ICICI Direct has given Hold recommendation for Supreme Industries with a target price of Rs. 2390 in its research report issued on May 04, 2021
ICICI Direct’s research report on Supreme Industries
Supreme industries’ performance in Q4FY21 was much ahead of our estimates on the revenue & profitability fronts. Revenue growth at ~46% YoY to Rs 2084 crore was mainly driven by ~37% higher realisation. However, despite a lower base, overall volume growth at 8% YoY was lower than expected. The piping segment volume came in lower by 2% in Q4FY21 amid lower demand of agri pipes and change in product mix. The other three segments, packaging, industrial and consumer furniture sales was higher by 49%, 85% 30% YoY, respectively, in Q4FY21 on a favourable base and demand revival in selected product categories. On the margin front, while inventory gains remained higher (by Rs 80-100 crore), significant saving in other costs (by ~650 bps YoY) led to 534 bps increase in EBITDA margin to 24.5%. Finally, PAT was up ~3.8x to Rs 450 crore YoY supported by ~10x jump in profit from Supreme Petrochem. The management believes while the near term demand would be negatively impacted by sporadic lockdowns, the cooling off of raw material prices and expectation of better monsoons would help drive demand of plastic pipes with restoration of business activities. Further, the company has guided for EBITDA margin of ~17% (~ 200 bps higher than its last five years average), going forward, and envisages capex of Rs 400 crore for FY22E.
We downgrade our rating from BUY to HOLD with a revised target price of Rs 2390 valuing at 33xFY23E (earlier TP of Rs 2010).