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Miss on pipe volume growth, guidance revised downwards!

Result Synopsis

Post 10-quarters of consistent growth, Supreme Industries Ltd (SI) registered a muted growth in its core segment i.e plastic pipes wherein volumes remained flattish at 102,238Te (2-year CAGR stood at 14%) and ASP improved to Rs141/Kg. Pipe demand was impacted due to channel de-stocking on the back of falling PVC resin prices, lower agri and infra demand. During the quarter, company witnessed a decline of 20%YoY in July’24, a growth of 3%YoY in August’24 & a growth of 15%YoY in September’24. Other segment’s volume growth also remained sluggish at 3%YoY. Packaging was the only segment which reported a growth of 11%YoY. Pipe segment’s profitability was impacted due to inventory loss of Rs350-400Mn & barring the same EBIT/Kg for plastic pipes stood at Rs18.1 Vs 19.5/16.5 in Q2FY24/Q1FY25 respectively. Consequently, blended operating margins remained under pressure at 14% Vs 15.4%/14.7% in Q2FY24/Q1FY25 respectively. Notably, CPVC segment reported a healthy growth of 33%YoY in H1FY25.

Guidance

Management revised their FY25 guidance downwards from 25%YoY growth for plastic pipes to 16-18% and overall volume growth from 20% to 14-15%. Margin guidance revised to 14.5%-15.25% and for plastic pipes the same should come in at 14-16% for FY25. Our View On the back of lackluster performance in Q2FY25, we have cut our FY25E/FY26E EPS by 7%/10% respectively largely driven by revision in plastic pipe volume growth for FY25E from 20% to 15%. We believe 15% volume CAGR is achievable by SI over FY25-FY27E owing to healthy demand from agri and plumbing segment and with stability in PVC resin prices, channel partners should resort to re-stocking which will enable the company to regain strong traction. We remain confident on company’s growth trajectory over coming 2-years and expect a Revenue/EBITDA/PAT growth of 14% each respectively. We continue to value the company at P/E(x) of 45x on FY27E standalone EPS and Rs246/share contribution from Supreme Petrochem Ltd, arriving at a target price of Rs5,645. Hence, we assign a BUY rating on the stock.

Result Highlights

* Overall volumes came in at 138,077Te (9% below est), flattish on a YoY basis & a degrowth of 21%QoQ (2-year CAGR stood at 11%).

* Revenue stood at Rs22.73Bn (2% below est), a decline of 1.5%YoY & 14%QoQ.

* EBITDA margins came in at 14% (est of 14.8%) Vs 15.4%/14.7% in Q2FY24/Q1FY25 respectively. Absolute EBITDA stood at Rs3.19Bn, down by 10%YoY & 18% on sequential basis.

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