PL Stock Report: Supreme Industries (SI IN) - Q2FY24 Result Update – Robust volume growth with margin improvement - Accumulate
Prabhudas Lilladher Pvt Ltd
Supreme Industries (SI IN) - Praveen Sahay - Research Analyst, Prabhudas Lilladher Pvt Ltd.
Rating: ACCUMULATE | CMP: Rs4,522 | TP: Rs4,645
Q2FY24 Result Update – Robust volume growth with margin improvement
Supreme Industries (SI) delivered robust volume growth of 23.2% ahead of expectations, mainly led by growth in Plastic pipe segment (up 29.9% YoY) while EBITDA/kg improved to Rs 25.9/kg (vs. Rs21.6 QoQ and Rs13.2 YoY). Volume growth was driven by plumbing and infra segments in Q2FY24. SI has increased its volume growth guidance to 23% from 20%+ (28% vs 23-25% in pipe segment) and also increase EBITDA margin guidance to 14.5% from 14%+ for FY24.
We continue to believe SI is well placed to capture demand across its segments given 1) capacity expansion in different geographies, 2) new product expansion e.g. expanding in PVC window & doors manufacturing and adding 4 piping systems namely (i) PP multilayer silent pipe (ii) Gas Piping (iii) PE/AL/PE piping and (iv) PPR pipe, 3) wide pan India distributors n/w of 4500 channel partners, with 1443 distributors for pipe business; additional 100 in FY24, and 4) cash surplus of Rs5.8bn for funding expansion plans. We estimate FY23-26E Revenue/EBITDA/PAT CAGR of 14.9%/21.9%/21.6%, with volume CAGR of 15.5% and EBITDA margin improvement of 250bps. We upward revise our FY24/25E earnings estimates by 1.4%/1.3% and maintain Accumulate rating, at TP of Rs 4645 (earlier Rs4225), based on 40x Sep’25 core EPS plus 25% discount to Supreme Petrochem’s stake.
Revenues grew by 10.6%, PAT up 196.5%: Revenue grew 10.6% YoY to ~Rs23.1bn (PLe: Rs21.1bn) with volume growth of 23.2% YoY and realization decline by 11.6% YoY. Pipe segment revenue up 16.6% YoY to Rs15.1bn, packaging revenue up by 7.4% YoY to Rs3.5bn, industrial revenue down 2.7% YoY to Rs3.3bn, consumer segment was down by 5.8% YoY to Rs1.05bn. EBITDA grew by 142% YoY to Rs3.6bn (PLe: Rs2.3bn). EBITDA margin was at 15.4% (PLe: 10.6%). EBITDA per Kg reached to Rs25.9/kg. In Pipe/Consumer/Packaging, EBIT margins expanded by 1140bps/270bps/710bps YoY to 13.3%/16.6%/13.6%. Industrial EBIT margins contracted by 120bps YoY to 7.7%. PAT stood to Rs2.4bn (+196%YoY; PLe: Rs1.2bn).). The turnover from VAP stood at Rs9.4bn in Q2FY24.
Con call highlights: 1) Mgmt has guided for around 23% vol. growth along with EBITDA margin of 14.5% in FY24, mainly with good demand from real estate and infra sectors, 2) Plastic Pipe/Industrial Product/Packing Product is expected to grow 28%/4%/12% in volume terms in FY24, 3) In industrial segment, 40% of revenue comes from white goods, 4) Vol. growth in Plastic Pipe / Packing / Industrial / Consumer Product in Q2FY24 has been 30%/12%/4.5%/flat YoY, 5) There was no inventory loss or gain in Q2FY24, 6) A capex of Rs9.0bn will be done in FY24, which include the acquisition of business of Parvati Agro Plast, 7) Capacity expansion at Kanpur Dehat (U.P.), Erode (Tamilnadu) and Malanpur (M.P.) is at full swing, 8) Company has acquired the pipe manufacturing unit of M/s Parvati Agro Plast situated at Sangli, having total installed capacities of 36,000 MT per annum comprising of 15,000 MT of PVC Pipes, 18,000 MT of HDPE Pipes and 3,000 MT of O-PVC Pipes, 9) The installed capacities of the Piping division shall reach to 780 kMTPA by end of FY24 from 600kMTPA in FY23, 10) There were total of 283 showrooms as of Sep’23, 11) PVC resin prices down ~12% in Q3FY24 so far and expected to be soft in H2FY24.