Buy Supreme Industries; target of Rs 1695: ICICI Direct

ICICI Direct's research report on Supreme Industries

Supreme Industries reported a strong set of Q2FY21 numbers led by a strong recovery in piping, packaging and industrial products categories. The key highlight of the results were: 1) demand for pipes and fittings used in the housing segments was robust across India barring Mumbai regions, 2) while the industry witnessed ~80% of pre-Covid level recovery in H1FY21, Supreme Industries saw ~94% recovery indicating market share gains from regional/ unorganised segments, 3) robust demand for packaging & industrial product categories with improved product mix, 4) sharp gross margin expansion, 5) value added product segment growth of 9% YoY, 6) continues with capex plan of ~ Rs 350 crore to expand capacity in Odisha, Assam and Tamil Nadu in the next two to three years. We believe Supreme Industries would continue to report revenue CAGR of 10% led by volume growth supported by good demand for plastic products from housing & industrial segments along with expansion in new geographies. We maintain our positive stance on the stock, considering its leadership position in piping industry, healthy b/s supported by strong promoter pedigree.

Outlook

We believe demand for the piping, packaging and industrial products would stay higher with a recovery in the housing sector and industrial activity. This coupled with market share gains supported by its robust supply chain network and capacity expansions would continue help drive volume growth in FY20-23E. We tweak our FY22E estimates and reiterate BUY rating on the stock with a revised target price of Rs 1695 (valuing 35x FY22E).