ICICI Securities's research report on Supreme Industries
Supreme Industries (SI) has reported Q1FY25 blended plastics volume growth of 17% YoY (5-year CAGR of 8.9%), driven by 19.5% YoY volume growth in pipes segment (5-year CAGR of 10.5%). Blended EBIT/kg grew 3.1% YoY (on low base) to INR 17.8 (-17.4% QoQ) with pipes EBIT/kg being flat YoY at INR 16.5 (-10.4% QoQ) due to adverse product mix (higher share of agri). Management expects demand tailwinds to continue and has maintained its volume guidance of 25% YoY for pipes in FY25. We broadly maintain our estimates but downgrade the stock to REDUCE from Hold on rich valuations (46.6x PER FY26E) with a rolled-over SoTP-based Jun’25E TP of INR 4,905, set at revised core business target P/E of 39x (~30% premium to 10-year average 1-year forward P/E vs 20% earlier).
Outlook
We downgrade the stock to REDUCE from Hold on rich valuations (46.6x PER FY26E, which is a premium of ~57% to its 10-year forward PER) as we believe the current stock price captures both healthy volume (which may come under near-term risk due to volatile resin prices) and high earnings multiple (which may falter if volume growth is lower than guidance). Our rolled-over Jun’25E SoTP-based revised target price is INR 4,905 (earlier INR4,204). Key risks: 1) Better than expected volume growth in pipe segment, 2) inventory gains due to PVC resin price movement.
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