Realty to drive Supreme’s growth

Sale Of Co’s 17 Office Blocks In Mumbai & Excess Land Bank Will Spice Up Future Show

THE 30% profit growth reported by leading plastic product manufacturer Supreme Industries has failed to impress investors as its share has remained more or less stagnant since the company declared its March 2010 quarter numbers last Friday. Lacklustre operating performance and the company’s inability to complete the sale of its office property in Andheri in western Mumbai appear to be the main reasons behind the lukewarm investor response.
The company has 18 office blocks available for sale out of which it has been able to sell only one so far. In the December 2009 quarter, Supreme Industries had clocked Rs 20.5 crore revenues from the sale of 13,106 sq ft of premises at an average realisation of Rs 15,600 per sq ft from its commercial complex in Andheri. At this rate, its 2.5-lakh sq ft commercial complex is valued at Rs 390 crore and investors expected a steady flow of revenues from the sale.
The profit growth during the quarter was primarily driven by extraordinary gain from the sale of company’s land in Sewri in central Mumbai for Rs 3.72 crore. Excluding this, the company’s operating performance was not very impressive. Despite a 15.4% sales growth at Rs 512 crore, operating profits grew a mere 3.3% as margins shrunk. Halving of interest cost to Rs 8 crore was the other key driver of profit growth.
In line with its restructuring efforts over the past couple of years, the company recently shifted its manufacturing unit for protective packaging from Nandesari in Gujarat to Pune in Maharashtra, which has left it with another piece of land worth Rs 1.5 crore that can be sold in future.
The company’s operative performance, although uninspiring currently, could improve in future, as global polymer prices come under pressure with higher supplies from West Asia and China. Despite the strain on margins, the company has been consistently achieving volume growth.
Going forward, the sale of the company’s Andheri property and excess land will continue to spice up its financial numbers. At the current market price of Rs 510, the scrip is trading at a price-toearnings multiple (P/E) of 9, which appears reasonable. Investors can continue to hold the scrip for higher returns.