In the wake of muted volume growth and ongoing volatility in input costs, Geojit has reiterated a “BUY” recommendation on Supreme Industries Ltd (SIL) with a revised target price of Rs. 4,107. The stock, currently trading at Rs. 3,483, offers an estimated upside of 18% over a 12-month horizon. Despite near-term challenges, the company’s FY26 performance is expected to rebound sharply, backed by improving demand in the plastic piping segment, stable PVC prices, and increasing government expenditure on water infrastructure and housing.

Flat Topline Growth Masks Strategic Positives

Supreme Industries’ revenue for FY25 stood at Rs. 10,446 crore, registering a modest 3.1% YoY increase. This lackluster growth was primarily driven by muted volume expansion of just 2.3% and a 3% decline in realization, mainly due to volatility in PVC resin prices. The company also faced headwinds from destocking across the supply chain, stemming from an unpredictable pricing environment and a temporary slowdown in both infrastructure and real estate demand.

However, the input cost curve is now flattening, and analysts believe that the bottoming out of PVC prices should enhance profitability going forward.

Profitability Under Pressure, But Margins Expected to Normalize

The decline in EBITDA margins was a major concern for FY25. SIL’s EBITDA margin dropped by 156 basis points to 13.7% due to increased operating costs and falling product prices. As a result, net profit declined 10.2% YoY to Rs. 961 crore and earnings per share (EPS) came in at Rs. 75.6.

Looking ahead, margins are projected to recover to 15.4% in FY26 and further to 15.6% in FY27, with the rebound fueled by improved operating leverage and better realizations.

Future Outlook: Volume-Led Recovery with Healthy Profit Growth

Geojit projects that SIL will register a 12% CAGR in volumes and a 10% CAGR in revenues over FY25–FY27. Profits are expected to climb at a 23% CAGR over the same period, with the return on equity stabilizing around 20.7%. Key drivers include:

Increased demand from the agriculture, housing, and infrastructure sectors.

Tripled capital allocation for drinking water in FY26’s Union Budget.

Recovery in demand for high-margin cross-laminated films.

Strategic Initiatives and Capacity Expansion

SIL has announced a Rs. 1,100 crore CAPEX plan for FY26, including:

A new PVC profile and window plant in Kanpur

CPVC piping division in Gadgaon

O-PVC facility at Sangli and Cuttack

It has also signed an MOU with Orbia Advance Corporation, a global leader in pipes and fittings, to acquire its waving plant with a capacity of 73,000 MT per annum. These initiatives will not only expand capacity but also enhance product innovation and operating efficiencies.

Stock Performance and Valuation

Despite long-term tailwinds, the stock has underperformed in the near term:

Despite short-term underperformance, SIL's valuation remains attractive. It currently trades at:

P/E (FY26E): 35.4x

EV/EBITDA (FY26E): 23.5x

ROE (FY26E): 20.6%

Key Financial Projections

Shareholding Trends

Promoter holding has remained stable at 48.9%, while institutional interest has grown, with mutual funds increasing stake from 10.6% in Q2FY25 to 13.3% in Q4FY25. Public holding is marginally higher at 15%, reflecting retail participation in the mid-cap stock.

Bottomline: Long-Term Story Intact Despite Short-Term Hiccups

While FY25 saw an earnings dip due to destocking and price volatility, the outlook for Supreme Industries remains bullish, thanks to rebounding demand, CAPEX-driven capacity enhancement, and favorable policy tailwinds. Investors looking for mid-cap exposure in India’s plastic and piping sector may find SIL an attractive bet.

The 12-month target of Rs. 4,107 reflects confidence in the stock’s long-term potential. With improving operating margins and diversified growth levers, SIL is well-positioned to deliver shareholder value despite recent setbacks.