Supreme Industries is stock pick of the week; here is why
The plastics company reported poor operational performance in the September quarter amid weak demand and volatility in PVC prices. It reported a dismal consolidated volume growth of 0.2% with revenue and PAT decline of 2% and 15% respectively on a year-on-year basis. The top line and bottom line also missed Reuters-Refinitiv estimates by 9.7% and 16.4% respectively.#sr_widget.onDemand p, #stock_pro.onDemand p{font-size: 14px;line-height: 1.28;} .onDemand .live_stock{left:17px;padding:1px 3px 1px 5px;font-size:12px;font-weight:600;line-height:18px;top:9px} #sr_widget.onDemand .sr_desc{margin:0 auto 0;} #sr_widget.onDemand .sr_desc{color: #024d99;margin-top:10px;} #sr_widget.onDemand .crypto .live_stock .lb-icon{8px 6px 5px 3px !important} #sr_widget.crypto.onDemand a.text{border-bottom:1px solid #ccc;padding-bottom:5px;display:block;width:100%} #sr_widget.onDemand .sr_desc .text p, #stock_pro.onDemand .sr_desc .text p{font-size:12px;font-weight:400;} Furthermore, inventory loss and higher freight costs (due to limited container movement due to the Red Sea crisis) led to a significant reduction in the EBITDA margins. However, management saw healthy demand improvement in September. This, coupled with a likely stabilisation of PVC prices, will support the performance in the second half of 2024-25.
Though the management has reduced its volume growth guidance to 16-18% compared to 25% earlier, most brokerages have a positive view due to expectations of demand revival and normalisation of channel inventory in the third and fourth quarters of the current financial year. Also, the recent stock price correction (close to 20% since the second week of October) has improved valuations. The company operates over 30 manufacturing plants, exports to 55+ countries, and covers verticals like plastic piping, consumer products, packaging, and industrial products. It stands to gain from strong growth prospects across its segments. Government programs like the Jal Jeevan Mission, Swachh Bharat Abhiyan and affordable housing and growth in the real estate sector are the key drivers of the plastic piping segment. On the other hand, the company’s innovative product offerings, strong brand image and superior technological capabilities are supporting its furniture business.
In the industrial products division, diversification into telecom, infrastructure, and defence sectors, focus on gaining new customers and increasing exports are yielding results. The packaging products segment is growing due to steady demand from the food industry, value-added products and an increase in customer base in India and abroad.
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The company has strengthened its competitive edge by promoting products across media, boosting social media presence, building ties with architects and contractors, adding channel partners, and focusing on export growth. It is also enhancing its manufacturing strength through greenfield and brownfield expansions. Its pipe capacity is expected to increase to 835 ktpa (kilo tonnes per annum) by March 2025 (from 790 ktpa in September 2024) mainly through brownfield expansion. The management has planned a capex of Rs.1,500 crore in 2024-25. Analysts expect decent performance over the next few years led by a favourable PVC price environment and strong demand outlook from plumbing, agriculture and infrastructure segments. Despite strong capex, the company is expected to maintain healthy free cash flows in the future.
Selection methodology: We pick the stock that has shown the maximum increase in ‘consensus analyst rating’ during the past three months. The consensus rating is arrived at by averaging all analyst recommendations after attributing weights to each of them (1 for strong buy, 2 for buy, 3 for hold, 4 for sell, 5 for strong sell). An improvement in consensus analyst rating indicates that the analysts are getting bullish on the stock. Only stocks with more than five analysts covering them are considered. You can see similar consensus analyst rating changes during the past week in ETW 50 table.
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This story originally appeared on: India Times - Author:Faqs of Insurances
