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Result Synopsis

Supreme Industries Ltd (SI), registered strong volume growth of 17%YoY (2-year CAGR stood at 26%) which was largely in-line with our expectations. Plastic pipe division volumes (81% of total volumes), increased by 20%YoY (2-year CAGR stood at 33%), driven by strong demand from agri-segment. Value-added products revenue stood at Rs9.25Bn, a growth of 22%YoY, constituting 35% of total revenue. Realizations came in at Rs151/Kg, which was lower Vs our estimates of Rs156/Kg owing to higher mix of agri-products. Moreover, we were expecting marginal benefit from higher PVC resin prices which were up by Rs13/Kg during the quarter. Consequently, EBITDA margins stood at 14.7% (below our estimate of 16.8%) as against 13.6%/16.3% in Q1FY24/Q4FY24 respectively. Hence, net profit stood at Rs2.36Bn, considerably below our estimate of Rs3.03Bn.

Management reiterated their annual guidance of 25%YoY plastic pipe volume growth & overall volume growth of 20%YoY which implies that plastic pipe volumes/total volumes should grow by 27%YoY/21%YoY respectively for coming 9MFY25. Furthermore, management maintained margin guidance of 15-15.5% for FY25E.

We have cut our plastic pipes volume growth expectation from 22% to 20% & thus the overall volume to 17% from 20% for FY25E and also revised our EBIT/Kg estimate of plastic pipes for FY25E/FY26E to Rs17.7/Rs17.9 from Rs19.6/Rs19.8 respectively, resulting into EPS downgrade of 7%/5% for FY25E/FY26E respectively. We expect total volumes to grow by 15%CAGR over FY24-FY26E wherein plastic pipe segment volumes are likely to increase by 17%CAGR over similar period, on account of healthy demand across Agri, Infra and plumbing segment. We have valued the company at P/E(x) of 45x on FY26E standalone EPS of Rs114.2 plus Rs282/share contribution from Supreme Petrochem Ltd (listed subsidiary), arriving at a target price of Rs5,422. Though we remain confident on company’s growth, rich valuation limits further upside. Hence, we have assigned a REDUCE rating to the stock.

Result Highlights

* Overall volumes came in at 173,835Te (in-line with our est), a growth of 17%YoY. 2-year CAGR stood at 26%.

* Revenue stood at Rs26.36Bn (6% below est), a growth of 11%YoY & decline of 12.4%QoQ.

* EBITDA margins came in at 14.7% (est of 16.8%) Vs 13.6%/16.3% in Q1FY24/Q4FY24 respectively. Absolute EBITDA stood at Rs3.88Bn, a 21%YoY growth and decline of 21% on sequential basis.

* Net profit stood at Rs2.36Bn, a growth of 21.5%YoY & decline of 25%QoQ.

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