The brokerage has a Buy tag on Supreme Industries shares with a target price of ₹ 2,540 apiece
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% CAGR," the note stated.
The global brokerage has a Buy tag on Supreme Industries shares with a target price of ₹ 2,540 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% fall 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 ₹ 7 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.
The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.
Log in to our website to save your bookmarks. It'll just take a moment.
Oops! Looks like you have exceeded the limit to bookmark the image. Remove some to bookmark this image.
Your session has expired, please login again.
You are now subscribed to our newsletters. In case you can’t find any email from our side, please check the spam folder.
This is a subscriber only feature Subscribe Now to get daily updates on WhatsApp