Q3FY24 Review: Supreme Inds: In-line performance, robust outlook

24 Jan 2024 , 10:13 AM

Supreme industries (SI) continued to report healthy performance with 14% YoY overall volume growth driven by the PVC Piping segment. Housing segment continued to be the major demand driver. PVC prices outlook broadly remains stable, barring any potential impact of the recent undergoing global geopolitical issues. SI has been raising its FY24 volume and margin guidance; especially for the Piping business. Analysts of IIFL Capital Services upgrade their earnings estimates by 5/8% for FY25/26, and expect healthy outlook in the near term. Given the recent stock price correction amid healthy Q3 performance, analysts of IIFL Capital Services upgrade SI to ADD with Rs4,350 TP. 

In-line Q3FY24 performance: 

SI reported healthy volume growth of 14% YoY, due to the Piping/ Industrial segment which witnessed 17%/ 10% YoY growth respectively. However, volume growth for the Packaging & Consumer segment was muted at 3% & -3% YoY respectively. Consolidated Ebitda margins came in at 15.5% (up 234bps YoY/ flat QoQ), driven by improvement in Industrial/ Consumer segment margins (8.9/17.4% Ebit margins vs 7.7/16.6% QoQ respectively) and broadly stable Packaging/ PVC Piping segment margins. 

Strong focus on margins: 

PVC piping growth (24%) continued to outpace that of CPVC (8%) on 9MFY24 basis, although CPVC volumes also witnessed recovery in Q3. Despite the volatility in PVC prices, superior product mix/focus on value added has ensured healthy Ebitda margins of 15.5% for the last two quarters. Further, mgmt intends to focus on profitability improvement in the Packaging segment, driven by higher focus on exports, even though double-digit growth looks less likely in FY25. Post completion of Jal Jeevan mission (by end of FY25) SI plans to move to gas supply and launch it in Q4FY24. SI plans on adding 200k tons of incremental capacity (incl. Parvati Agro) by Dec’24 on the back >Rs10bn capex committed this year. 

Upgrade FY25/26 estimates, raise to ADD: 

SI has constantly revised its FY24 volume guidance upwards from 23% in Q1 to 28% in Q2 to 30% now. Analysts of IIFL Capital Services marginally upgrade their volume and margin estimates for FY25/26 resulting in 5/8% upgrade in earnings respectively, and build in a 20% PAT Cagr over FY23-26. Given the recent correction in the stock price, analysts of IIFL Capital Services upgrade SI to ADD with a revised target price of Rs4,350.