Q4FY23 Review: Supreme Industries: Strong demand recovery and outlook

2 May 2023 , 01:00 PM

Supreme Industries (SI) reported strong volume growth in Q4, while EBITDA margins were aided by inventory gains. PVC prices are now expected to be stable. SI expects ~15% volume growth for FY24, and margins between 13.5-14%, supported by strong Housing and Agriculture demand. Analysts at IIFL Capital Services are building 14% EPS CAGR over FY23-25; the stock trades at 31x FY25 EPS, against 5-year average of ~26x. 

Strong beat in Q4; FY23 sees volume recovery

SI reported a beat at the EBITDA and PAT levels, driven by EBITDA margins of 18.5% (partly due to inventory gains of Rs 600-700 million). Overall volume growth came in at ~15% YoY, driven by strong performance of Pipe and Industrial segments. For FY23, overall Plastic volume grew 29% YoY (4-year CAGR 6.2%), driven by 37% YoY growth in Pipe volumes. FY23 volume growth for the CPVC segment was 24% (up 40% YoY in value), driven by strong growth in Housing. Working capital days for end FY23 were higher at 39 days (versus 36days for 9MFY23). Balance sheet remains healthy with net cash of Rs 7.4 billion.

Demand recovery healthy across Housing and Agri segments

Management expects PVC prices to remain range-bound in the near term, driving healthy demand from the Agri segment in Q1FY24 as well. Channel inventory is now back to normal levels. Government projects like Jal Jeevan mission and others have also aided demand for PVC/PE pipes. For FY24, management is looking at 150k MT of capacity additions (20% of existing), with over >90% in Plastic Pipes segment, and aims to add >100 channels partners (~7% of existing base) in FY24.

Valuations not cheap

Management has guided for 15% YoY growth in overall Plastic volumes for FY24, and EBITDA margins 13.5-14% assuming stable PVC prices. Our estimates build in 12-14% growth and 14% margins for FY24/25, implying an EPS CAGR of 14% over FY23-25. Stock trades at ~31x FY25, against 5-year average multiple of 25-26x.