Target: ₹3,527

CMP: ₹3,475.70

The Q4-FY25 revenue (₹3,030 crore) of Supreme Industries (SIL) grew by 1 per ceet y-o-y, due to just a 2 per cent y-o-y volume growth (like the y-o-y rise in Q2/Q3-FY25) and a 2 per cent y-o-y decline in realisation. Gross margin (29.5 per cent) declined by 311 bps due to 3 per cent higher PVC prices. This led to a 9 per cent dip in gross profit.

We believe this was due to weak demand. The dip in gross profit led EBITDA (₹420 crore) to decline 15 per cent. EBITDA/kg (₹20.8) was 25 per cent below the average of Q4 (FY17-25). Excluding the extraordinary Covid-19 pandemic period (FY21-22), EBITDA/kg was 17 per cent below the Q4 average.

We have cut FY26F/27F EBITDA by 15/14 per cent, respectively. We estimate a 9 per cent volume CAGR over FY25-27, vs. a 10 per cent CAGR over FY20-25. We factor in a 3 per cent per annum rise in EBITDA/kg over FY25-27. Over the last six years, SIL has traded in a wide range of one-year forward EV/ EBITDA.

We have reduced our target price to ₹3,527 (₹4,125 earlier), valuing SIL at 22x FY27F EV/EBITDA (same earlier), but upgraded its rating to Hold (Reduce earlier). Since we initiated coverage on SIL (Jan 2, 2025) with a Reduce rating, the stock has declined by 25 per cent.

Sharper- than-expected volume growth is an upside risk while a continued weak demand environment is a downside risk.

Published on April 25, 2025