Target: ₹4,235
CMP: ₹4,775.20
Extreme volatility in PVC resin prices coupled with low spending on infrastructural projects largely explains marginal decline in volumes of plastic piping business in Q2, a trend emulated by all other segments bar packaging products – whose volumes rose by 11.4 per cent. Yet, overall volumes all but flat lined resulting in 10.4 per cent decline in operating profit – OPMs slid by 140 bps.
Government of India’s unprecedented surge in infrastructural spends, be it roads, railways, housing, water infrastructure, power, has gratified EPC players, construction companies, energy firms, plastic pipe manufacturers, cement manufacturers et al through humongous order flows or volume surge.
For instance, Supreme’s chief plastic piping business saw nearly 40 per cent jump in SKUs last fiscal, though scaling of volumes of new products is no puny task.
The stock currently trades at 53.4x FY25e EPS of ₹87.07 and 43.9x FY26e EPS of ₹105.88. Blunted by high raw material volatility, post-tax earnings in the current fiscal will well-nigh flat line before jumping by over 21 per cent next fiscal.
Weighing odds, we assign “hold” rating on the stock with revised target of ₹4,235 (previoust: ₹3,485) based on 40x FY26e earnings over a period of 6-9 months.
