IDBI Capital reiterates buy on Supreme Industries for target price of Rs 4,786

IDBI Capital on Supreme Industries: Supreme Industries showcased a strong performance in fourth quarter of fiscal year 2024, surpassing estimated figures on crucial parameters, primarily propelled by heightened sales volume. The management's strategic focus on capacity expansion and tapping into rising demand dynamics bodes well for the company's trajectory, brokerage firm IDBI Capital said in a note.

During the fourth quarter, Supreme Industries reported net sales of Rs 3,000 crore, marking an increase of 15.8 per cent year-over-year (YoY). Additionally, the company's EBITDA stood at Rs 490 crore, registering an uptick of 2.2 per cent compared to Q4FY23. Further exemplifying its robust performance, Supreme Industries reported a net profit of Rs 350 crore, reflecting a healthy growth of 14.3 per cent, the Mumbai-based brokerage said.

A key highlight of Supreme Industries’ performance was its sales volume, which soared by 33 per cent to 195,369 metric tons (MT). The plastic division spearheaded this growth with a remarkable 41 per cent increase in volume, while the packaging segment witnessed an 11 per cent surge. Despite a decline in blended realisation by 12 per cent to Rs 153/kg, Supreme Industries managed to maintain its sales momentum.

Looking ahead, the company remains steadfast on its growth trajectory with a focus on expanding its capacity to meet the escalating demand. The company is set to add two new plants in Patna and Vijayawada, while also enhancing its plastic segment capacity from 739,000 MT to 835,000 MT by the conclusion of FY25. Additionally, a brownfield expansion in PVC pipe manufacturing in Kanpur, with a capacity of 50,000 MT, is on the horizon, expected to be completed by FY25, IDBI Capital said.

In line with its expansion plans, Supreme Industries aims to increase its stock keeping units (SKUs) from 421 to 1,000 by the end of FY25, signalling a strategic move to cater to diverse market demands. Moreover, the company is poised to incur a capex of approximately Rs 1,000 crore in FY25 towards capacity expansion in the pipe segment and increasing SKUs, financed by internal accruals.

However, amid its growth trajectory, the company expects challenges in the CPVC segment due to expected price pressures in FY25 stemming from increased industry capacity. Nonetheless, the company remains optimistic about volume growth, particularly in the pipe segment, forecasting a 20 per cent growth in FY25.

With a solid performance in Q4FY24 and a strategic roadmap for expansion amidst favourable demand dynamics, Supreme Industries Ltd. is poised to sustain its growth momentum and reinforce its position in the market. The brokerage has reiterated its buy call on the stock for target price of Rs 4,786, indicating an upside of 9 per cent.