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Supreme Industries Q4FY22 Review: Strong volume recovery drives topline

ICICI Securities 02 May 2022

Buzzing:

Supreme Industries reported strong topline growth of 23% YoY, supported by ~16% volume growth. However, higher input costs and change in product mix weighed on margins.

Context:

Supreme Industries reported robust topline growth of 23% YoY to Rs 2557 crore in Q4FY22 even on a strong base of last year. The piping revenue (65% of total revenue) increased 34% YoY to Rs 1800 crore led by 27% growth in volume. Strong demand from the agriculture segment amid softening PVC prices helped drive volume growth. Other segments industrial, packaging, consumer witnessed a muted performance owing to slow demand from automotive segment and increased competition. On the margin front, as expected gross, margins came under pressure due to higher raw material costs and adverse product mix. As a result, EBITDA margin declined 915 bps YoY (down 103 bps QoQ) to 15.3%. PAT at Rs 324 crore came in higher than our estimate supported by strong revenue growth.

Our perspective:

The company's strong double digit piping segment volume growth was a beat from our expectation supported by robust demand on ease in PVC prices. The demand is likely to remain robust in FY23 (+15%) supported by softening PVC prices and revival in agri, housing and infrastructure pipe demand. On the margin front, we build in a normalised EBITDA margin of 15% for FY23 supported by softening PVC prices and rising contribution of value added products. The value added product revenue increased by 17% YoY in FY22. The company has planned capex of Rs 700 crore in FY23 (through internal accrual) to increase its manufacturing capacity by 11%. We maintain our positive stance on company considering strong growth outlook in the company’s core business and robust balance sheet condition.

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