Build up Supreme Industries with a goal of Rs 4645: Satyendra Lilladher

 Build up Supreme Industries with a goal of Rs 4645: Satyendra Lilladher

In its research report dated October 30, 2023, Prabhudas Lilladher suggested an add rating on Supreme Industries with a target price of Rs 4645.

The study report on Supreme Industries by Prabhudas Lilladher

Supreme Industries (SI) exceeded expectations with a strong 23.2% volume rise, primarily driven by the Plastic pipe sector, which saw growth of 29.9% YoY. Meanwhile, EBITDA/kg increased to Rs 25.9/kg (from Rs 21.6 QoQ and Rs 13.2 YoY). In Q2FY24, the plumbing and infra divisions drove volume increase. SI has raised its expectation for volume growth to 23% from 20%+ (28% vs. 23-25% in the pipe business) and has raised its target for EBITDA margin to 14.5% from 14%+ for FY24. Given 1) capacity expansion in various geographies, 2) new product expansion, such as expanding in PVC window and door manufacturing and adding four piping systems, namely (i) PP multilayer silent pipe, (ii) Gas Piping, (iii) PE/AL/PE piping, and (iv) PPR pipe, and 3) a nationwide network of 4500 channel partners, with 1443 distributors for pipe business and an additional 100 in FY24, and 4) cash surplus of Rs5.8bn for funding expansion plans, we continue to believe SI is well-positioned to capture demand across its segments.

Prospects

We project a 14.9%/21.9%/21.6% CAGR in revenue, EBITDA, and PAT from FY23 to FY26E, with a 15.5% volume growth and a 250bps increase in EBITDA margin. We retain our Accumulate rating at TP of Rs 4645 (formerly Rs 4225) and upwards adjust our FY24/25E earnings projections by 1.4%/1.3%. This is based on 40x Sep'25 core EPS plus a 25% discount to Supreme Petrochem's share.