06 Jul , 2022 By : Kanchan Joshi
In April May 2022, Supreme Industries (SI) posted notable growth of 49% year-on-year (YoY) in volumes, and 50% in value added sales (margin accretive) on a low base.
Jefferies in a note said that channel checks suggest that PVC price (key RM) has sharply dipped by around 20% on a sequential basis on 1 July. “RM volatility is a pass-through in Pipes industry, and hence we cut FY23-25 EPS by 3%. But beyond near-term impact, this could improve affordability and support demand. Over FY22-25, we expect volume growth of 12?GR," the note stated.
The global brokerage has a Buy tag on Supreme Industries shares with a target price of Rs2,540 apiece, implying a 40% upside potential from current level. The stock is down 20% in 2022 (year-to-date or YTD) so far as compared to 10?ll in BSE Sensex.
“Trend in softening of PVC prices from peak 2021 levels is broadly on expected lines. However, the quantum of fall over Apr-Jun22 was sharper than expected. Thereby, we reduce FY23-25e EPS by ~3%. We estimate FY23 OPM lower at 15.8%, down -440bps vs peak FY21 OPM. However, beyond near-term impact, correcting PVC prices can be viewed as a long-term positive, as this is expected to improve affordability and support demand," Jefferies added.
In a core industrial biz such as Pipes, an entrenched footprint acts as a strong moat aiding competitive pricing. SI's total capacity stands at 725K MT in FY22, much higher vs. peers, and is expected to expand by 75K MT to ~800K MT by FY23e. Supreme Industries has pegged its FY23 capex at Rs7 bn, first phase in Cuttack (East) and Erode (South) plants is likely to commence in Q2FY23.
Founded in 1942, Supreme Industries Limited is India's leading plastic processing company with seven business divisions. The company has forayed into different types of plastic processing in Injection Moulding, Rotational Moulding (ROTO), Extrusion, Compression Moulding, Blow Moulding etc.
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