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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.
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