Supreme Industries Q1 Review - Strong Pipes Volume; Lower Prices, Inventory Loss Hurt Net Profit: Systematix

Systematiix Research Report

Supreme Industries Ltd.’s Q1 profit after tax (flat YoY, down 40% QoQ) was dragged by lower realisation (pipes down 25% YoY, 12% QoQ), inventory loss (~Rs 400 million, 1.7% of revenue) and joint venture profits (down 63% YoY).

On strong volumes (up 36% YoY and 1% QoQ; pipes up 48% YoY), management has upped its volume growth guidance for FY24 to 20% plus, led by 23% growth expectation in pipes.

Post weak Q1, we cut FY24E/25E profit after tax estimates by 10%/4% owing to weak margins and profit share of JV.

We now estimate 9%/19%/17% compound annual growth rate in Supreme Industries’ revenue/Ebitda/profit after tax over FY23-25E (FY18-23: 13%/9%/15%), respectively, on healthy ~14% volume CAGR (16% in pipes) and normalised margins.

Despite elevated capex, Supreme Industries should sustain strong free cash flows and healthy return on equity/return on capital employed (~21%/ 25% in FY25E).

After rallying 35% in last four months and at ~34 times FY25E price/earning on current market price, we maintain 'Hold' rating on Supreme Industries, with a lower target price of Rs 3,187 (37 times FY25E core P/E, 15 times to JV share), earlier Rs 3,243.

Volume/margin trajectory are key near-term monitorables.

Click on the attachment to read the full report:

DISCLAIMER

This report is authored by an external party. BQ Prime does not vouch for the accuracy of its contents nor is responsible for them in any way. The contents of this section do not constitute investment advice. For that you must always consult an expert based on your individual needs. The views expressed in the report are that of the author entity and do not represent the views of BQ Prime.

Users have no license to copy, modify, or distribute the content without permission of the Original Owner.