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Guidance revised upwards, current valuations compel our REDUCE rating!

Result Synopsis

Supreme Industries Ltd (SI), registered a strong quarter wherein revenue stood at Rs23.09Bn, a growth of 11%YoY & decline of 3%QoQ. Plastic Pipe (75% of total vols) segment registered volume growth of 30%YoY (5-year CAGR stood at 16%), on account of healthy demand from plumbing and agri-segment. Other segment’s volume increased by 7%YoY & 11%QoQ. With stable resin prices during the quarter, ASP for pipes came in at Rs147/Kg Vs Rs139/Kg in Q1FY24. Pipe’s EBIT/Kg stood at Rs19.5 in Q2FY24 Vs Rs3.1 (impacted due to inventory losses)/Rs16.6 in Q2FY23/Q1FY24 respectively. Value-added products revenue for the quarter stood at Rs9.42Bn (41% of sales) as compared to Rs7.98Bn (38% of sales), a growth of 18%YoY.

On the back of robust demand management revised their annual volume guidance upwards to 23%YoY wherein plastic pipe’s volumes is expected to grow by 28%YoY (Vs earlier guidance of 25%). In order to cater the incremental growth, company has planned a capex of Rs9Bn. Post all expansions, total capacity of plastic pipes will be 780,000Te Vs 600,000Te in FY23.

We believe with strong demand from agri-segment, led by Jal-Jeevan Mission & healthy plumbing demand, SI should continue to witness stellar growth. We reckon company’s overall volumes to grow by 18%CAGR over FY23-FY25E wherein plastic pipe segment should register a growth of 21%CAGR. Incrementally with no major volatility in resin prices and share of value-added products expanding, we reckon ASP to improve gradually. Overall, we expect Revenue/EBITDA/PAT growth of 15%/23%/16% CAGR over FY23-FY25E. Though we remain positive on the growth, at CMP company trades at premium P/E(x) of 60x/49x on FY24E/FY25E EPS (standalone). Hence, we maintain our REDUCE rating on the stock.

Result Highlights

* Standalone revenue stood at Rs23.1Bn (3% above our est) registering a growth of 11%YoY & decline of 3%QoQ.

* Overall volume expanded by 23%YoY & degrew by 7%QoQ to 137,763Te.

* Gross Margin improved 340bps QoQ to 33.5%. EBITDA margin came in at 15.4% (our est 13.5%) as compared to 13.6% in Q1FY24 & 7.1% in Q2FY23 (impacted due to inventory loss). Absolute EBITDA increased by 11%QoQ to Rs3.57Bn.

* Net profit stood at Rs2.6Bn, registering a growth of 34%QoQ.

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