Supreme Industries (Supreme) reported a healthy revenue growth, but profitability was impacted due to the higher RM cost. Supreme reported a revenue of Rs25.6bn (up 23% YoY and 33% QoQ), in line with our estimate of Rs25.1bn. Total volume increased by 15.6% YoY to 128,607MT, while blended realization improved 6.1% YoY (down 6.6% QoQ) to Rs199/kg. EBITDA declined by 23.2% YoY to Rs3.9bn (our estimate of Rs4.3bn), while EBITDA margin declined by 915bps YoY to 15.3% due to the higher RM prices. PAT came in at Rs3.2bn (our estimate of Rs3.5bn), down 28.1% YoY due to the lower margin. Prices have stabilized and are on the recovery path, while the distribution channel has started to work the normal way. The company has a cash surplus of Rs5.2bn as of FY22, from Rs7.6bn in FY21. It incurred a capex of Rs2.6bn in FY22 to ramp up capacities in the plastic piping system, to introduce new products in various business segments, automation etc. Factoring a steady improvement in the real estate demand coupled with the government's initiatives for infrastructure development, we increase the revenue/PAT estimates by 4%/5% for FY23 and maintain the overall estimate for FY24. Considering the higher capex, rising market share, lean working capital and high return ratios, we reiterate our BUY rating on the stock and maintain the 1-year Target Price of Rs2,958, valuing the stock at 36x FY24E EPS.
Capex of Rs7bn in FY23; Healthy Growth to Continue
Capex plan is as per schedule for the new capacities. Supreme incurred Rs2.6bn capex in FY22 and is looking to spend Rs7bn in FY23. Demand is showing an improvement with new product expansion and a rising number of retailers. The management is looking for a healthy traction in FY23, with an improved product mix and focus on increasing the customer base. Moreover, the company aims to leverage various government initiatives and seek opportunities for growth. Despite the volatile polymer prices, we believe Supreme is likely to maintain a healthy growth for the next couple of quarters. As prices are stabilizing gradually and the economy is on a recovery path, the distribution channel has started to work in a normal way. It is also focusing on the export business and development of new applications like laminating with different substrates, which are likely to aid growth ahead.
Outlook & Valuation
The company's volume of PVC pipes segment has increased by 27% YoY in 4QFY22, while it declined by 7% for FY22. Going forward, we expect Supreme to deliver a stable revenue growth during FY22-FY24E, led by the higher capex, rising market share, and higher PVC prices. We estimate the company's revenue, EBITDA and PAT to clock 3.6%, 6.9%, 3.8% CAGR respectively over FY22-FY24E. Looking ahead, we expect Supreme to maintain a leading position in the overall pipes market, aided by a higher revenue from value-added products and a higher capex. Considering the expected higher revenue from value-added products, higher capex, rising market share, lean working capital and high return ratios, we maintain our BUY rating on the stock and the 1-year Target Price of Rs2,958, valuing the stock at 36x FY24E EPS.
Shares of Supreme Industries Limited was last trading in BSE at Rs. 2011.45 as compared to the previous close of Rs. 1949.75. The total number of shares traded during the day was 14826 in over 2169 trades.
The stock hit an intraday high of Rs. 2033.00 and intraday low of 1912.05. The net turnover during the day was Rs. 29318574.00.