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Demand for building materials slowed down on a QoQ basis. PVC pipes demand is yet to reach pre-pandemic level. Slowdown in plumbing pipes demand can be attributed to weak construction related activities during the quarter. Agriculture pipes demand though recovered over the last two years but remains flat over the pre-pandemic quarter of 1QFY20. CPVC pipes sales growth is largely on account of increase in prices. Sales volumes for CPVC are expected to remain flat on a YoY basis. Sanitaryware and Faucetware volumes too are expected to register QoQ decline.

Supreme Industries expected to touch 90% of pre-pandemic sales volumes

The demand for PVC pipes on plumbing side remained weak during the quarter due to slowdown in construction related activities. Construction activities were slow due to steep steel prices. Steel prices cooled off in June and the construction activities are expected to pick up pace. Agriculture pipes demand improved over the last two quarters and are expected to touch 1QFY20 volumes. Overall Supreme’s PVC pipes volumes are expected to reach 85% and total volumes are estimated to reach 92% of the pre-pandemic quarter of 1QFY20. Volume of Supreme’s Packaging/Industrials/Consumer business are expected to grow by 10/20/5% respectively over the 1QFY20. We estimate blended price realization to decline by 3% and volumes to grow by 46% over 1QFY22. 1QFY22 volumes were impacted because of 2nd wave of COVID.

PVC prices continue to remain volatile while CPVC remains firm

PVC prices touched peak of Rs165/kg in Oct’21 before started to decline. 3QFY22 registered sharp cuts in PVC prices which impacted the demand meaningfully. In 1QFY23, PVC prices declined further by Rs27/kg to Rs117/kg. On July 1st, another price cut of Rs6/kg was taken taking PVC prices further down to Rs110/kg. We expect inventory losses for Supreme and another PVC players due to sharp decline in the prices. We estimate Supreme’s EBITDA margins to touch 14.8% vs. 15.3% in 4QFY22. CPVC prices on the other hand remained firm and registered Rs7/kg of rise during the quarter. Hence, we do not anticipate any inventory losses on CPVC side of the business.

Supreme’s other segments estimated to perform better

Supreme’s cross laminated films business (part of packaging segment) is expected to grow by 10% in volume terms over 1QFY20 as per our channel checks. Competitive intensity in this segment continues to remain high from smaller players such as Shalimar, Time Techno and NEX. Industrials segment is expected to grow by 20% in volume given the demand for consumer durables and material handling segment remained strong during the quarter. Consumer Furniture segment is expected to grow in volumes by 5% over 1QFY20. Prices of key RM (for the other three segments) – PP, PE and Styrene increased by 3/7/10% respectively.

Cera Sanitaryware to report decline in sales on a QoQ basis

The demand for sanitaryware and faucetware remained steady till 4QFY22. However, demand started slowing from May 15th as per our channel checks. Demand slowdown can be linked to overall slowdown in construction activities. We estimate 25% decline in volumes on a sequential basis. The company took price hikes of 6% in sanitaryware and faucetware during the quarter. Hence the sales decline is estimated to be ~20% vs. last quarter. The brand equity of Cera remains strong in tier II/III pockets as per our channel checks and remains a key player in states of Gujarat and Kerala.

Things to monitor going ahead

1) Pricing trend of PVC, PP, PE and Styrene

2) Movement in construction related activities

3) Interest rate cycle

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