IGI Logo

Stock losses drag on profitability, upbeat on off-take; retaining a Buy

Driven by volume growth, Supreme’s Q2 revenue grew 8.2% y/y to Rs21bn (in line with ARe) even as blended realisations continued soft. Inventory losses led by a steep fall in raw material prices curbed profitability. The gross, EBITDA and PAT margins shrank respectively 830bps, 906bps and 793bps y/y to 23.2%, 7.1% and 3.9% (below ARe).

Greater off-take supports revenue growth. Volumes grew 8.9% y/y to 111,803 tonnes and helped revenue scale up as the blended realisation was soft, down 0.4% y/y to Rs185,084 a tonne. Volume growth was seen across categories except in consumer products while realisation improved across categories except in plastic piping (key segment; 62% of revenue).

Poor show continues in plastic piping. Revenue grew 2.2% y/y to Rs13bn driven by higher volumes sold, up 9.3% y/y, as realisation was 6.5% lower y/y to Rs163,432 a tonne. Inventory losses cut into profitability; the EBIT margin at 1.9% contracted 1,340bps y/y, 864bps q/q.

Focus to enhance VAP revenue and to remain cash-surplus. Revenue from value-added products (VAP) increased 5% y/y to Rs7.98bn. Revenue from VAP was 39% (35% the quarter prior and 40% a year back). Product launches would add to revenue from VAP. The cash surplus was Rs4.9bn, against Rs5.2bn at end-Q4 FY22 and Rs3.3bn at end-Q2 FY22.

Outlook & Valuation. The encouraging demand outlook and margin tailwinds would boost the H2 FY23 performance. Management expects Rs90bn revenue and a 12-12.5% EBITDA margin for FY23. We introduce FY25 earnings and expect 12% and 9% revenue and earnings CAGRs respectively over FY22-25. We retain our Buy rating, and raise our target price to Rs.2,730 (from Rs.2,467) based on 27.5x (unchanged) FY25e earnings.

To Read Complete Report & Disclaimer Click Here

Please refer disclaimer at  https://www.rathi.com/LeadGenerate/Static/disclaimer.aspx
SEBI Registration No.: INZ000170832

Above views are of the author and not of the website kindly read disclaimer