IGI Logo

Volumes drive growth...Q4 margins impressive

Supreme Industries Ltd. (SIL) is India’s leading player in plastic products; the company’s wide range of offerings include plastic piping systems, packaging, industrial and consumer products.

• Revenue grew by 2% YoY in Q4FY23, was above expectation led by 15% YoY increase in volumes.

• EBITDA grew by 23% YoY, whereas EBITDA margins improved by 320bps YoY to 18.5%, aided by scale benefits & volume growth.

• Stable demand from the housing & agriculture sector will continue to drive volume & revenue going ahead.

• Softness in PVC prices is expected to support gradual improvement in margins. We assume EBITDA margins to remain stable at 15% over FY23-FY25E.

• Considering a strong earnings outlook of 21% CAGR, we value SIL at P/E of 32x (3-year avg.) on FY25E, with a target price of Rs.3,223 and upgrade to Buy.

Volume remains healthy...

SIL’s Q4FY23 revenue growth was above expectation led by higher volumes. Revenue grew by 2% YoY, & 12.4% QoQ despite decline in realization by 11.2% YoY on account of sharp fall in PVC prices. Industrial products segments grew by robust 23%, while Consumer products & packaging products grew by 2.6% & 1.3% YoY, respectively. While its key Plastic piping de-grew -1.6% YoY. Overall volume grew by 15% YoY, with Plastic piping & Industrial segment reported a healthy volume growth of 16.4% & 20%, YoY. Strong housing and agricultural demand aided the plastic piping industry. However, Packaging & consumer business volume de-grew by 12% & 6% YoY. Given the steep decline in input prices, affordability has improved significantly, and management expects volume to grow by 15% if polymer prices remain stable. SIL plans to spend ~Rs.700cr to expand its current capacity from 8,00,000 to 9,50,000 tonnes by March 24, with major addition in pipes. Going ahead, given stable RM prices, we anticipate volume & revenue to grow by 13% & 11% CAGR over FY23-25E.

Margins to normalise...

SIL’s Q4FY22 gross margins improved by 560bps YoY to 33.5% due a sharp fall in raw material prices, which declined by 27.5%. EBITDA grew by 23% YoY. EBITDA margin expanded by 320bps YoY to 18.5%. Supported by the profit share from Supreme Petro, PAT grew by 11% YoY. On a sequential basis, margins improved by 540bps. Management has guided EBITDA margin to be in the range of 13-15%, which seems conservative. We believe that the worst impact on margins is behind us and we anticipate steady margin improvement moving forward, driven by higher volumes and stable raw material prices. We expect profitability to grow by 21% CAGR over FY23-25E.

Valuations

Tailwinds like stable infra & agri volumes and lower input costs will drive earnings. With a stable RM environment, we expect margins to improve further. Considering strong earnings outlook of 21% CAGR, we value SIL at P/E of 32x (3-year avg.) on FY25E and upgrade to Buy with a target price of Rs. 3,223.

To Read Complete Report & Disclaimer Click Here

For More Geojit Financial Services Ltd Disclaimer https://www.geojit.com/disclaimer 

SEBI Registration Number: INH200000345

Views express by all participants are for information & academic purpose only. Kindly read disclaimer before referring below views. Click Here For Disclaime