Supreme Industries - Q1FY21 Result Update - ICICI Securities
Supreme Industries' Q1FY21 performance was largely impacted by lockdown in April 2020 and lower piping demand from housing segments. However, the company saw pent up demand in the agri piping segment from rural India in June 2020. While the company's piping & packaging films products have seen strong demand recovery in June 2020 (with operation reaching to almost pre covid-19 level), the demand recovery of industrial and furniture products was impacted by intermediary lockdowns. The management refrained from guiding volume offtake for FY21E due to widespread localised lockdowns that would likely delay the recovery process in construction activity. On the margin front, saving in other expenditure (down 41% YoY) helped cushion EBITDA margin from any sharp fall during the period but gross margin was under pressure mainly due to a change in mix. We believe the FY21E performance will be impacted by less spending in construction and infra related works amid lockdowns while the actual recovery in demand would improve from FY22E onwards.
Valuation & Outlook
While Supreme witnessed good pent up demand in May-June led by agri product categories, intermediary lockdowns are likely to delay the overall recovery process. This, coupled with a rising proportion of low margin piping business would weigh on gross margins and finally EBITDA margin. Though we maintain our positive stance on the stock, we believe the current price captures near term positives with present valuation hovering at 41x FY21E, 28x FY22E. We maintain our HOLD rating on the stock with a revised target price of Rs. 1245/share.
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