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Expect volume growth of 7%YoY for FY26; Derate the stock to 35x & Downgrade to REDUCE!

Result Synopsis

Supreme Industries Ltd (SI), registered a muted performance in Q4YF25 which was largely in-line with estimates given the benign demand scenario and intense competitive pressure. Consequently, volumes remained flattish on YoY basis. However, company surprised positively on margin front, wherein operating margins stood at 13.8% as compared to 16.3%/12.3% in Q4FY24/Q3FY25 respectively. Pipe segment’s EBIT/kg came in at Rs13.3 Vs Rs18.4/Rs10.9 in Q4FY24/Q3FY25 respectively. This was largely due to better operating leverage which enabled the company to register better than expected margins. Other segment’s volumes improved marginally by 3%YoY and profitability remained steady on YoY basis. On total volumes, EBITDA/Kg stood at Rs20.9 Vs Rs25.1/Rs19 in Q4FY24/Q3FY25 respectively. The overall turnover of value added products increased to Rs40.6Bn in the year as compared to Rs37.5Bn in the previous year achieving growth of 8%

Guidance

Company expects volumes to grow by 3-4% better than GDP growth (i.e. a total of ~8-10%YoY) in FY26. Company is expecting to register a revenue of Rs120Bn with blended operating margins of 14.5-15.5% for FY26.

Our View

FY25 was a challenging fiscal for plastic pipe companies as demand across segments remained tepid post Q1FY25. With lack of focus from Government on key projects viz. JJM, coupled with soft demand from real-estate segment due to postponement in approvals & clearance, we reckon FY26 will also be muted for plastic pipes segment. Higher domestic capacities & elevated competitive intensity will keep margins under check. However, on resin front, we expect prices to improve as they are at lower-end of the historic price-range. We have revised our pipe volume growth estimate downwards to 8.5%CAGR Vs previous 12%CAGR over FY25-FY27E. Margins should remain under check due to volume-push strategy and hence we expect EBIT/Kg to come in at Rs15/Rs15.3 in FY26E/FY27E respectively. Owing to lower growth Vs past 3-years CAGR, we have revised our target multiple to 35x on FY27E standalone EPS Vs previous 40x, arriving at a target price of Rs3,343 (including Rs202/share contribution from Supreme Petrochemicals). Hence, we downgrade the stock to REDUCE.

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