Accumulate Supreme Industries; target of Rs 4645: Prabhudas Lilladher

Prabhudas Lilladher's research report on Supreme Industries

Supreme Industries (SI) delivered robust volume growth of 23.2% ahead of expectations, mainly led by growth in Plastic pipe segment (up 29.9% YoY) while EBITDA/kg improved to Rs 25.9/kg (vs. Rs21.6 QoQ and Rs13.2 YoY). Volume growth was driven by plumbing and infra segments in Q2FY24. SI has increased its volume growth guidance to 23% from 20%+ (28% vs 23-25% in pipe segment) and also increase EBITDA margin guidance to 14.5% from 14%+ for FY24. We continue to believe SI is well placed to capture demand across its segments given 1) capacity expansion in different geographies, 2) new product expansion e.g. expanding in PVC window & doors manufacturing and adding 4 piping systems namely (i) PP multilayer silent pipe (ii) Gas Piping (iii) PE/AL/PE piping and (iv) PPR pipe, 3) wide pan India distributors n/w of 4500 channel partners, with 1443 distributors for pipe business; additional 100 in FY24, and 4) cash surplus of Rs5.8bn for funding expansion plans.

Outlook

We estimate FY23-26E Revenue/EBITDA/PAT CAGR of 14.9%/21.9%/21.6%, with volume CAGR of 15.5% and EBITDA margin improvement of 250bps. We upward revise our FY24/25E earnings estimates by 1.4%/1.3% and maintain Accumulate rating, at TP of Rs 4645 (earlier Rs4225), based on 40x Sep’25 core EPS plus 25% discount to Supreme Petrochem’s stake.