On Wednesday, Supreme Industries (SI:IN) received a revised rating from ICICI Securities, moving from Reduce to Hold, although the stock price target was lowered to INR 4,457 from INR 4,905. The change in stance comes after the company reported its operational performance for the second quarter of the fiscal year 2025, which did not meet expectations.
Supreme Industries' blended plastic volume remained unchanged year-over-year, with pipe volumes also showing no growth compared to the same period last year. This stagnation is attributed to several factors, including PVC price volatility, adverse weather conditions, and decreased infrastructure spending, as explained by the company's management.
The firm observed a contraction in blended EBIT/kg of 18.9% year-over-year, falling to INR 17.1. This decline was even more pronounced in the pipes segment, where EBIT/kg dropped by 24.5% year-over-year to INR 14.7, primarily due to an inventory loss valued between INR 350-400 million. Adjusted EBIT/kg for pipes would have been between INR 18.1 and INR 18.6 without this loss.
As a result of these challenges, management has revised its pipe volume guidance downward to 16-18% growth for the fiscal year 2025, a decrease from the previously anticipated 25% growth. In response to these developments, ICICI Securities has reduced its EBITDA forecasts for Supreme Industries for the fiscal years 2025 to 2027 by approximately 8-10%.
Despite the cut in financial projections, the upgrade to a Hold rating reflects a significant price correction of around 21% in Supreme Industries' stock over the past three months. The new price target is based on a roll-over Sum of the Parts (SoTP) valuation, with the core business target price-earnings (P/E) ratio remaining unchanged at 39x.
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