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Margins under pressure amid pricing volatility; volumes hold steady

Operating performance in line

* Supreme Industries (SI) reported muted operating performance (EBITDA down 7% YoY), led by volatile PVC prices, a lower VAP mix, and weak demand (due to extended monsoon). Despite this, pipes volume grew ~17% YoY in 2Q, with piping volume growth guidance maintained at ~15- 17% for FY26.

* Management has also maintained its overall volume growth for FY26 at 12-14% YoY, driven by a positive demand outlook from the housing/plumbing and agriculture segments, expected stabilization of prices (with the implementation of ADD), and the addition of Wavin capacity (~71,000MTPA).

* We largely maintain our FY26/FY27/FY28 earnings estimate and reiterate BUY, valuing the stock at 45x FY27E EPS to arrive at our TP of INR4,850.

Steady volume growth in piping segment with an improving outlook

* Consolidated revenue grew 5% YoY to INR23.9b (est. in line), led by growth in volume (up 12% YoY) to 119.8k MT, which was offset by a decline in realization (down 5% YoY to INR134/kg).

* Consolidated EBITDA declined 7% YoY to INR2.9b (est. in line), with an EBITDA margin of 12.4% (est. 12.9%), which contracted 160bp YoY. EBITDA/kg for the quarter was INR19.3/kg (-17% YoY). Adj. PAT declined 20% YoY to INR1.6b (est. INR1.9b).

* Plastic piping products reported a volume of ~120k MT (+17% YoY) (including ~3,000MT of Wavin volume integrated from 1st Aug’25). Revenue stood at INR16b (+11% YoY) and EBIT at INR1.3b (-16% YoY), resulting in an EBIT margin of 7.9% (-250bp YoY). Realization came in at INR134/kg (-5% YoY), while EBIT per kg stood at INR10.6/kg (-28% YoY).

* For industrial products, revenue stood at INR2.8b (-14% YoY), EBIT at INR118m (-58% YoY), and EBIT margin at 4.2% (-440bp YoY). For packaging products, revenue was INR4b (-1.6% YoY), EBIT INR476m (+15% YoY), and EBIT margin 12.1% (+70bp YoY). For consumer products, revenue came in at INR1b (flat YoY), EBIT at INR141m (-15% YoY), and EBIT margin at 13.7% (-240bp YoY).

* For 1HFY26, revenue grew 2% YoY to INR50b, while EBITDA/Adj PAT declined 13%/24% YoY to INR6.2b/INR3.6b. For 1HFY26, the company faced an inventory loss of INR500-600m

* For 1HFY26, total volume grew 8% YoY to 335.2k MT. ? For 1HFY26, gross debt/CFO stood at INR2.4b/INR2.3b as of Sept’25, compared to NIL/INR10b in Mar’25.

Highlights from the management commentary

* Guidance: Management has guided a recovery in demand from 3QFY26 onwards, expecting no inventory loss in 2HFY26. The company guided INR110-115b revenue with an EBITDA margin of ~14.5-15% for FY26.

* Capex: In 1HFY26, the company incurred a capex outflow of INR8.7b, which included the Wavin acquisition (INR3.1b) and investments in window profiles (INR2b) and silent pipes (INR800m). The company expects a total cash outflow of INR13b for FY26. By the end of FY26, piping capacity is projected to exceed 1m MT, while overall capacity is expected to surpass 1.2m MT.

* Export: Earlier, the company exported solely through the Dubai market. However, it has now established offices in India. Going forward, the company expects exports to grow QoQ across multiple countries. Currently, exports account for less than 3% of total sales.

Valuation and view

* Macro headwinds have weighed on the industry, including SI, over the past few quarters; however, with PVC prices stabilizing at current levels and demand likely to improve (from housing and agri), we anticipate the growth momentum to pick up in 2HFY26.

* With guidance of a 12-14% volume growth and a healthy EBITDA margin of 14.5- 15% in FY26, supported by capacity additions, improved utilization, a higher VAP mix, and no inventory losses, we expect SI to clock 12%/20%/20% CAGR in revenue/EBITDA/PAT over FY25-28. We value the stock at 45x FY27 EPS to arrive at a TP of INR4,850. Reiterate BUY.

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