Prime Stock call – Moving this plastics player back to Buy

Supreme Industries offers a wide range of products in piping, packaging, material handling and consumer goods. We had issued a “buy” call on Supreme Industries at Rs.3,662 per share in February 2025, following a deep correction in the stock. The correction was driven by various external factors including demand, pricing, and government policy on import duty on raw materials. 

As some of these factors started to settle, the stock rallied a sharp 30% (~50% from its low post our recommendation). However, much of this rebound was rooted in expectations rather than actual numbers turning around. The valuation spike this caused led us to move the stock to “hold” in June 2025 at Rs.4,582 per share.

Since then, the implementation of an anti-dumping duty on PVC resins didn’t play out as expected – the government in fact moved in the opposite direction, choosing to make PVC resins more accessible by even removing quality control restrictions. This lead to further pressure on prices in the domestic market. 

As a result, Supreme Industries corrected again since then and is now close to our “buy” price. As the scenario stands currently, the uncertainty over external factors is fading away and the growth and earnings upside is becoming more certain.In this backdrop and in light of the price correction, we are moving Supreme Industries back to “buy”.

Financials

Here’s a quick look into the 9-month earnings of Supreme Industries (Supreme) for the last 5 years:

As it can be seen, Supreme Industries’ 9-month PAT in Dec’25 is at the same level as in Dec’21, despite a 50% change in revenue. This is because the post-Covid period saw the highest margins stemming from favourable PVC resin prices, while the succeeding year was severely hit by the effect from the Russia-Ukraine crisis. In the last two years, Supreme was hit by falling demand. Falling input prices (PVC resin) also lead to inventory losses and subdued margins. 

For Supreme, plastic piping segment (PVC + CPVC) contributes ~70% of its revenues with the rest from industrial, packaging and consumer products. Despite the steady tonnage growth in the plastic piping segment, inventory losses had resulted in subdued revenue growth and falling margins. Revenue growth has significantly trailed volume growth on account of this as can be seen from the table below:

This scenario looks set to change, harbouring an uptick in Supreme’s volume growth, revenue growth, as well as margin expansion. This clarity is emerging on the following counts:

#1 Improving pricing environment

At this time, PVC resin prices are at an 8 year low. The top two players in the plastic piping sector are optimistic that a bottom for PVC resin prices has been reached and that a subsequent pull back/stabilization of prices is likely. An indicator to support this is the Q3FY26 P&L of raw material suppliers, where domestic listed players like Epigral and Styrenix are looking at multi-year low margins.

In this backdrop, any pull back in price will lead to inventory gains in P&L. Upward stabilization of prices will also to restore its margins, after a 2-2.5% erosion that it has seen so far in first three quarters of FY26.

#2 Demand momentum

The favourable pricing scenario combines well with a more positive demand scenario, which can drive earnings growth for Supreme. The demand momentum has been healthy in the last two quarters, thanks to a favourable base effect due to elections in FY25, and is likely to continue. 

A key factor for a better demand picture also comes from a favourable Govt. capex trajectory (+9% overall allocation in Budget 2026 plus significantly higher allocation for State capex); an additional demand trigger comes from the 4X allocation of Rs.67,600 crore to Jal Jeevan Mission in Budget 2026 (against the revised estimates of Budget 2025). This also augurs well for Supreme as the company entered into O-PVC piping through an inorganic move in FY24, a replacement for DI pipes. The sector also benefits from broader economic momentum and factors including GST cuts. 

The volatility in the sector with regard to import duties and pricing pressures have also made larger players stronger, positioning them for sustained growth. After being debt-free for 5 years in a row, Supreme has now raised some debt of Rs.240 crore at the end of H2FY26 (still net-debt free) as it has been aggressively pursuing capacity expansion along with an inorganic growth. The amount spent on capex has been upwards of Rs.2,500 crore between FY24- FY26. The benefit of these will flow through on earnings as demand recovers. 

Essentially, with both the pricing and demand scenario turning positive, revenue growth and a margin expansion to normalised levels of 14-16% will act as strong earnings growth driver going into FY27. Though valuations appear stretched at 57 times on subdued earnings, it may normalise to 40-45 times on FY27 basis if price and volume recovery plays out as expected. 

Disclosures and Disclaimers

The following Disclosures are being made in compliance with the SEBI Research Analyst Regulations 2014 (hereinafter referred to as the Regulations).

1. PrimeInvestor Financial Research Pvt Ltd is a SEBI-Registered Research Analyst having SEBI registration number INH200008653. PrimeInvestor Financial Research Pvt Ltd, the research entity, is engaged in providing research services and information on personal financial products. This Research Report (called Report) is prepared and distributed by PrimeInvestor Financial Research Pvt Ltd with brand name PrimeInvestor.

2. PrimeInvestor Financial Research Pvt Ltd, its partners, employees, directors or agents, do not have any material adverse disciplinary history as on the date of publication of this report. 

3.  I, N V Chandrachoodamani, author/s and the name/s in this report, hereby certify that all of the views expressed in this research report accurately reflect my/our views about the subject issuer(s) or securities. I/We also certify that no part of my/our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report. I/we or my/our relative or PrimeInvestor Financial Research Pvt Ltd do not have any financial interest in the subject company. 

I/we or my/our relative or PrimeInvestor Financial Research Pvt Ltd do not have beneficial ownership of 1% or more in the subject company at the end of the month immediately preceding the date of publication of the Research Report. I/we or my/our relative or PrimeInvestor Financial Research Pvt Ltd do not have any material conflict of interest. I/we have not served as director / officer, etc. in the subject company in the last 12-month period.

4.  I, N V Chandrachoodamani, do hold this stock as part of my investment portfolio. I/analysts in the Company have not traded in the subject stock thirty days preceding this research report and will not trade within five days of publication of the research report as required by regulations.

5.  PrimeInvestor Financial Research Pvt Ltd has not received any compensation from the subject company in the past twelve months. PrimeInvestor Financial Research Pvt Ltd has not been engaged in market making activity for the subject company.

6.  In the last 12-month period ending on the last day of the month immediately preceding the date of publication of this research report, PrimeInvestor Financial Research Pvt Ltd has not received compensation or other benefits from the subject company of this research report or any other third-party in connection with this report.

General disclosures & disclaimers