Supreme Industries Results Review - Strong Pipe Volumes Drive Q3; Margins To Normalise In FY24: Systematix
Recovery in gross margin was restricted by some inventory losses.
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Systematix Research Report
Supreme Industries Ltd.’s Q3 (revenue up 19% YoY and 11% QoQ, Ebitda margin up 608 basis points QoQ at 13.1%) was driven by the pipes segment (volume/revenue up 82%/31% YoY and 31%/17% QoQ; Ebit margin up 942 bps at 11.3%).
Though margins recovered QoQ, they were restricted by some inventory losses (reversal likely in Q4 on expected rise in PVC prices). After 35%/48% volume growth in overall/pipes in nine months, management expects 25%/35% YoY growth in FY23 (Q4 ask rate: 4%/11% YoY; we estimate 14%/12%).
Supreme Industries continues to focus on value-added products (36% mix) in all segments. Its new plants in Guwahati and Erode turned operational in Dec-22, with Cuttack plant likely to follow suit in Feb-22. On a capex of ~Rs 5 billion in FY23 (Rs 6.9 billion net cash), 815,000 tons of capacity would be available by March 2023.
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