Capitaline

Analyst Meet / AGM 23-May-20

Conference Call

Supreme Industries

Business should return to normal by September 2020

Supreme Industries conducted conference call to discuss the financial results and performance of the company for the quarter ended Mar'20. Mr. M. P. Taparia- Managing Director, Mr. P.C. Somani- Chief Financial Officer (CFO) and Mr. R.J. Saboo – VP (Corporate Affairs and Company Secretary) of the company addressed the Concall.
Highlights of the Concall

Plastic pipe business grew by 8% in volume and 9% in value terms in FY20 compared to FY19, while Packaging Product segment business degrew by 2% in volume and 8% in value terms. Industrial product segment business decreased by 13% in volume and 24% in value term, Consumer product segment business degrew by 3% in volume and 4% in value term

The government's various measures to support the economy which is around 10% of India's GDP is expected to give a boost to the economy from second quarter of FY21

Various initiatives taken by the center and the state government have given a desired boost to the plastic pipe business. The company expects a quantum jump in construction of affordable houses.

The company expects that by September this year, the business should be returning to normal and it should move to growth path from Nov'20

PVC prices have started rising. They were falling from 18th march up to 1st May by Rs 13 per kilo. Thereafter the resin prices has gone up two times by Rs 2-3 per kilo.

Pipe margins were higher during the quarter but are not on a sustainable basis. Higher margins was due to better product mix-less of agri products, secondly PVC prices were rising from Jan'20 to 18th March resulting into inventory gain and material procurement discount on fulfillment of its commitment.

Total Net Borrowing of the company stands at Rs. 217 crore as on 31st March ,2020 as against Rs. 162 crore as on 31st March, 2019. Average Net Borrowing level during the current year remained at Rs. 205 crore against Rs. 266 crore in the previous year. Average Cost of Borrowings as on 31st March, 2020 increased to 8.35 % p.a. as against 8.23 % p.a. as on 31st March, 2019.

The company has divested its whole 20.67% stake Kumi Supreme India Private Ltd to Kumi (Thailand) Co. Ltd for a consideration of Rs. 24.32 crore & consequently terminated the existing joint venture agreement between the Company and Kumi Supreme India Private Ltd. As an outcome of sale, Kumi Supreme India Private Ltd now ceases to be an associate of the company.

On 25th March, 2020, the Government of India has declared this pandemic a health emergency, ordered temporary closure of all non-essential businesses, imposed restrictions on movement of goods/material, travel, etc. As the nature of business performed by the company majorly fell under non-essential category, these restrictions had substantially reduced its operations at various plants between 25 to 35 days. The Ccmpany has since, after receiving applicable permissions, partially commenced operations including despatch of goods to its' customers at all of its manufacturing facilities and scaling up the same gradually.

Mumbai Office of the Company is still under lockdown. Other offices in various parts of the country are functional complying with the Covid guidelines by the Central/State Governments. Most of the staff is equipped to work from home and all functions are being performed smoothly.

Some of the plants are working at less than optimal level due to non-availability of associates, many of whom have migrated to their native. It would continue to affect production in some of the plants. However, the company is taking all steps to ensure no disruption in its supply chain and meeting its' customers' demand.

Demand for Agri products was quiet brisk during April and continued in the month of May also. Various piping products for Agriculture, Cross Laminated Film products like Covers, Tarpaulins and Pond lining etc. have shown good business potential. Performance Pakaging film which is intermediary to essential commodities is doing well from second week of April onwards. Plants of Protective Packaging products and Material Handling products are also working albeit at lower capacity utilisation.

Demand for furniture products is at low level since shops and markets are not opened up in major part of the country,

The Industrial component customers are unable to commence their operations thereby impacting company's demand and supply to them. Piping Products demand for construction and housing is started in a small manner and would impact the business and profitability till normalcy is restored in major part of the country

The company has sufficient liquidity in hand and is able to meet all its obligations in timely manner. Although business conditions are very disruptive and uncertain, the company is neither looking at any lay off nor any reduction in salaries of its' employees which are its biggest assets and strength. Further all regular payments to employees as well as vendors are made on time in normal course without resorting to any deferrals.

Polymer suppliers have also adjusted their demand supply scenario and accordingly raw material prices which attained the bottom have also started increasing trend. Prices in international market have also gone up by USD 50 to 90 per tonne. The company is able to pass on such increase in the polymer prices.

The company's receivable, inventories and other current assets are in good shape. It is confident in realising their values in due course. The company's cash fixed expenses are in the range of about 35 to 40 crore a month. With resumption of operations at all its plants, it is hopeful of recovering all its fixed cost and generating cash surplus from May, 2020 onwards.

Considering the continuing uncertainties, the company will continue to closely monitor any material changes to future economic conditions and plan accordingly.

Supreme Industries along with promoter families have contributed Rs. 8.35 crore in aggregate to PM CARES FUND and relief funds of various state governments.

The company addressed and settled the issues regarding the complaints of Composite cylinders from Bangladesh during the financial year. Newly designed product samples sent to customer at Bangladesh have been successfully tested and meets the required parameters. It expects good business volume from this customer during the current year.

With an expected growth in the businesses of several verticals, the company took steps to put new production units and also expand capacity in several of its existing units and incurred capex of Rs. 241 crore in the year 2019-20 and further committed capex of about Rs.182 crore which shall fructify for production & usage during the course of current year.

During the current year i.e. 2020-21, the company envisages new capex in the range of about Rs. 150-200 crore- to increase PVC Pipe capacity at Kanpur, Gadegaon and Kharagpur, to increase HDPE Pipe capacity at Malanpur, Gadegaon and Kharagpur, to increase DWC Pipe capacity at Kharagpur, to increase CPVC Pipe capacity at Malanpur and Kharagpur and adding several capacities of Water Tank moulds and additional Roto Moulding machines. The company has negotiated purchase of 30 acre land to put up Plastic Piping complex at Orissa. Due to lockdown the legal possession of the land has been delayed. The company will initiate actions to put the complex after the possession of the Land. The drawings of various equipment to put up Cross Plastic Film project at Get Muvala at Halol in Gujarat are under preparation in Romania and Switzerland. Due to Covid-19 lockdown the process is taking more time to finalise the drawings. The company will move expeditiously after working drawings are frozen to put up the Plant.

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