Buy Supreme Industries; target of Rs 5040: Prabhudas Lilladher

Prabhudas Lilladher's research report on Supreme Industries

Supreme Industries’ (SI) Q3FY25 volume growth was 3.0% below with our estimates, due to lower volume in the plastic pipe segment (up 3.7% YoY against our est. of 8%) because of low demand in agri and infra segments, with extended rainfall in south India, and delay in ADD on PVC resin resulted de-stocking in the channels. EBITDA margin contracted by 320bps YoY with decrease in EBIT/kg to Rs10.9 (down 37.6% YoY) in pipe segment mainly due to inventory losses in pipe segment. SI has revised its guidance for overall volume growth to ~12% with EBITDA margin of 13.5-14% for FY25, and volume growth for pipe segment to 15-16%. SI has planned brownfield expansion at existing manufacturing sites and establishing new plants near Patna (Bihar), Malanpur (MP) and Kathua (J&K). We estimate FY24-27E revenue/EBITDA/PAT CAGR of 12.8%/12.1%/12.4%, with volume CAGR of 12.7% and EBITDA margin contraction of ~30bps. Maintain ‘BUY’.

Outlook

We have downward revised our earnings estimates for FY25/FY26/FY27E by 12.2%/8.0%/6.5% and revised TP to Rs5,040 (Rs5,721 earlier), based on 42x FY27E earnings.