% respectively.
Net profit before interest, depreciation and taxes during the half year under review have gone up by 18.72% to Rs. 193.51 crores from Rs. 163 crores in the corresponding period of the previous year.
The consolidated net profit after tax during the half year under review has gone up to Rs. 91.83 crores as against Rs. 87.31 crores in the corresponding period of the previous year.
The consolidated earnings per share during the half year under review has gone up to Rs. 7.23 as against Rs. 6.87 on equity face value of Rs. 2 per share.
The growth in the products segment of the company for the half year ended 31st December, 2011, has been as under :-
(i)Plastic Piping system business grew by 18% in volume and 33% in value terms.
(ii)Packaging product segment grew by 5% in volume and 14% in valueterms.
(iii)Industrial products segment grew by 3% in volume and 10% in value terms.
(iv)Consumer products segment grew by 2% in value and had a degrowth of 20% in volume terms.
The overall sales in the value-added products during the 1st half year have gone up to 31.49% of the Product turnover as against 30.10% in the corresponding half year of the previous year.
Company's ongoing expansion plans involving total capital outlay of about Rs.200 crores are progressing well. Effective steps including purchase of land , construction of building and ordering of key equipments have been taken to set up units for Cross Laminated Film & products & Composite Cylinders at Halol (Gujrat) and Protective Packaging Products at Hosur (Tamilnadu). First phase capacity of 6,000 TPA of Cross Laminated Film and 4,00,000 Composite Cylinders is likely to be operational during September-October, 2012. The Protective Packaging Products unit at Hosur is likely to be operational before the end of current financial year.
During the 1st half of the current year, Company has realised Rs. 6916 lacs from sale of 41,678 sq. ft. of the premises. The Company has further negotiated sale of 13,116 sq. ft. premises at a consideration of Rs. 2165 lacs and received advance of Rs.324.75 lacs. Sale is likely to be completed during current quarter.
During the current year, the Company envisages annual growth in volume and product value of about 12% and 20% respectively over the previous year.
This is a brief and overall summary. Thank you for your patience. Now, I and my colleague, Mr. P.C. Somani are available to reply to your various queries going to be raised by all of you. Thank you very much for your understanding.Thank you.
Moderator:Thank you. The first question is from of Mr. Kartik Mehta from Sushil Finance. Please go ahead.
Kartik Mehta:Good evening Sir and congratulations for the good set of numbers during tough economic environment. Sir my question pertains to raw material cost as we see that raw material cost as a percentage of turnover has gone up during this quarter. Any specific reason as you know it is related to crude oil & its derivatives. So how is the scenario happening over there and also would like to know the inventory what we are carrying anyfor that?
MP. Taparia:The raw material cost is going to remain at elevated level and we are in a position to pass on the increased cost, with a time lag. In Q2 there was some reduction in raw material price in beginning of the quarter and which has affected our operating margin, the prices started growing up and inventory of raw material what we are carrying has got some strength in it and we are very comfortable to pass on the increased cost of raw material to our product price.
Kartik Mehta:So we hope to maintain at least this sort of margin?
MP Taparia:We anticipate that our product margin which took a beating in the second quarter will overall go up. In second quarter our product margin has come down to 12.29%. For the whole year we anticipate our product operating margin to be around 13.5%.
Kartik Mehta:So second half we should see some impact of the price hike what you have taken in the first half?
MP Taparia:That we will take and also some inventory gain as we had some inventory loss in second quarter we will have inventory gain in Q3.
Kartik Mehta:Sir, on the segment wise I just missed the number if you can just repeat again on the volume and values side. The industrial you said 3% volume growth, 10% value growth and piping 18% volume growth and 33% value growth, and remaining two segment I missed?
MP Taparia:Packaging Product Segment grew by 5% in volume and 14% in value terms. Consumer product segment in value term has gone up 2% but had a degrowth of 20% in volume terms and this degrowth has come as we have decided to close off our plastic mat division and the closureof Mat business started beginning this July and the process will be over by February 2012. So that is why marginally due to the closure of the business there is a degrowth in the volume. The degrowth in the volume in our furniture business also, value wise there is no degrowth but includes the sale of our value added product in the segment.
Karthik Mehta:When we say that our value added products are 31.49% those are majorly from which segment out of this four?
MP Taparia:These are from all those segments except industrial component.
Karthik Mehta:Except for industrial?
MP Taparia:Except for industrial where there is no value added product but in all other segments some percent or the other is value added product.
Karthik Mehta:Are you seeing any sign of moderation in terms of volume growth particularly in the industrial and consumers?
MP Taparia:Industrial segment we are now seeing revival of demand. We have bad time in our automobile sector in first half, since this month we are now seeing some upsurge in demand in industrial sector and in consumer product segment vizin furniture.January – June is a peak season and we are optimistic of having good growth in this six month period.
Karthik Mehta:Sir just last question on the consumer side we have just seen 2% price hike so is it like that there is lot of competition and we are unable to pass it on or consumers are not so keen to accept that?
MP Taparia:Consumer product the demand was poor in furniture side and also as informed you earlier we have closed our Mat division and that was a part of the consumer product division.
Karthik Mehta:Thanks a lot sir and wish you good luck.
Moderator:Thank you. The next question is from Chirag Setalvad from HDFC Mutual Fund. Please go ahead.
Chirag Setalvad:Sir couple of questions actually if you could give us the sales break up within the Plastic division?
MP Taparia:I will request Mr. Somani to give this sales break up.
PC Somani:For this first half year the Plastic PipingSystem has a turnover of Rs.515.60 Crores, Packaging Product Rs.306 Crores, Consumer Product Rs.122 Crores and Industrial segment Rs.231Crores.
Chirag Setalvad:The first half what sort of subsidies did the company book?
PC Somani:In theFirst half the industrial subsidy is Rs.12.1 Crores.
Chirag Setalvad:Sir can you give us some sense because the plastic business clearly there is seasonality and the second half is much larger than the first half, in the first half so you have done a little close to almost Rs.1200 Crores what typically is the seasonality that one can see in the second half, how large will the second half be compared to the first half?
MP Taparia:Second half we anticipate a turnover of Rs.1600 Crores. In our product segment we had a big business with farmer and regarding growth in our plastic piping business after the crops are harvested the demand is quite bullish starting from March up to June. We are going to have big growth in our tarpaulin segment and there is a bigger buying of tarpaulin prior to monsoon. In furniture segment also after the crops are getting harvested and in the marriage season the demand is robust. Then we see in industrial component also the demand is always better from February to May, and we have got better demand from our soft drink Crate people that is Pepsi and Coke for preparing for the summer season.
Chirag Setalvad:What kind of operating margins are you expecting in the second half and the second quarter you seen about 12%-12.3% what kind of margins would you anticipate in the second half?
MP Taparia:In the third quarter we anticipate operating margin in excess of 14% and for the whole year our operating margin will be around 13.5%.
Chirag Setalvad:Thank you very much Sir.
Moderator:Thank you. The next question is from the Sriraj Mehta from Equirus Securities. Please go ahead.
Sriraj Mehta:Sir, just a few questions if I go through your first quarter update you in one of the footnotes there was a pre-selling of roughly Rs.78-odd Crores of from Supreme Chambers but if I look at the construction income in the Q3 and Q2 it is roughly Rs.40-odd Crores can you just please explain the difference here?
MP Taparia:One of the owner who had purchased property worth Rs.22 Crores and who gave an advance of Rs.3 Crores the advance is lying with us.He was to conclude the deal by December 2011 somehow his financial arrangements were not complete so he asked for extension of time and that deal is going to be completed in this quarter and that was the reason why we could not complete the sale as was expected in Q3.
Sriraj Mehta:If I could compare just one number with your notes on in consumer segment you said 2% volume growth and -20% value growth is that correct?
MP Taparia:We said 2% value growth and volume degrowth 20%.
Sriraj Mehta:As you said you have done roughly Rs.500-odd Crores of piping revenue this quarter how much of that would be CPVC?
MP Taparia:No. Piping segment for half-year may be Rs.500 Crores.
Sriraj Mehta:Half year, we had done 515 Crores.How much of that would be CPVC, UPVC?
MP Taparia:Overall we anticipate a sale of 160 Crore for the year so first half is Rs.65 Crore CPVC and then we have apart from UPVC we sale of polythene pipe we have a sale of PPR pipe so all together the sale is around Rs.500 Crores.
Sriraj Mehta:Sir if you can just give a quantum to the kind of inventory locked as you saw because what I am trying to understand is this Rupee depreciation in second quarter how was it that company actually ended up with an inventory loss?
MP Taparia:Inventory loss is due to fall in the raw material price. PVC price internationally came down from $1100 to $900.
Sriraj Mehta:Actually Rupee also depreciated by almost 15%-16%?
MP Taparia:Rupee depreciated over a period and the loss comes immediately abruptly and as we told earlier we will be having inventory gain now in January-March, so now the raw material, which is lying in our godown isat lower cost then the current domestic selling price.
Sriraj Mehta:If you can just give a sense of when you say that you can pass on with the lag what kind of lag are you looking in individual segment?
MP Taparia:In plastic pipe we pass it next day.In consumer segment we pass it in a time lag of 2 to 3 weeks. In industrial segment we pass immediately and in material handling also we pass it in a gap of 2 to 3 weeks. Polyethylene plastic pipe we pass it on within 2 to 3 weeks and cross laminated film product we always keep a margin in our hands so we have not to suffer any loss on account of increase in raw material cost. We always keep a cushion.
Sriraj Mehta:Sir if you look at the packaging division and 5% volume growth and 14%% kind of a value growth would this be majorly driven by Tarpaulin or because in one of the foam segments you were actually trying get out of it?
MP Taparia:Now we are not getting out of any of the division and in cross laminated film product it is apart from Tarpaulin we are making many products which are ready to use.It is not only Tarpaulin but there are varieties of cover which we manufacture ready for use and that segment is showing very robust growth in demand locally and internationally.
Sriraj Mehta:If you can just let me know out of consumer segment what will be the commodity furniture and what would be specialty furniture just the percentage breakup?
MP Taparia:65% will be commodity and 35% is the specialty
Sriraj Mehta:Thanks a lot and if I have any more questions I will come back.
Moderator:Thank you. The next question is from SachinKasera from Lucky Securities. Please go ahead.
Sachin Kasera:Good afternoon sir. If we see the results for the September ending wherein the note we had mentioned that we were looking at a volume growth of around 15% and value growth of around 20% and if you read the current result then the note mentioned as a volume growth that we are looking is now closer to around 12% so are we seeing some slow down because of which we are anticipating almost 3% reduction in volume for FY’12 compared to what are foreseeing in when we had declared the September quarter number?
MP Taparia:We are seeing this slow down in Tata Swach what we are making for the water purifier we are seeing slow down in that segment. We are seeing some slow down in material handling division which are going for industrial component.We are also seeing some slow down in Crate business. We are making 10,000 product, the products where we are seeing some slow down we want to be cautious and give a conservative estimate.
Sachin Kasera:Are you fairly confident that this 12% at least we will be able to achieve or if things continue to deteriorate even this 12% would be difficult to achieve?
MP Taparia:If you have seen in first quarter we are grown hardly by 3% to 4% and in second quarter by volume we are grown in excess of 14% so we are very confident now that 12% isa number we may only exceed, we have no reason to go below 12% by volume.
Sachin Kasera:Secondly on the consumer side you said as a volume degrowth of 20% and part of it was because you closed down the Mat division so if you were to exclude that impact what would be the volume growth in a consumer division?
MP Taparia:In furniture there are volume degrowth of 14%.
Sachin Kasera:Next question on the value added products can you just tell us how as the contribution of value added product first six month moved for the company vis-à-vis same period last year and full year last year?
MP Taparia:Value added product in first half had grown up to 31.96%.Last year was 30.17% and for the full year the anticipate value added business to be 31.25% and last year was 29.34%.