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Management confident of achieving 15% volume growth in FY23!

Our view and valuation

Supreme Industries Ltd’s (SI) revenue stood at Rs22.06Bn during Q1FY23, reporting a 64.4%YoY growth (on low base) & declined by 13.7%QoQ. Overall volumes degrew by 15% sequentially wherein Pipes (73% of total volumes) reported 18%QoQ decline & 65%YoY growth. Pipe division’s (66% of sales) revenue declined by 19% Vs Q4FY22 & EBIT margins of the segment contracted by 300bps QoQ owing to inventory loss due to sharp correction in PVC prices. Packaging biz registered a steady quarter wherein volumes degrew by 2%QoQ, but revenue increased by 2% over similar period due to better realizations. However,    EBIT margins witnessed a sequential contraction of 400bps.  Going ahead, management expects to deliver a 15% volume growth for FY23 wherein pipe segment will report better growth. Moreover, management believes that though Q2 will also witness inventory loss, the PVC prices are nearing bottom & for FY23 company will be able to report 15?15.5% EBITDA margins.

We continue to remain positive on the company & expect growth to accelerate from   H2FY23. We reckon overall Volumes/Revenue/EBITDA/PAT to grow by 13%/10%/8%/4% respectively over FY22?FY24E & EBITDA margins to come in at 14.7%/15.6% in FY23E/FY24E respectively. We continue to value the company at 30x on FY24E EPS of Rs87, arriving at target price of Rs2,606 (revised 5% upwards). Hence, we maintain our BUY rating on the stock

Result Highlights

* Revenue for the quarter stood at Rs22.06Bn (5% above our estimates), reporting a 64.4%YoY growth & 13.7%QoQ decline. FY21?FY23 CAGR stood at 15%.  

* Total volumes increased by 53%YoY & declined by 15%QoQ. Pipe volumes grew by 65%YoY & degrew by 18%QoQ. Packaging volumes increased by 12%YoY & declined marginally by 2%QoQ. Volumes of industrial segment registered a 36%YoY growth & degrew by 6% QoQ. Consumer biz volumes declined sharply by 28%QoQ.  

* Plastic pipe division reported revenue of Rs14.63Bn, a growth of 76%YoY & 19%sequential decline. Packaging/Industrial division reported 34%/52%YoY growth & remained flattish QoQ. 

* Overall EBITDA margins came in at 12.2% (Vs our expectation of 14%) as compared to 15.3%/16.5% in Q4FY22/Q1FY22 respectively.  

* Pipe division EBIT Margins came in at 11% in Q1FY23 Vs 14% in previous quarter. Packaging margins stood at 7% as compared to 11% in Q4FY22 & Industrial margins contracted by 200bps sequentially to 8%. Consumer biz EBIT margins stood at 11% in Q1FY23 as compared to 13% in Q4FY22.

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