Supreme Industries Q1 Review - Strong Pipes Volume; Lower Prices, Inventory Loss Hurt Net Profit: Systematix

Volume, margin trajectory are key near-term monitorables.

<div class="paragraphs"><p>Plastic pipes manufactured by Supreme Industries Ltd. (Source: Company website)</p></div>
Plastic pipes manufactured by Supreme Industries Ltd. (Source: Company website)

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Systematiix Research Report

Supreme Industries Ltd.’s Q1 profit after tax (flat YoY, down 40% QoQ) was dragged by lower realisation (pipes down 25% YoY, 12% QoQ), inventory loss (~Rs 400 million, 1.7% of revenue) and joint venture profits (down 63% YoY).

On strong volumes (up 36% YoY and 1% QoQ; pipes up 48% YoY), management has upped its volume growth guidance for FY24 to 20% plus, led by 23% growth expectation in pipes.

Post weak Q1, we cut FY24E/25E profit after tax estimates by 10%/4% owing to weak margins and profit share of JV.

We now estimate 9%/19%/17% compound annual growth rate in Supreme Industries’ revenue/Ebitda/profit after tax over FY23-25E (FY18-23: 13%/9%/15%), respectively, on healthy ~14% volume CAGR (16% in pipes) and normalised margins.

Despite elevated capex, Supreme Industries should sustain strong free cash flows and healthy return on equity/return on capital employed (~21%/ 25% in FY25E).

After rallying 35% in last four months and at ~34 times FY25E price/earning on current market price, we maintain 'Hold' rating on Supreme Industries, with a lower target price of Rs 3,187 (37 times FY25E core P/E, 15 times to JV share), earlier Rs 3,243.

Volume/margin trajectory are key near-term monitorables.

Click on the attachment to read the full report:

Systematix Supreme Industries -Q1FY24 Results Review.pdf
Apollo Pipes Q1 Results Review - Industry-Leading Volume Growth; Robust Outlook Intact: Systematix


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