Supreme Industries' (SI) Q4FY22 performance was below our expectations with blended volumes increasing 15.6% YoY and revenues increasing 22.8% YoY, driven by a recovery in agri demand for plastic pipes (pipes volume growth of 27% YoY on a tepid base) and higher YoY realisations. Owing to a sharp decline in gross margins (-
412bp QoQ/-10.7ppt YoY), operating margins stood at 15.3% (-103bps QoQ/-916bps YoY), resulting in EBIDTA / PAT decline of 23.2%/28.1% YoY. As per management, Mar'22 saw historically high dispatches for plastic pipes aided by a pick-up in agri pipe segment. Going ahead, management is optimistic of strong demand, backed by housing and agriculture segment. Management has guided for at least 15%+ volume growth in FY23 driven by the piping segment and a tepid base. We broadly maintain EBIDTA estimates but increase PAT estimates by 6%/4% for FY23E/24E due to the better-than-expected performance by the associate company. Upgrade the stock from Add to BUY post the recent stock correction with a revised SoTP-based Mar'23E target price of Rs2,334 (earlier Rs2,323).
- Recovery in agri pipes demand drives volume growth: SI reported blended plastic volume growth of 15.6% YoY and revenue growth of 22.8% YoY on a tepid base. The growth in volumes was led by PVC pipe segment which witnessed 27% YoY volume growth while other segments packaging, industrial and consumer products remained subdued. The strong growth in pipes was aided by recovery from agri demand which has been lackluster over the past two years. As per management, the month of Mar'22 saw the highest ever pipe dispatches in the history of the company. The demand trend remains favourable and, with PVC prices softnening and expected to further soften, they expect demand scenario to remain healthy going ahead. Management has guided for at least 15%+ volume growth in FY23 driven by the piping segment and a tepid base. For FY22, SI witnessed blended volume de-growth of 3.7% YoY with piping segment declining 6.8% YoY.
- EBITDA margin remain healthy: SI reported an operating margin of 15.3% for Q4FY22, a decline of 916bps YoY (-103bps QoQ), due to adverse product mix and also absence of inventory gain as was the case YoY resulting in EBIDTA/PAT declining 23%/28% YoY. Blended EBIDTA/kg fell to Rs30.4/kg (-34%/13% YoY/QoQ) due to higher raw material cost and adverse product mix. Management expects EBIDTA margins to be sustainable at 15%-15.5% going ahead if PVC prices remain in a range.
- Valuations and view: We largely maintain EBIDTA estimates but increase our PAT estimates by ~6%/4% for FY23/24E due to the better-than-expected performance of the associate company. We continue to like SI for its leadership position in piping market and believe it has demand tailwinds going ahead due to pickup in housing and agriculture market. Upgrade the stock from Add to BUY post the recent correction in stock price with a revised Mar'23E SoTP-based target price of Rs2,334.
Shares of Supreme Industries Limited was last trading in BSE at Rs. 2011.45 as compared to the previous close of Rs. 1949.75. The total number of shares traded during the day was 14826 in over 2169 trades.
The stock hit an intraday high of Rs. 2033.00 and intraday low of 1912.05. The net turnover during the day was Rs. 29318574.00. |
