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Healthy volume led growth continues

SIL’s volumes during the quarter grew by a 23% YoY (-12% QoQ) while realisation declined 10% YoY (+5% QoQ). Volume growth was led by Plastic Piping system (+30%) and Packaging segments (+12%). Healthy volume growth is in-line to what we had indicated in our 2QFY24 preview note. EBITDA margins, improved by 180bps QoQ to 15.4%, led by better product mix. EBITDA/kg improved to Rs25.9/kg vs. Rs21.6/kg in 1QFY24 (2QFY23: Rs13.2/kg). Management has further upped its volume growth guidance to 23% (earlier guidance during 4QFY23: 15%, 1QFY24: 20%) led by plastic piping systems growth of 28% in FY24 (earlier guidance: 22-25%). We roll forward our estimates to FY26. We maintain our ADD rating (led by sharp run up in price) with new TP of Rs4,505 (previous TP: Rs3,651), valuing at 42x 1HFY26E EPS (upped from 35x earlier). Our target multiple is still at significant discount to Astral (60x) despite Supreme delivering growth which is on par to Astral.

Newly acquired/added capacities, stable PVC prices to further aid plastic pipes volume growth

Supreme Industries commenced three new Greenfield capacities in Assam, Tamil Nadu and Odisha during FY23. The Company acquired Parvati Agro Plast (17th Oct’23) with total capacity of 36,000tn. These capacities have started to drive volumes. On ground demand for plastic pipes in agri and infrastructure (Nal-se-Jal)sector continues to remain very buoyant. Apart from this, plumbing demand, led by buoyant housing, continue to remain very strong. In lieu of things, Supreme has upped its volume growth guidance from 20% to 23%+ in FY24. Growth will be led by Plastic Pipes segment, which is expected to grow by 28% (earlier guidance: 22-25%). PVC prices registered sharp cut of Rs13/kg at start of 3Q followed by hike of Rs3/kg. Prices are at bottom and stable which should further aid in volume growth.

Multiple project expansion plans in pipe-line for the current year

Construction work is at full swing at all the sites- Kanpur Dehat (UP), Erode (TN) and Malanpur (MP) for piping. Orders for equipment have been placed and increased capacities will be in operation during 4QFY24 one after the other. Construction work for expansion at Gadegaon (MH) is completed and the arrival of production equipment has started. The newly launched PE/AL/PE piping system and electrical conduit system has received an encouraging response. Expanded Capacity of Bath Fittings along with environment friendly surface coating process for enhanced durability & better aesthetics at Puducherry is in place and fully operational. Supreme intends to make PVC window & Doors with an initial capacity of 10,000tn pa. This capacity is expected to start by Nov’23 after which it will take another 10-12 months for production trials. Total capacity is expected to reach 780ktn in FY24 vs. 600ktn in FY23.

Valuations remain attractive

We expect Supreme’s sales, EBITDA and PAT to grow at CAGR of 13/19/19% respectively over FY23-26E. We maintain our ADD rating (led by sharp run up in price) with new TP of Rs4,505 (previous TP: Rs3,651), valuing at 42x 1HFY26E EPS (upped from 35x earlier).

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