Supreme Industries Ltd Q3 FY2024 Concall Summary

Key Takeaways

• Volume-led beat, guidance raised: Plastic piping volumes surged 30.4% in 9M, and management committed to 30% full-year growth as polymer prices stay affordable and demand remains strong.
• Market share grab in piping: The company grew 30% against an Indian PVC pipe market growing 15% and CPVC growing just 2%, implying significant share gains in its core segment.
• Margins resilient despite PVC volatility: Core operating margins held at ~15.5%, up over 200 bps YoY, helped by a richer product mix and specialty SKUs even as PVC prices softened.
• Capex cycle accelerating: Total commitments including the Parvati acquisition may exceed ₹1,000 cr, with capacity set to cross 0.1 crore tons by December 2024, all funded from internal accruals.
• What to watch next quarter: Whether the 30% piping volume target is met, the pace of new plant commissioning (Parvati, Malanpur, O-PVC lines), and any order flow for composite LPG cylinders from the other two OMCs.

Plastic Piping: Volume Surge & Market Share

• 30% growth locked in: Volumes grew 30.4% in the first nine months, and with polymer prices now even more affordable and a low base in Jan-Feb last year, management committed to 30% full-year volume growth for the piping division.
• Demand broad-based across end-markets: Housing is the largest driver, followed by agriculture and then infrastructure, with government business contributing less than 10% of total and flowing mostly through contractors.
• Agriculture outlook robust through mid-year: Pipe prices have fallen significantly, farmers are getting better crop prices, and credit availability is fine, so agri-pipe demand is expected to stay strong up to June 10.
• Market share gains are material: The company's 30% growth far outpaced the Indian PVC pipe market at 15% and CPVC growth at just 2%, signaling a decisive share shift toward Supreme.
• Election risk dismissed: Management sees no disturbance from elections since most business now transacts through banks rather than cash.

Taparia: "In the first 9 months, we have grown by 30.4%. And the polymers price has become further affordable and there is good demand from infrastructure and housing and last year in the month of January and February the demand was low. So when we say that we will grow 30% for the year, 9 months we have grown by 30.4%. And the remaining 3 months, business conditions are looking better compared to last year. So we are able to commit that we will grow 30% for the full year in plastic piping."

Product & Capacity Expansion

• Parvati Agro Plast acquisition live: The Sangli unit adds 36,000 tpa capacity and is expected to run at full capacity beginning February 2024, with balancing equipment still to arrive and adjoining land awaiting government clearances. Total outgo is ₹171 cr (₹151 cr for assets plus ₹21 cr for land).
• O-PVC lines ordered: Nine lines have been ordered; once operational, capacity will reach ~40,000 tpa within two years, with production starting at Cuttack, Gadegaon and Sangli.
• Malanpur plant on track: Construction of the fourth plant is at full speed and expected to be operational during Q1 FY25, geared to manufacture ball valves and industrial valves.
• Acoustics polypropylene pipe plant: Expected to go into operation during July-September 2024.
• Windows and doors facility: The Kanpur unit faces a long delivery schedule for foreign-origin equipment, so benefits will reflect only in FY26 working; initial target is 5,000 tons, later scaling to 10,000 tons with customized windows made at five locations.
• New piping systems launched: The company received BIS approval for HDPE gas pipe and will introduce it to market in Q4 FY24; it has also started offering CPVC pipe systems for industrial applications, expanding beyond plumbing and fire sprinklers into PPR and polyethylene for industrial piping.
• Composite LPG cylinder line established: The newly installed production line is operational and execution of the old IOC order is nearing completion; new enquiries are expected soon, though no orders from the other two OMCs have materialized yet.

Segment Performance

• Inventory loss absorbed: The piping division saw inventory valuation decline by ₹51 cr over nine months versus April 1, 2023, a drag absorbed within the quarter's margin performance.

Taparia: "In Packaging segment, there are three divisions. Like cross laminated film, we are going more and more into value-added product other than Tarpaulin where we are able to capture more value than what we are getting in Tarpaulin and protective packaging films, we are growing into more and more multi structural and more and more into export markets where we get better margins, so our capacity is restricted, we don't have capacity, producing 10,000 to 11,000 tons per year, with capacity constraint we can't grow more capacity there. So whatever capacity we have got we want to earn more money by that capacity by going into specialized product."

Margins & Mix

• Core margin held at ~15.5%: This was up over 200 bps YoY and roughly 10 bps QoQ, achieved despite volatile PVC prices that softened in October and December.
• Specialty mix is the margin engine: The piping range now exceeds 16,000 SKUs, and the company is deliberately adding more specialty products that may not meet the formal 17% operating margin threshold for "value-added" classification but still lift the blended margin.
• Packaging margin strategy: With capacity capped at 10,000-11,000 tons per year, the segment is pivoting to higher-value applications (multi-structural protective films, export markets) to extract more profit from the same asset base.
• Management wants further improvement: The 15.5% level is "far better than earlier" and the company will keep working on specialty products to push margins higher.

Taparia: "We are increasing our range of product more and more. In our piping system, our range is now in excess of 16,000 SKUs. We are making more and more speciality products which may not fall in the value-added product because our criteria for value-added product is it must earn operating margin of 17%."

Capex & Capacity Outlook

• FY24 capex crossing ₹1,000 cr: Total commitments including the Parvati acquisition and carry-forward may exceed ₹1,000 cr, but cash outflow is not likely to exceed ₹750 cr for the year, funded entirely from internal accruals.
• Installed capacity milestone: Capacity will rise from 800,000 tons as of April 1, 2023, to above 0.1 crore tons (0.1 crore tons) by December 2024.
• Supreme Petrochem expansion: A new complex at Panipat (Karnal district, near IOC refinery) will add one polystyrene and ABS line, plus capacity for 0.1 crore sqm of 3D panels, 12,000 tons of styrene, and 100,000 cubic meters of extruded polystyrene foam board.
• ABS plant at Nagothane: Work is in full swing; operational by March 2025 with 70,000 tpa capacity.
• Next-year piping growth pegged at 12-15%: Management offered an early read on FY25 piping segment growth, though formal capex guidance for FY25 will come in April.
• Nal-se-Jal tailwind: Management believes most works under the scheme should be complete by March 2025, and the company is positioning to move into gas supply systems as replacement demand.

Guidance & Commitments

Key Metrics