Breaking Down Supreme Petrochem Limited Financial Health: Key Insights for Investors

Understanding Supreme Petrochem Limited Revenue Streams

Revenue Analysis

Supreme Petrochem Limited, a prominent player in the petrochemicals sector, has shown a diverse range of revenue streams. For the fiscal year ended March 2023, the company reported total revenue of ₹2,024 crore, reflecting a compounded annual growth rate (CAGR) of approximately 7% over the past five years.

The company’s primary revenue sources include:

• Polystyrene and Expanded Polystyrene (EPS)
• Polymer and Styrene Monomer products
• Speciality Chemicals

In FY 2023, the revenue contribution from each segment was as follows:

Year-over-year revenue growth rates from FY 2021 to FY 2023 demonstrate a positive trend:

• FY 2021: ₹1,800 crore
• FY 2022: ₹1,873 crore (4% growth)
• FY 2023: ₹2,024 crore (8% growth)

The significant changes in revenue streams include an increase in the demand for EPS products, driven by a growing construction sector and rising consumer goods manufacturing. This segment recorded a substantial growth of 15% year-over-year, highlighting its importance in the overall revenue structure.

Moreover, the geographical breakdown of revenue also paints an interesting picture. For FY 2023, domestic sales accounted for 82% of total revenue, while exports contributed 18%. This geographical diversification has helped mitigate risks associated with market fluctuations.

Overall, Supreme Petrochem Limited's revenue analysis reflects a stable and growing business model, driven by both product innovation and market expansion.

A Deep Dive into Supreme Petrochem Limited Profitability

Profitability Metrics

Supreme Petrochem Limited has displayed interesting trends in its profitability metrics over recent years. An examination of gross profit, operating profit, and net profit margins provides valuable insights for investors.

For the fiscal year ending March 2023, the key profitability figures are as follows:

These figures signify a stable performance, with gross profit margins showing an upward trend from 29.0% in March 2022 to the current 31.5% in March 2023. This reflects improved cost management and a favorable market environment.

Examining the operating profit, the company maintained a margin of 22.5%, which compares favorably against the industry average of approximately 20%. The consistent operational efficiency demonstrates effective management of production costs and overheads.

The net profit margin of 17.0% also highlights a solid profitability position; this is notably higher than the industry benchmark of 15%. Supreme Petrochem has benefitted from optimized pricing strategies and a controlled cost structure.

Analyzing historical performance, the trends in profitability metrics indicate a positive trajectory. Over the past three years, gross profit has grown at a compound annual growth rate (CAGR) of approximately 10%, while operating profit has increased by around 9%.

In terms of operational efficiency, Supreme Petrochem's cost management has showcased resilience. The gross margin trend illustrates a steady increase, primarily driven by reduced raw material costs and enhanced production efficiencies. The company's focus on streamlining operations has resulted in a consistent decline in operating expenses as a percentage of revenue, now sitting at around 9% for FY 2023.

In summary, Supreme Petrochem Limited has maintained robust profitability metrics that highlight its operational effectiveness in a competitive industry landscape. The company's ability to surpass industry averages in key profitability ratios positions it as a significant player for investors to note.

Debt vs. Equity: How Supreme Petrochem Limited Finances Its Growth

Debt vs. Equity Structure

Supreme Petrochem Limited's financial structure reflects a balanced approach to growth, marrying both debt and equity financing. As of the fiscal year ended March 2023, the company's total debt stood at ₹1,500 crore. This debt comprises short-term borrowings of approximately ₹600 crore and long-term debt of around ₹900 crore.

The debt-to-equity ratio for Supreme Petrochem is reported at 0.5, which is notably lower than the industry average of 1.2. This indicates a conservative approach to leveraging in comparison to its peers in the petrochemical sector.

In recent years, Supreme Petrochem has engaged in various debt issuances, including a ₹300 crore bond issuance in April 2023 aimed at refinancing existing debt and funding expansion plans. The company currently holds a credit rating of AA- from CRISIL, indicating a strong capacity to meet its financial commitments.

The balancing act between debt and equity funding is essential for Supreme Petrochem. The company has strategically utilized debt to finance its capital expenditures while maintaining a robust equity base. For the fiscal year 2023, the total equity stood at ₹3,000 crore, underscoring a solid financial foundation.

Investors should note that the company's prudent use of debt, facilitated by a favorable credit rating, positions it well to fund future growth projects without over-leveraging. The ongoing commitment to maintaining a healthy debt-equity balance could serve as a buffer against market volatility, making Supreme Petrochem a compelling option for investors looking for stability in the petrochemical industry.

Assessing Supreme Petrochem Limited Liquidity

Liquidity and Solvency

Supreme Petrochem Limited has reported various financial metrics that provide insights into its liquidity position. The current ratio and quick ratio serve as key indicators of the company's ability to meet its short-term obligations. As of the latest financial year-end, the company's current ratio stood at 1.67, and the quick ratio was reported as 0.96.

Analyzing the working capital trends, Supreme Petrochem's working capital has shown a positive trajectory over the last three years. In the last fiscal year, working capital amounted to ₹1,500 million, compared to ₹1,200 million in the previous year, indicating a growth of 25%.

Furthermore, an overview of the cash flow statements reveals critical insights into operating, investing, and financing cash flow trends:

The operating cash flow has consistently improved, reflecting the company's operational efficiency. The latest figure of ₹800 million represents a 23% increase from the previous year. In contrast, investing cash flow has turned negative as the company has invested heavily in capacity expansion and modernization efforts, resulting in ₹(250 million) in FY 2022.

Potential liquidity concerns arise when considering the quick ratio, which, although hovering below 1.0, indicates a reliance on inventory to meet short-term liabilities. Nonetheless, the overall liquidity profile remains stable, backed by strong operating cash flows. Supreme Petrochem's continuing emphasis on efficiency and prudent financial management suggests that liquidity risks are adequately addressed, even amid substantial capital expenditures.

Is Supreme Petrochem Limited Overvalued or Undervalued?

Valuation Analysis

Supreme Petrochem Limited (SPL) presents interesting metrics for investors focused on valuation. As of the most recent financial data available, here are the key valuation ratios:

The stock price of SPL has fluctuated over the last 12 months, with a significant trend noted:

In terms of dividend distribution, SPL reports the following:

Analyst consensus regarding the stock's valuation indicates a mix of recommendations:

Key Risks Facing Supreme Petrochem Limited

Risk Factors

Supreme Petrochem Limited operates in a highly competitive environment, exposing the company to several internal and external risks that may impact its financial health. Understanding these risks is crucial for investors considering their position in the stock. The following outlines key risk factors facing Supreme Petrochem Limited:

Key Risks Facing Supreme Petrochem Limited

• Industry Competition: The petrochemical industry is characterized by intense competition. As of FY 2023, Supreme Petrochem's market share stands at approximately 12% in the styrene and polystyrene segment. Competitors like Reliance Industries and BASF are continuously innovating and expanding their production capacities, posing challenges to market share.
• Regulatory Changes: The industry is subject to stringent environmental regulations that may impact operational costs. In FY 2023, the introduction of the new waste management rule increased compliance costs by 15%, affecting profit margins.
• Market Conditions: Fluctuations in crude oil prices directly affect raw material costs. In Q2 2023, the average crude oil price rose to $85 per barrel, an increase of 20% compared to the previous quarter, impacting cost structures significantly.
• Operational Risks: Supreme Petrochem relies heavily on its manufacturing plants. In the last earnings report, it was noted that a major fire incident in one of the facilities led to a production downtime of 2 weeks, resulting in a revenue impact estimated at ₹50 crore ($6 million).
• Financial Risks: The company has a debt-to-equity ratio of 1.2 as of FY 2023, which indicates a higher financial risk amid rising interest rates. A potential increase in interest rates by 50 basis points could increase debt servicing costs significantly.
• Strategic Risks: Supreme Petrochem's expansion into new markets must be executed carefully. As of Q1 FY 2024, the performance in Southeast Asia has been less than expected, with revenues from that region declining by 10% year-over-year.

Mitigation Strategies

Supreme Petrochem has implemented several strategies to mitigate these identified risks:

• Diversification: The company is diversifying its product line, increasing its focus on specialty chemicals to reduce reliance on commodity products.
• Technology Investments: Investments in technology have led to improved operational efficiency, aiming for a reduction in production costs by 8% over the next year.
• Supply Chain Management: Strengthening supply chain partnerships to stabilize raw material costs, thereby mitigating risks from market fluctuations.
• Financial Planning: Adopting prudent financial management practices to maintain liquidity and reduce the debt-to-equity ratio goals to 1.0 by FY 2025.

Recent Financial Data

In summary, understanding and monitoring these risk factors, along with the associated mitigation strategies, are critical for stakeholders considering their engagement with Supreme Petrochem Limited.

Future Growth Prospects for Supreme Petrochem Limited

Future Growth Prospects for Supreme Petrochem Limited

Supreme Petrochem Limited, a key player in the petrochemical industry, is well-positioned to capitalize on various growth opportunities that could enhance its market position and financial performance. This section delves into the key drivers and projections influencing the company's growth trajectory.

Key Growth Drivers

• Product Innovations: Supreme Petrochem has been actively investing in research and development, focusing on expanding its range of products, particularly in polystyrene and its derivatives. The company reported a capital expenditure of ₹100 crores in FY2023 to enhance production capabilities.
• Market Expansions: The company is targeting emerging markets in Southeast Asia and Africa, where demand for petrochemical products is increasing. Projections indicate that the Asia-Pacific region will account for approximately 40% of global demand for polystyrene by 2025.
• Acquisitions: Supreme Petrochem is exploring strategic acquisitions to enhance its product portfolio and market share. Recent reports suggest potential acquisitions worth ₹200 crores are under review to bolster its regional presence.

Future Revenue Growth Projections

Analysts forecast that Supreme Petrochem's revenue will grow at a CAGR of 12% from FY2023 to FY2026, driven by strong demand in various sectors, including construction and packaging. The expected revenue trajectory is as follows:

Earnings Estimates

According to estimates, the company's earnings per share (EPS) is projected to increase from ₹30 in FY2023 to ₹40 by FY2026, reflecting an annual growth rate of approximately 8%.

Strategic Initiatives and Partnerships

The company has established partnerships with various international firms to enhance its technology and product offerings. For instance, a collaboration with a European technology firm aims to introduce eco-friendly polystyrene products by 2024, tapping into the increasing demand for sustainable materials.

Competitive Advantages

Supreme Petrochem holds a competitive edge through:

• Strong Brand Reputation: Established presence in the market with over 30 years of operational experience.
• Efficient Supply Chain: Robust distribution network that ensures timely delivery and reduced operational costs.
• Cost Leadership: Utilizing advanced technology to maintain lower production costs compared to competitors.

In conclusion, Supreme Petrochem Limited's growth potential is substantial, driven by product innovations, market expansions, and strategic initiatives. As the company continues to leverage its competitive advantages, it is well-equipped to navigate the evolving petrochemical landscape and achieve sustained growth.