Supreme Industries Ltd Q4 FY2023 Concall Summary

Key Takeaways

• Volume recovery drives 29% growth: FY23 volume surged 29%, recouping significant ground lost over the prior two years, and outpaced industry PVC resin consumption growth of 32% with a 37% volume increase.
• Margin guidance reset to 13.5–14%: After a volatile year of PVC-driven inventory swings, management guided FY24 EBITDA margins to a normalized 13.5–14%, with Q4 adjusted margins at 16% after a ₹70 Cr inventory gain.
• Three new plants commissioned, more capacity coming: Greenfield plants in Guwahati, Erode, and Cuttack began operations, with Erode’s PVC pipe capacity already set to double by November, supporting a 15% volume growth target for FY24.
• Silpaulin reclassified as margins fell: The flagship film was removed from the value-added product category after margins dipped below the 17% threshold, though management is now correcting prices upward as low-quality competitors fail.
• What to watch next quarter: Whether the guided 15% volume growth materializes in Q1 FY24, the trajectory of PVC prices amid a weak global economy, and the pace of margin recovery in the packaging segment.

Volume Growth & Demand Drivers

• Piping volume outperformance: Supreme’s 37% volume growth outstripped the industry’s 32% PVC resin consumption growth, driven by government-led demand from Jal Jeevan Mission, Swachh Bharat, and affordable housing schemes.
• Agri demand seasonality: Agricultural pipe demand begins in Q4 but peaks in Q1 (April-June), with early signs pointing to better demand than the prior year, contributing to a 39% growth spurt.
• CPVC momentum: CPVC volumes grew 24% and value rose over 40% in FY23, though management declined to disclose its revenue mix, calling it “very classified information.”
• Blended realization shift: The ratio of blended realization to average PVC resin prices rose to 1.7 from a historical 1.3–1.4, a lift attributed to a richer mix of higher-priced polyethylene, CPVC, and polypropylene pipes rather than PVC alone.
• Channel inventory normal: Current channel inventory is at normal levels with no excess stocking, as commodity prices remain soft worldwide and PVC prices may stay flat or decline.

Taparia: "Last five years when you calculate, remember two years of COVID. There was a degrowth in the economy. Two years of COVID, please don't forget. Nothing to compare. But now because we are putting more, we are reaching more areas of the country... we believe we should go on growing between 12%, 15% going forward."

Margin Dynamics & PVC Volatility

• PVC roller coaster: PVC prices swung sharply for the second consecutive year, falling from April to November 2022 and causing large inventory losses, then rising from December to January before stabilizing at lower levels from mid-March, which boosted consumption.
• Q4 margin walk: Reported EBITDA margin included a ₹70 Cr inventory gain; adjusting for this, the underlying margin was 16%, a level management cautioned is seasonal and not indicative of full-year performance because agri pipes do not command such margins in other quarters.
• FY24 margin guidance: Management set an explicit EBITDA margin band of 13.5% to 14% for FY24, reflecting a normalized environment after two years of extreme PVC-driven swings.
• Packaging margin pressure: Cross-laminate film margins sank below 13%, triggering its removal from the value-added category (which requires a 17% threshold), while protective packaging also suffered inventory losses, though the quantum of business is small relative to piping.
• Plastic products margin opacity: Management declined to provide margin guidance for the plastic products division, citing resin price volatility that makes even a range-bound forecast impossible.

Somani: "Ultimately, the products are seasonal, agri pipes does not command such margin in rest of the year. So we have to consider this."

Capacity Expansion & Plant Commissioning

• Three greenfield plants live: Guwahati (Assam), Erode (Tamil Nadu), and Cuttack (Odisha) were commissioned during FY23, with management stating all three will be sold out in the current year.
• Erode freight advantage: The Erode plant reduces freight costs to Kerala by 3.5% versus the previous Gadegaon supply point, and delivery time drops from three days to same-day.
• Erode doubling underway: Current capacity of 3,000 tons per month is being doubled, with the additional 3,000 tons expected to start by November this year, alongside new DWC pipes and blow-moulded water tank lines.
• Year-end capacity target: Total capacity will reach 950,000 tons by year-end, with 90% of the increase concentrated in plastic piping.
• Composite cylinder scale-up: Capacity doubled in February 2023 from 5 lakh to 0.1 crore cylinders per annum, with the plant already running at 90% utilization and further orders expected from IOCL.

Product & Segment Performance

• Silpaulin pricing correction: Lookalike fake products sold 20–25% lower for several years, forcing Supreme to drop prices, but those competitors’ poor quality has now been exposed, allowing Supreme to correct prices back to justifiable levels.
• New product traction: Every product launched in the last five years has been well accepted, and the company is further extending their ranges, though management declined to quantify sales targets, stating a five-year timeframe is needed for meaningful turnover.

Taparia: "There are so many lookalikes fake products that came in the market and they were selling at a much lower price than us, 20%, 25% lower. So we were forced to drop the price, but finally in the last three, four years, they found out that their quality was absolutely useless."

FY24 Outlook & PVC Price View

• Volume growth guidance: Management guided 15% volume growth for FY24, with Q1 FY24 volumes already tracking higher than Q1 FY23 on better agriculture and infrastructure demand.
• Revenue guidance: Full-year revenue expected in excess of ₹11,000 Cr.
• Industry growth context: Industry piping volume growth estimated at 13–15% for FY24; Supreme expects to grow 20% volume, continuing its outperformance.
• PVC price ceiling: Management sees PVC prices ranging around $50 plus/minus (approximately ₹4 movement either way), with further drops possible but increases difficult due to the weak global economy.
• Capex plan: ~₹750 Cr planned for FY24, including ₹153 Cr in carry-forward commitments, entirely funded from internal accruals.
• Channel expansion: Target to add another 100 channel partners in plastic piping during the current year.

Taparia: "Going up is difficult due to the world economy not in great shape."

Packaging Segment Challenges

• Cross-laminate film de-rated: The product was removed from the value-added category after margins fell below the 17% threshold, landing below 13%, and the business has been in difficulty for three years with margins sinking annually.
• Recovery effort underway: Management’s first priority is to restore cross-laminate film margins to the 17% level, with an expectation that this should happen within the current year.
• Combined packaging margin target: The packaging segment’s combined margin is expected to land between 13% and 14%, with the reduction now seen as contained.
• Protective packaging drag: Inventory losses also hit protective packaging products, though the quantum of business remains comparatively small relative to the piping divisions.

Taparia: "First, we are trying to make it a value added item, which means we have to bring it to 17% level. First, our effort is to make it back to 17% level, which came down below 13%."

Guidance & Commitments

Key Metrics