Supreme Industries Q2 Results Review - Strong Volume Growth In FY24 To Likely Moderate In FY25: Systematix

Systematix Research Report

Supreme Industries Ltd.’s Q2 profit after tax beat was driven by higher Ebit in pipes (up 135 basis points QoQ at 13.3%; Rs 19/kg) and packaging (up 568 bps QoQ at 13.6%, Rs 32/kg) divisions.

Pipes (up 30% YoY) led to a strong and inline total volume (up 23%). Tracking H1 volumes (up 30%, pipes up 39% YoY), management sees FY24 volume growth at 23%, led by pipes (up 28%).

However, a moderate 12% volume growth is expected in FY25 on a normalised base.

Acquisition of Parvati Agro will boost capacity by 36kt (including 3kt of O-PVC pipes, large opportunity from replacement of ductile iron pipes). A Rs 9 billion capex plan (to be funded through internal accruals) will enhance total capacity to 1 million tonne (pipes capacity to reach 750 kt by FY24 end versus 600 kt currently).

We increase Supreme Industries’ FY24E earnings by 6% on better-than-expected margins in Q2. However, FY25 estimates are kept unchanged.

We thus estimate 11%/19%/17% compound annual growth rate in revenue/Ebitda/profit after tax over FY23-25E, on healthy ~17% volume CAGR (20% in pipes) and normalised Ebitda margins (~15%).

Despite elevated capex, Supreme Industries should sustain strong free cash flows and healthy return on equity/return on capital employed (~20%/ 25% in FY25E).

While we like Supreme Industries for its leading positions in pipes and other divisions combined with strong cash flow generations, we maintain 'Sell' rating owing to rich valuation (~48 times FY25E price/earning).

Our revised target price stands at Rs 3,514 (earlier Rs 3,489), based on 38 times FY25E P/E.

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