The Supreme Industries Limited (SUPREMEIND) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to The Supreme Industries Q2 FY '27 Earnings Conference Call hosted by DAM Capital Advisors Limited. [Operator Instructions] Please note, this conference is being recorded. I now hand the conference over to Mr. Aasim. Thank you, and over to you.

Thank you. So good evening, and welcome, everyone, on Supreme Industries Q2 '27 Earnings Call. We have the senior management of the company who will take us through the quarter performance, post which we will open it for questions. Thank you, and over to Mr. Taparia for his opening remarks.

Thank you, Mr. Aasim. And thank you all very much. I'm M.P. Taparia, Chairman and Managing Director of The Supreme Industries Limited. I, along with my colleagues, Shri P.C. Somani, CFO; and Shri R.J. Saboo, Vice President, Corporate Refer and Company Secretary, welcome all participants who are participating in the discussion of audited and standalone and consolidated finance results for the quarter and half year ended 30th September 2026. The exchange results and the consolidated results are already with you. I'll give a brief on company's product operating performance and other highlights. The company sold 3,41,991 tonnes of plastic goods and achieved revenue from operation of INR 6,079 crores during first half of current year. against sales of 3,38,224 tonnes and net product turned out of INR 5,003 crores corresponding half year of previous year, achieving volume and product value growth of about 1% and 22%, respectively. The standalone operating profit and profit after tax for the half year of cash for the half year of the current year amounted to INR 829 crores and INR 487 crores as compared to INR 617 crores and INR 371 crores, respectively, for the corresponding period of the previous year, which was an increase of 34% and 31%, respectively. The business scenario of the product segment of the company for the second quarter ended 30th September 2026 as compared to the corresponding quarter of previous year agenda. Plastic piping system witnessed grew by 24% in volume and 42% in value terms. Packaging Products segment grew by 3% in volume and 22% in the volume term. Industrial Products segment business grew 13% in volume and 49% in value term. Consumer product segment business grew by 14% in volume and grew by 2% in value term. The overall turnover of value-added products increased to INR 21,476 crores during the current second quarter as compared to INR 1,072 crores in the corresponding quarter of previous year achieving a growth of 38%. The operating environment stabilized in the second quarter -- unusual polymer price volatility of first quarter. Geopolitical development in West Asia remained a source of uncertainty, while the minimum import price was suspension -- and withdrawal of custom duty exemption have reduced volatility. In plastic piping system, volume grew by 24% in second quarter, bringing first half volume growth of about 2% year-on-year. We continue to exchange in the business. So value added products like PERT piping system, gas piping system, fusion, premium range of buzz fitting, industrial valves and silent processing made from polypropylene and value market reached and integration of the thermal valving business. Our uPVC windows and door business is seeing encouraging market interest and expanding user network. Capital utilization and complying cylinder is improving gradually and requirement has begun across all 3 oil marketing companies. Our industrial maturity handling and packaging business continued to perform satisfactorily although continued product segment were under pressure due to polymer price upward March. Work on new Bihar, Jammu, Erode, Pondicherry and Malanpur brownfield expansion to various sites is moving to a plant. We'll continue to fund the investment through healthy cash flows and internal accrual by maintaining financial discipline. Looking ahead, the geopolitical environment, making a forecast is quite difficult. Nevertheless, encouraged by second quarter performance, we expect company-wide volume growth of around 10% for fiscal year '27 despite a big growth during -- big degrowth during first quarter. We remain focused on sustainable long term growth to diversify product portfolio, strong brand, extensive distribution network and continued focus on operational exchange. This has been a brief overview for the quarter and half year under reference. Thank you for your patience. Now I and my colleague, Shri P.C. Somani and Shri R.J. Saboo are available to reply to various queries which will be raised by all of you. Thank you very much.

[Operator Instructions] The first question is from the line of Shravan Shah from Dolat Capital.

Just a couple of things to understand. Sir, now, particularly in the plastic piping where we are saying that -- and we have reduced the guidance from 10% to 17% to now 13%. But considering muted growth in the 1H, even to achieve this 13%, we had to do a kind of 22% kind of growth in the second half, which is kind of a 4,12,500 metric tonnes versus in one which we have done 274 lakhs. Do we think that it is doable currently till in October, are we seeing such kind of growth that are we as confident or there is a possibility that we further downward revise our -- this volume growth, 13% to maybe a lower number going forward?

Going at the present situation, we do not expect any lower number to be announced again. Because in the month of October, in the first 25 days, we have maintained 23% volume growth. This lower growth forecast from 15% or 13% is a result of the first quarter working where we had a degrowth of around 13.5% in Plastic Piping system, we would give reduction in the price in a month of April, which was unprecedented. So we do not see any such reason today because fortunately, our major sales come from PVC and cPVC and they are not yet built to the price volatility, which are caused by the crude price. So we are quite comfortable. And fortunately, we have good capacity available, and we've got proper capacity of raw materials. So we don't see any concern either from capacity or from availability of raw material.

Got it, sir. And sir, in this quarter, Q2, have you seen any kind of inventory loss. And related to that, currently, in terms of the channel level, the inventories are at a normal level. And at the same time, in terms of the -- another thing is on the pricing front, have you seen the price hike in the cPVC also in the month of October?

No, PVC has price has gone up. Accordingly, cPVC price has gone up, but going up to a regional level, it is affordable to our customer, so we had no problem. In the inventory level, we cannot say, but we think the customers are now remaining very cautious. They are keeping the inventory at a minimum level, and we are making sure that whatever order we received because our huge capacity at so many sites, we are able to deliver most of the orders within 48 hours.

Okay. And there's no inventory gain or loss in the Q2.

No, the inventory gain is going to be there in the first half overall -- first half also. But the overall inventory gain, we will get precisely when we close the year in the month of March next year. There will be a day -- there will be inventory gain.

Okay. And whatever the PVC price hike has happened till now, so everything has been found to the system. So why I'm asking is that because there is a significant growth for us in terms of the realization in the PVC segment, particularly for last 3 quarters look at kind of a 7.5% kind of every quarter Q-o-Q, there is in case, obviously, the PVC prices has looked -- but do we still see if the current prices stay where it is, and let's assume there is no hike, can we see some increase in Q-o-Q in the realization in the inter quarter?

So many points you raised. We only know the whatever price increased, we have increased the price. We are increasing the price after time, we pass on the increased price cost to our customers.

Okay. Okay. And margin, we have already said to it's 14%... .

Sorry to interrupt, should you have a follow-up question, please rejoin the queue. The next question is from the line of Keshav from HDFC Securities.

One thing I want to understand, as you alluded the fact that October demand is healthy, but it might be due to this time, Diwali is pushed by a month. So normally that possibly might be leading to higher demand in October. What are your thoughts on that.

Normally, October is a rough time. This is a time business remains very stay because most of the workers who are working in a housing project go to their village. So already this is now over, it started from 11th of October and over by 21st of October. So even 12 days of business was slow, but overall, let's say, last year also, so I will see the volume growth up to yesterday sale.

Okay. I'm talking about Diwali, last year, Diwali was in October. This time it is in November, that is having to stronger volume growth in October...

Diwali will be having lower growth. Diwali will not be affected much growth. Diwali only some country only closes -- which is going to be 6th and 13th of November. But only certain states are affected. This is affected many parts of the country. So we have factored all the festivities happening. Last year also the festivities not coming through this year.

Got it. That is helpful. We can see the employee costs have increased by 25% year-on-year. Why is there a sharp increase?

Increased by November, increased by 9%, also increased by number of people joining the company.

Plus the new units, which have been rated last year second half, which were not there in the first half last year.

One last question from my side. We can see, one, your protective segment, Packaging segment margins have taken a hit in this quarter. What is the reason for the same. Earlier, you used to give us some sense about inventory gain or a particular range. At least could you give some sense, how has been the H1 inventory gain of broader things?

There will be some inventory gain, but final credit inventory again, we'll tell you in the month of April, there will be inventory gain in this year.

The reason why I'm again asking you this question is because we see Q2 margin is still sub-13% in spite of inventory gains. So why is the margin low in this quarter?

Yet the raw material prices are on higher side, so your base has become higher for purpose of...

Apart from that, whenever price increase is taking place, we want to help distribute repair their balance sheet. So we increased the price only for 12 days gap. .

[Operator Instructions] Next question is from the line of Praveen from PL Capital.

Sir, on the Packaging segment, there is a margin contraction. So is that the elevated RM prices, which has not yet passed on, what is the reason for that?

Raw material price difficult to pass on whether increase was too cheap in the polypropylene price. Given to crude price, and then it was very cheap and supply was not able to come from Middle East. When ship it -- in your country and many plants in shipments are closed, shipments from anywhere in the world, it becomes very difficult. And that's why the margin in Packaging business has gone down. Because in packaging film, we were not able to get the price increase so acceptable because our industry is reserved. So it was not possible to increase the price immediately fully. It reduced our margins.

Okay. Okay. And second thing, sir, you also explained that helped distributor in the elevated RM prices. Can you quantify that and elaborate more on that, which impacted your gross margin.

Quantify when the price increase took place, we increased the price effect in the market after 10 to 15 days.

Next question is from the line of Sneha from Nuvama.

I just want to deep dive more on the margin front, while your volume guidance is understood. Your margins have been missing estimate this particular quarter as well as last quarter. What is the firstly reason for margin miss? We understand that product mix wise, it should not have diluted because rally missing. So what is the reason of margins falling on a quarter-on-quarter basis? That's one. And what will lead to improvement.

Still given the margin guidance for the full year is 14% to 14.5%. We are very confident in 14 to 14.5%, that is very good return on our investment.

Understood. But if I exclude the inventory gains in the first quarter, margins would have been even more lower. So could we understand the reason for the margin miss in this particular quarter, how much price increases happened in PVC? And let's say, how much did you pass on.

We are increasing the price after 10 to 15 year gap to help my distributors repair their balance sheet. But overall, we have given guidance of increasing operating margin between 14% to 14.5% for the full year.

Understood. And then, sir, cPVC, how much of the price increases have already happened on ground?

CPVC, also whatever we have increased, we have announced some increase from tomorrow.

From tomorrow you're taking price in the system is what you're alluding.

Which is from the customer, 3%, 5%, 7% product to product, we are announcing increase in price from tomorrow.

Next question is from the line of Anu from Anand Rathi Share and Stock Brokers.

Sir, what would be your guidance for the pipes volume growth and EBIT margin for H2 FY '27.

We have given the margin worth of 13% in the piping business. And in the pipeline business, H2 growth is 14% and 14.5%, otherwise, we can't achieve the company margin. So pipe margin has to be 14%, 14.5% or maybe slightly better. .

Understood. Sir, what would be the expected CapEx for FY '27 in terms of cash outflow?

Cash outflow should not be more than INR 700 crores to INR 750 crores. .

[Operator Instructions] Next question is from the line of Ritesh Shah from Investec. .

My question is on PVC piping volume growth, that is very encouraging. I just wanted to understand where this growth is coming from?

Growth coming mostly from expected demand period, and rainy season.

Sir, any other avenues besides housing, which is contributing to the volume growth? .

Sorry?

Sir, any other avenues besides housing, which is helping us on the volume growth on the piping side?

Majority second quarter was housing and for the full year housing and...

Sir, do you think there are any tailwinds with respect to null orders coming through in a few states.

Which one.

Null.