Buy Supreme Industries Ltd For Target Rs. 4,442 By Geojit Financial Services Ltd
Muted Q3 volumes; yet recovery ahead
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 increased by a modest 2.5% YoY, driven by a 3% growth in volumes. However, the volatility in PVC resin prices significantly impacted realizations.
* The piping segment faced multiple challenges, including lower government spending, an extended monsoon season, continued destocking, and a slowdown in the real estate sector, all of which negatively impacted overall volumes. While weak consumer sentiments adversely affected both the industrial and consumer segments.
* EBITDA margins declined by 365bps YoY to 8.7%, primarily due to inventory losses and higher other expenses. Consequently, net profit fell by 27% YoY.
* We anticipate a revival in Q4FY25, driven by increased demand in the agriculture, real estate, and construction sectors. We believe that PVC prices have bottomed out, leading to a revival in demand due to improved affordability..
* We project a 15% CAGR in volume and 20% in revenue from FY25E to FY27E. Profitability is expected to grow at a CAGR of 22% over the same period
Outlook & Valuation
Looking ahead, we anticipate a gradual revival in demand for the piping segment, driven by increased government spending and robust demand from the real estate and construction sectors. SIL's long-term prospects appear promising, supported by a strong product portfolio, gaining market share (reason for superior growth vs. peers), healthy margins, and a robust balance sheet. We value SIL at a P/E of 36x (5yr avg.) based on FY27E EPS and upgrade to “BUY” rating with a target price of Rs. 4,442.
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SEBI Registration Number: INH200000345
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