Export Initiatives And Capacity Expansion Will Unlock New Opportunities

Key Takeaways

• Expansion of the plastics piping segment and strategic acquisition in India are expected to boost capacity, efficiency, and market share.
  
• Substantial investment and focus on exports aim to drive revenue growth and diversification in agricultural and housing markets globally.
  
• Volatile resin prices and integration risks from the Wavin acquisition could impact Supreme Industries' margins and revenue, facing execution and dependency challenges.

Catalysts

Engages in the manufacture and sale of plastic products in India.

• Supreme Industries anticipates significant growth in its Plastics Piping Systems segment, expecting to outperform the industry by 3% to 4% in volume growth, contributing positively to revenue and possibly increasing market share.
  
• The acquisition of Orbia Wavin's pipes and fittings business in India is expected to enhance Supreme's capacity by 73,000 tonnes per annum, integrating Wavin's technology and potentially improving production efficiency and product offerings, thus boosting future earnings.
  
• The company is planning substantial capital expenditure of ₹1,100 crores in FY '26, aimed at expanding capacity and introducing new products, which are expected to drive future revenue growth.
  
• Focus on exporting more products in international markets, specifically targeting regions affected by tariff issues, suggests potential new revenue streams and diversification opportunities.
  
• Supreme Industries aims to increase its market presence and product portfolio in the USAID-backed growing agricultural and housing markets, predicting improved demand which is likely to enhance future revenue and stabilize margins.

Supreme Industries Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Supreme Industries's revenue will grow by 12.6% annually over the next 3 years.
• Analysts assume that profit margins will increase from 9.2% today to 10.2% in 3 years time.
• Analysts expect earnings to reach ₹15.2 billion (and earnings per share of ₹120.03) by about May 2028, up from ₹9.6 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting ₹17.4 billion in earnings, and the most bearish expecting ₹13.7 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 50.0x on those 2028 earnings, up from 46.8x today. This future PE is greater than the current PE for the IN Chemicals industry at 25.1x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 13.38%, as per the Simply Wall St company report.

Supreme Industries Future Earnings Per Share Growth

Risks

• Supreme Industries faces risks from volatile PVC resin prices, as frequent changes in these costs have significantly impacted the plastic piping segment, which could affect the company's revenue and net margins.
  
• The industrial products segment experienced a decline in volume by 1% and flat value growth, indicating competitive pressures or market challenges that might limit future revenue growth.
  
• Despite growth projections, internal challenges like execution delays on projects such as new plant setups and expansions could impact their ability to meet future demand, potentially affecting earnings.
  
• The acquisition of Wavin includes operational and integration risks, and any failure to seamlessly incorporate the acquisition could strain margins or increase costs, impacting net earnings.
  
• The composite cylinder division underperformed due to unmaterialized orders from a major client, depicting dependency risks that may affect overall revenue and profit margins.

Valuation

• The analysts have a consensus price target of ₹4119.56 for Supreme Industries based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of ₹6458.0, and the most bearish reporting a price target of just ₹3016.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ₹149.0 billion, earnings will come to ₹15.2 billion, and it would be trading on a PE ratio of 50.0x, assuming you use a discount rate of 13.4%.
  
• Given the current share price of ₹3539.0, the analyst price target of ₹4119.56 is 14.1% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.