Supreme Industries Q1 Results Review - Volume, Margin Miss; Market-Share Gain To Sustain: Systematix

Systematix Research Report

Supreme Industries Ltd.’s Q1 volume/revenue/Ebitda/profit after tax (up 17%/11%/20%/27% YoY) came 6-15% below our estimates. Pipes volume grew 20% YoY (40% in CPVC); Ebit/kg came flat YoY (down 11% QoQ at Rs 16.5, 12.4% margin).

Volatile PVC resin prices impacted volume in June as channel kept below normal inventory. Blended Ebitda margin stood at 14.7% (down 162 basis points QoQ). Inferior product mix (agri) impacted margin. No inventory gain was affected in Q1.

After 33% surge in pipes volume growth in FY24 (versus 13.7% growth for industry), management’s ambition to grow 25-30% in FY25 (versus 12-15% for industry) is quite encouraging.

A Rs 15 billion capex plan for FY25 (including Rs 5 billion c/f capex) will enhance total capacity to over one million tonne (led by pipes capacity of 835 kt).

We maintain our earnings estimates and expect 19%/21%/20% CAGR in revenue/ Ebitda/PAT over FY24-26E (FY19-24: 13%/15%/19%), on strong 18% volume CAGR and normalized Ebitda margins (15.5%+).

Despite high capex, Supreme Industries’ strong free cash flow (~Rs 7 billion annually) and return on invested capital (~38% in FY26E) will sustain.

On scrip’s rich valuation (~47 times FY26E P/E), we maintain Hold with an unchanged target price of Rs 5,215 (45 times core FY26E EPS).

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