The Supreme Industries Limited (SUPREMEIND) Earnings Call Transcript

Ladies and gentlemen, good day, and welcome to the Supreme Industries Q1 FY '27 Earnings Conference Call hosted by DAM Capital Advisors Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mrs. Anifa Fernandes. Thank you, and over to you, ma'am.

Thank you, Anusha. Good evening, everyone, and welcome to Supreme Industries Q1 FY '27 Post Earnings Conference Call. Joining us today from the company's senior management team are Mr. M.P. Taparia, Chairman and Managing Director; Mr. P.C. Somani, Chief Financial Officer; and Mr. R.J. Saboo, Vice President, Corporate Affairs and Company Secretary. I would now like to hand the call over to Mr. Taparia for his opening remarks. Over to you, sir.

Thank you very much. I'm M.P. Taparia, Chairman and Managing Director of The Supreme Industries Limited. I along with my colleague, Shri P.C. Somani, CFO; and Shri S.J., Vice President, Corporate Affairs and Company Secretary, welcome all the participants who are participating in the discussion of the unaudited standalone and consolidated financial results for the quarter ended 30 June 2026. The standalone results and the [indiscernible] RGB or complete operative performance and other highlights. The company sold [indiscernible] 1,536 tonne of plastic goods. [indiscernible] 2,717 crores during the first quarter of [indiscernible] year-of-year 2,609 crore [indiscernible] f19 and quarter of the previous year, yielding growth volume of the growth around 14% as the annual growth of 4% [indiscernible] The standalone operating profit during tax during the year of peer under review around which 98 crore and 208 crore as compared to less than 19 and growth -- and 177 crore during first part of the previous years. Achieving increase 25% as 17% respectively. The business scenario of other produce segment of the company for the quarter ended 30 June 2026 as compared to and quarter of previous year, annual [indiscernible]. Taking the [indiscernible] 10% of volume and grew by 9% in annual income. In this [indiscernible] 6% of annual volume and grew by 24% annual income. [indiscernible] 22% volume and 10% annual income [indiscernible] 1,142 growth [indiscernible] 936 growth and goes previous year achieving a growth of 22%. The business outlook. The first quarter of fiscal year 2027 was impacted by [indiscernible] presented in [indiscernible]and temporary affected industry demand. While this year just showed some challenges, the underlying demand driver for our business remains intact. [indiscernible] In their continue to hold significantly long-term growth opportunity supported by infrastructure development [indiscernible] water management project, housing expansion [indiscernible] through various best portfolio, the strong brand, exchanging decision network and continue focus on innovation. We continue to stand [indiscernible] and new product reproduction. The searches may intimidation of volume business[indiscernible] portfolio where the opportunities [indiscernible] our long-term growth preference. The company continue to immersing in capacity expansion to acquire businesses and its provision with plant to establish production facility [indiscernible]. This company is also in the process of acquiring a recent [indiscernible] By the first quarter [indiscernible] optimistic about the outlook for the balance of the year and confident in our ability to capitalize on the opportunity ahead. The brief and overall summary for the quarter ended. Thank you for your presence now. Now I and my colleague, P.C. Somani, R.J. Raboo, are available to reply to various queries raised by all of you. Thank you very much.

[Operator Instructions] We take the first question from the line of Keshav Lahoti from HDFC Securities.

Hi, thank you for the opportunity. So, as you indicated in the call, the underlying demand is broadly doing fine. It was more about channel inventory impacting the volume growth. So, can you give more color about plumbing and agri? Possibly the agri season was also weak because of the monsoon and fertilizer. And secondly, what is the guidance for this year for volume growth and margin?

The agri growth was definitely affected in April-June because prices dropped so sharply that farmers were very hesitant to start buying. Now, the April-May season is already over. The next demand will start from the middle of September, and we believe that as the water reservoirs fill up, demand will be quite robust during the remaining part of the year in this segment.

Sir, I also wanted to ask about your volume growth guidance and margin growth for this year.

We anticipated volume growth of 15% to 17%. [indiscernible] volume growth guidance.

Do you still maintain this guidance for the entire year or are you talking about the remaining 9 months?

We are maintaining the guidance for the entire year.

We take the next question from the line of Neha from Nuvama.

A couple of questions from my end. What would have been the industry decline in terms of Q1 volumes? I just wanted to understand whether your volume decline was around 15% higher than the industry's volume decline.

I think the whole country witnessed a decline in plastic demand because there was a lot of uncertainty due to the sharp correction in prices after the high prices seen in March. So, the entire pipeline across the industry was affected. We really don't have an estimate of the industry decline.

Secondly, I just wanted to understand the impact of the recent PVC pricing as well as the restocking. PVC prices have gone down quite steeply in the first quarter, yet we are seeing demand coming in. Were there any inventory gains during this particular quarter? If there were, can we quantify them?

[indiscernible] this quarter, the degrowth in demand was mostly in the piping segment, where margins are lower. In the plastic business, our overall margin is better in this first quarter.

We take the next question from the line of Shravan Shah from Dolat.

Sir, again, coming back to the volume growth guidance, I have two or three things to understand. First, when we're saying that we are still maintaining 15% to 17% piping volume growth for FY'27, that means over the next 3 months we need to achieve around 25% growth. In that sense, can you help us understand whether we are already seeing that kind of growth in July? Also, broadly, how do you see Q2? Will the growth be largely in the second half? If Q2 is not that great, then perhaps the second half would require growth of more than 30%.

I don't know but we believe there will be good growth in the second quarter as well. July is only one month of the two months, but we are already seeing growth during July. We believe the second quarter will be quite good, and you will know the actual performance in October.

Even in the current month, we are seeing significant growth. Channel inventory is filling up.

Yes. And that is necessary to support business.

That's what I wanted to understand. Secondly, Q1, this 15% to 16% degrowth in Q1 -- was it spread across April, May, and June, or was it mainly in April [indiscernible] will help?

It was mainly in April. In May, we had a small growth, and June also recorded a small growth. However, April declined by more than 50%.

And regarding EBITDA margin, the guidance of 14% to 14.5% for FY'27 is still being maintained?

Yes, we are maintaining that guidance. Thank you.

As you mentioned, there was no inventory gain in Q1.

[indiscernible].

Was there any inventory loss, considering that you maintained a decent margin?

I have nothing further to add regarding inventory gain or loss.

Looking at the current PVC prices, which have increased by about INR 9 per kg, while crude prices have fallen again, do you think these PVC prices will sustain? It is becoming very difficult for us to model the numbers because there is significant volatility in both volumes and prices. I'm trying to understand whether in Q2, can we see a Q-o-Q improvement in PVC prices or a realization for us?

There's nothing difficult for us. Nothing difficult. Anyway dear friend, PVC is not a 100% crude product. 47% is chlorine product, which is coming out of caustic soda production. It's not 100% crude product, please.

And the guidance in terms of the CapEx for full year, INR 1,000-odd crores is we are maintaining that?

We are maintaining, yes.

And in Q1, how much we would have done on the CapEx front?

We are committing the money depend on the machine level. We have committed up till now INR 500 crores.

Okay. Q1, we have already done INR 500-odd crores.

After the equipment. Payments are made.

Sorry to interrupt.

Yeah, no issues,, thank you sir.

It is a reminder to the participants, please limit your questions to two per participant, as there are several people waiting for their turn. We proceed with the next question from the line of Ritesh Shah from Investec Capital.

Sir, 2 questions. First question, sir, 3 parts. Sir, can you speak more about gas piping, the progress that we have done? Same thing for windows and doors business. And third is basically Indo green plus 3-layer PPR pipes. How big these businesses can be? Some color over here for these 3 segments. So that's the first question. And sir, second question, probably I'll take it afterwards after you answer this, please.

I'll reply first question only. As of today, based on the inquiries and plan by so many gas companies, we believe the piping business, including pipe and fitting may be around INR 600 crores this year.

Okay. INR 600 crores, I heard that big number. Sir, on windows and door business and PPR pipes?

Window, we have already started. We started marketing when British were around only starting a 50,000 tons in the whole country. We just started only recently. Our capacity only 5,000 tons per year. Spring pipe is a regular business. This is nothing new. Our company started small to supply the farmers. They require our spring pipe because we are very committed to quality, so they are very happy with our quality.

And sir, just a follow-up on INR 600 crore number what you are indicating for gas piping. Have you already started getting orders over here? I think you had indicated we had some orders from Pune last year.

We started getting orders, we supplied already.

Sir, any orders from any other city states that you can detail?

I told you that we have got the order of the gas pipe system, pipe and fitting both and we have supplied. Customer is very happy.

Sir, my second question is there is a CAG report with respect to Jal Jeevan mission out for 2 states. This includes Maharashtra and Karnataka. Sir, have you gone through it? How should we look at the agri demand specifically, which is coming out from the JJM scheme?

What do you mean? I've not seen the report. What is the report? I have no idea.

We take the next question from the line of Praneet from SK Investments.

So I wanted to understand in terms of window and profile of that business, how much have we invested so far? And what kind of revenues do we expect to generate in the next 2 to 3 years?

We invested INR 220 crores.

And do we expect to go in next 2 to 3 years or will it take longer, normal utilization?

Should be. We went in production we hope that next year, we should get much better utilization capacity. We already started selling in the market.

So regarding our piping division, I understand this quarter has been a little bit off but in terms of CPVC growth, how are the growth prospects? Will this continue to take share of the overall piping market or is it OPVC also taking over? How is it right now? Are we increasing our market share?

Yes. Our market share going up. I think so. OPVC also now getting good acceptance. And we are getting another machine also for eastern India. We saw machines are running in western India. We are building more capacity also.

And one more thing regarding our pricing. So far, despite having a large brand and extreme presence, so in the market, it's been known that there's been little bit price competitiveness to compete and gain market share. So when are we going to start reducing this competitive intensity and aggressiveness in the market? Or do we plan on continuing for the next 1 to 2 years?

Actually, the pricing of the product depends on the raw materials. The price gets adjusted if the raw material prices goes up, then finished goods prices also goes up. And correspondingly, we reduce the prices when the raw material prices come down. So it is in synergy with those raw material prices. And that is an industry phenomenon. That is what we want to say.

No sir, but at least in the dealer network, you're bringing very aggressive pricing and despite having a large brand, you are still positioning your pricing is, let's say, a little lower than what you can charge. So in terms of that, I was trying to understand, do we expect to increase our prices compared what we can or we just want to maintain at the levels for the next 1 to 2 years?

No, no. You see, to get the better market, we are passing on the benefits what we are deriving from economies of scale of the proximity to the market. Since we have in India manufacturing presence. So our logistic cost gets rationalized and that is the benefit to the end customer.

But is there a possibility that we might just not pass it on and increase our margins for this? Or do we continue to pass it on.

That depends. Right now, we are more focused on the return on capital employed, not for the margin necessarily only. We still want to grow and we are growing.

So for the next 2 years, probably we'll still continue to maintain our strategy with this, right?

We are building a new system, new SKU in these systems, and reaching more market and now going vigorously in export market also. So we hope that we will go on growing nicely.

We take the next question from the line of Praveen Sahay from the line of Praveen Sahay from PL Capital.

[indiscernible] How much of the capacity in these 3 locations.

[indiscernible].

And last year also on the land acquisition [indiscernible].

We take the next question from the line of Rahul Agarwal from IKIGAI Asset Management.

Sir, one question I had was to understand customer behavior. I understand that channel destocking happens when prices fall. But historically, whenever such price declines have occurred, we have seen volume degrowth across all 4 segments. Is this a permanent loss of sales, or do you think there is some pent-up demand that comes back whenever prices stabilize? Based on your experience, sir.

When prices start moving upward again, the pent-up demand comes back naturally because of the destocking that takes place in the channel. Obviously, the channel gets normalized once prices stabilize.

So, from the channel perspective, I understand. But in the non-pipes businesses, such as packaging and industrial, we have also seen volume degrowth. Does that demand also come back fully over time?

In packaging also, you should understand that many applications are related to insulation, civil, and construction. So, customers may defer purchases by one, two, or three months. Yes, under normal circumstances, most of the demand comes back.

And how does it work in industrial?

Industrial is primarily OEM supplies. So, it depends on the end-market position of the OEMs. Those businesses are not governed by raw material prices because they operate on a cost-plus pricing basis. So, it is not because of the price effect; it depends on the ultimate demand situation.

Right. So, the industrial volume degrowth this quarter is more organic. Their business itself was not growing, and hence we saw degrowth. Is that correct?

Correct. But value-wise, if you look at --

Yes, I saw that. And just one last question on exports. Could you talk about which products we are targeting for exports, which markets to begin with, and whether we should expect export growth starting this year itself, or is it more of a long-term plan?

Last year, our overall exports were around USD 26 million. We are targeting USD 150 million over the next 6 to 7 years across our product segments.

Which products are we talking about?

All our product segments.

Which markets?

The global market.

Any particular geography?

Mostly countries entering into Free Trade Agreements (FTAs).

Sorry, Rahul. Could you please rejoin the queue? [Operator Instructions] We take the next question from the line of Karan from Guardian Capital Partners.

My first question is, what is Supreme's current capacity and utilization level for composite cylinders?

The current capacity is about 900,000 to 1 million cylinders per annum, depending upon the product mix. Utilization depends entirely on the domestic oil marketing companies. Currently, utilization is between 25% and 30%.

My second question is, with HPCL's initiative to sell composite cylinders and BPCL's plan to expand composite cylinder availability to more than 100 cities, how do you see the performance of this business segment evolving for us?

There are good opportunities coming up. HPCL has recently completed a tender for 200,000 cylinders, and we have received the Letter of Intent (LOI) for 60,000 pieces. Supplies will begin next month. This initiative is definitely very positive, and we look forward to the opportunities in this segment.

Do you see utilization ramping up quickly in the near to medium term?

Unfortunately, this is not a stock-and-sell business. There is always a lead time because cylinders have to be manufactured according to the required design, serial numbers, and order specifications. It all depends on how orders are placed by the domestic oil marketing companies.