Prabhudas Lilladher's research report on Supreme Industries
We upgrade our recommendation to ‘BUY’ from ‘ACCUMULATE’ in view of the significant correction in stock price in the near past. Supreme Industries’ (SI) Q2FY25 volume growth was 0.2% below with our estimates, due to lower volume in the plastic pipe segment (down 0.7% YoY) and decrease in EBIT/kg to Rs14.7 (down 24.5% YoY) due to inventory loss in pipe segment. Plastic pipe realization corrected by 4.1% YoY due to fluctuations in PVC resin prices, change in product mix and competitive pricing. SI has revised its guidance for overall volume growth to 14-15% with EBITDA margin of 14.5-15.25% for FY25, and volume growth for pipe segment to 16-18%. SI has planned brownfield expansion at existing manufacturing sites and establishing new plants near Patna (Bihar), Malanpur (MP) and Kathua (J&K). We continue to maintain our positive view on SI given 1) capacity expansion in different geographies, 2) new product expansion, 3) pan-India distributors, and 4) cash surplus of Rs6.74bn for funding expansion plans.
Outlook
We estimate FY24- 27E revenue/EBITDA/PAT CAGR of 15.2%/16.5%/16.3%, with volume CAGR of 13.8% and EBITDA margin improvement of 50bps. We have downward revised our earnings estimates for FY25/FY26/FY27E by 6.6%/5.2%/4.2% and revised TP to Rs5,752 (Rs6,069 earlier), based on 50x FY27E earnings. Upgrade to ‘BUY’.
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