Supreme Industries Ltd Q2 FY2024 Concall Summary

Key Takeaways

• Volume growth upgraded to 23% for FY24, driven by a 30% H1 surge from a weak base and strong Nal se Jal scheme demand; management calls this a normal year and guides to ~12% growth next year.
• Piping is the engine, but CPVC degrew: Plastic piping volumes jumped 30%, yet CPVC volumes fell as falling PVC prices made the cheaper alternative more attractive.
• Margins guided to ~14.5% for the full year, with H2 seen at 14.5–15% absent inventory losses; a 13% drop in PVC prices during early October is a near-term risk that management treats as part of the cycle.
• Parvati Agro Plast acquisition closed at ₹151.38 crores, adding 36,000 MT of pipe capacity and an entry into O-PVC; only four months of its production are baked into the FY24 guide.
• What to watch next quarter: Whether the PVC price decline triggers a material inventory loss in Q3, the pace of new capacity commissioning across four sites, and any update on export orders for composite LPG cylinders.

Volume Growth & the Base Effect

• 23% volume growth guided for FY24, upgraded from an earlier figure, after H1 delivered 30% on a poor base last year when demand was depressed.
• Next year normalizes to ~12%: Management explicitly frames FY24 as a rebound to a normal year, not a new run-rate, and will give a proper FY25 forecast in April 2024.
• Restocking began only in the second half of October, so the Q2 print did not benefit from any channel refill; management does not track distributor inventory and has no clear view on destocking.
• Value growth is too risky to forecast because raw material prices cannot be predicted six months out; the company now prefers to talk only volume growth while it adds value-added items to the mix.

Taparia: "This year super growth is going to be because a poor base of last year. Now this year is a normal year. So we anticipate growth should be around 12% next year."

Plastic Piping: The Core Driver

• Piping volumes guided to ~28% growth for FY24, well above the company average, fueled by polythene pipe demand under the government's Nal se Jal scheme where Supreme is a preferred supplier.
• CPVC volumes degrew because PVC prices fell sharply; when PVC was expensive, users substituted CPVC, but that trade has now reversed since CPVC is pricier and used mainly for plumbing.
• Nal se Jal scheme is a known sunset: the program should conclude by end-2024, with possible spillovers into 2025; gas piping system work is expected to continue and management hopes it can reach 7–8% of revenue like polythene pipe.
• O-PVC is a small, early-stage bet: the Parvati acquisition brings government-approved O-PVC capacity that supplements ductile iron pipe, but current capacity is very small and limited to 400 mm diameter versus ductile iron's 1.2 m.
• Capacity build-out is aggressive: installed piping capacity is targeted to reach 780,000 MT per annum by end-FY24, up from 600,000 MT as of March 2023, with construction at full swing in Kanpur Dehat, Erode, and Malanpur and equipment orders already placed.

Taparia: "My overall guidance, I improve now to overall volume growth of the company going to be 23%. And for plastic piping is going to be around 28%."

Margins & the PVC Price Overhang

• Full-year operating margin guided to ~14.5%, with H2 seen in a 14.5–15% band provided no inventory losses materialize; the guidance is deliberately conservative because management cannot forecast price trends in the current global economy.
• PVC prices fell 13% in the first half of October, creating a potential small inventory loss in Q3; management treats this as part of the normal business cycle and notes that losses reverse when prices rise.
• Q2 had neither inventory gain nor loss, so the reported margin is clean; working capital increased because inventories and receivables are higher versus March 2023 while payables have come down as imports decreased and domestic buying shifted to advance payments.
• Value-added products are a margin lever: the proportion of value-added items has risen to 41–42%, helped by the packaging segment's focus on customized and proprietary products that command better pricing even in competitive markets.

Taparia: "Commodity prices never stabilize and to say that level will be maintained up to March, is not going to happen."

Packaging & Other Segments

• Exports are a stated focus with more resources being deployed and participation in international exhibitions; management hopes exports keep rising but declines to give any percentage target for three to five years.
• PVC window and door facility is taking shape with execution expected to start by end-November 2023 and production trials about 12 months later; distribution details will be shared only when ready.

Acquisitions & Capex

• Parvati Agro Plast acquired effective 17 October 2023 for ₹151.38 crores, adding 36,000 MT per annum of pipe capacity on 13.48 acres at Sangli, Maharashtra; the final price was ₹20 crores lower than the August announcement because that figure had included adjoining land now being purchased separately.
• O-PVC capacity at Sangli is being expanded to 15,000 MT per annum; Parvati is already government-approved for O-PVC, which supplements the ductile iron pipe market.
• Total capex commitments including carry-forward may reach ~₹900 crores excluding Parvati Agro, but cash outflow is not likely to exceed ₹800 crores, funded entirely from internal accruals.
• One million tons total capacity is the target by end-March 2024, spanning all product lines.
• Inorganic appetite remains open even for existing products; management says it has never closed its mind to acquisitions.

Taparia: "We are open to even the existing products also inorganic growth. We have never closed our mind."

What Management Would Not Disclose

• Maharashtra government contract progress: management declined to state how much of the ₹480 crores order has been supplied, saying it did not recall correctly.
• Nal se Jal revenue contribution: deflected a question on the scheme's share of revenue and where it could go in two to three years, offering only a vague ~8% of piping turnover without addressing the forward-looking part.
• Dealer inventory levels: management does not track distributor stock and has no clear idea of channel inventory.
• Plumbing vs Agri pipe mix: called the split "complicated" because Agri pipes are used for plumbing too, and declined to provide a breakdown.
• Regional capacity split: when asked for piping capacity by region (North, West, South, East), management said it was "not possible."
• Revenue split by pipe material (PVC, HDPE, PE): management called it "classified" and declined.
• Volume supplied to Nal se Jal in FY24: management said it cannot say precisely how much goes to the scheme because it does not know the end application correctly.

Guidance & Commitments

Key Metrics