SUPREMEIND — earnings call

The transcript as filed. Every paragraph is addressable: its link names the page and the position it sits at in the call.

Prepared remarks

Mr. R J Saboo · Management

68 mins

Mr. M P Taparia · Managing Director

Mr. M P Taparia Managing Director Mr. P C Somani CFO Mr. R J Saboo VP (Corporate Affairs) & Company Secretary Mr. Aasim Bharde

Moderator · Conference Operator

Good afternoon, ladies and gentlemen.

I am Pelsia moderator of Supreme Industries Q3FY23

Thank you.

Next question comes from Udit Gajiwala from Yes Securities, please go ahead.

Udit Gajiwala Thank you, for taking up my question.

Sir given that robust growth that we have seen, and you mentioned that the PVC prices started to move in December, so Sir could you quantify that, when they the dealer restocking come by , and what are the inventory days with the dealers now versus in the previous quarter?

M P Taparia We don't keep a track of the inventory with dealers but definitely dealer started restocking.

And the coming forward after beginning February the full season starts and as a demand remains very strong.

So we believe this dealer may only increase the inventory, so they can service the customers.

Udit Gajiwala Understand Sir and could you quantify that, you know the demand driver primarily where is it coming from?

Is it the rural economy that you're seeing or is it the plumbing?

M P Taparia So demand was coming quite strongly from the agricultural segment also.

So the rural economy, we keep a track of only agricultural segment .where the demand was quite robust in the month of December.

Thank you, I request the participants to restrict with two questions in the initial round.

And join back the queue for more question.

Next question comes from Ritesh Shah from Investech, please go ahead.

Ritesh Shah Hi, Sir, thanks for the opportunity.

So, my first question is, can you please, give us some indication on agri versus non agri mixs and how it has moved on a YoY basis?

That the first question Sir.

Thank you.

Next question comes from Abhishek Ghosh from DSP Mutual Fund.

Please go ahead.

Abhishek Ghosh Thanks for the opportunity.

Sir can you just help us understand, what is your current capacity and post the commencement of the 3 units that you have spoken about in Tamil Nadu, Orissa - what will be a capacity looking like?

Thank you.

Next question comes from Bhargav Budhadhev from Kotak Mutual Fund, please go ahead.

Thank you, ladies, and gentlemen, if you have any question, please press"* and 1 on your telephone keypad.

Next question comes from Pranav from Equirius Securities Pvt Ltd, please go ahead.

Pranav Oh, yeah.

Thank you, Sir, for taking my question.

Sir I wanted to understand and know about your thoughts on how the PVC prices are expected to move going forward, because as we understand globally, still the demand continues to remain challenging.

So, and India remains in a bright spot.

So, is there a possibility that imports might see dumping coming from a lot of other countries which are big exporters of PVC, because of which going forward there is a possibility that prices may correct?

M P Taparia No, we believe PVC prices have gone down too much ..

It went down up to $650 from $2,100 internationally and now it has come up to close to $950, $960 We believe the prices will be are rangebound, 40 /50 Dollars up and minus we cannot say but we don't see much upside also with the whole economy not in great shape and not but downside also due to cost post.

Pranav Sir, thank you very much.

Thank you.

Next question comes from Sailesh Raja from B and K Securities, please go ahead.

Sailesh Raja Thanks for the opportunity my question is Sir pretending to supreme Petro So, much of styrene monomer capacity has been created in China and a lot more capacities to get added but still the prices of styrene are very volatile in the last 6 months from $1250 per ton went down to $950 and again now it goes back to $1250 per ton, Sir by when do you expect the steady prices will stabilise Sir?

Thank you.

We have a follow up question from Ritesh Shah from Investech, please go ahead.

Ritesh Shah Hi Sir, thanks for the opportunity, Sir, just one question there have been murmurs in the street about new management been inducted, what we see is there's a new HR head which has come in.

Just wanted to, Sir, understand the thought process of induction of senior management.

Is it something ongoing?

How should we look at it?

That will be very helpful, Sir.

M P Taparia We have appointed HR head.

Ritesh Shah Yes Sir.

M P Taparia He’s now functioning very well, starting from 1st August.

Ritesh Shah Are we looking at further induction at the top level, basically, given the company is growing and manufacturing facilities are also expanding.

M P Taparia We have started leadership development, among our organization.

Ritesh Shah Would you be able to provide some colour on our recent launches on cables, electrical side and specifically on the cylinder side how things have been actually progressing and industrial valves as well?

Thank you.

Next question comes from Ahmad Mandasur, an individual investor please go ahead.

Yes, Sir, please go ahead.

Ahmad Mandasur As per your management presentation, there is a capacity of extruded polystyrene which are expecting to come up by March ‘24.

So, is that on track or has the capacity building started?

M P Taparia Extruded Polystyrene?

Ahmad Mandasur Extruded polystyrene boards.

M P Taparia Not come up still in production.

Ahmad Mandasur Okay, so are you expecting it to expand by 1 lakh by FY24?

Thank you.

Next question comes from Rahul Agarwal from Incred Capital, please go ahead.

Rahul Agarwal Hi Sir.

Good evening.

Thanks for the opportunity.

The first question is, what could be the top 2-3 reasons for PVC resin prices to go up? - M P Taparia Very good question.

There is some plant maintenance and there is a tremendous shortage created, you know.

A new capacity came up and some existing plant went to difficulty.

Some existing plant in USA being a big supplier went on a expansion so that also slowed their operation. we have never seen such a swing, PVC resin prices went up from $700 to $2100.

And then came down to $650.

Upward journey started from April, May 2020, and continued up to October 2021.

November onward the prices started falling.

Rahul Agarwal Sir, because of this December up move, the reason for that also was some plant shut down globally, is it?

M P Taparia Plant shut down and somewhere the cost pressure they felt not worth the producing PVC.

Prices dropped so severely, that many found not worth running and making PVC at full capacity.

This is normal trade cycle.

Rahul Agarwal Got it Sir.

So, are the plants now already functional?

Thank you.

Ladies and gentlemen, if you have any question, please press * and 1 on your telephone keypad.

The next question comes from Sonali Salgonkar from Jeffries.

Please go ahead.

Thank you.

Next question comes from Keshav Lahoti from HDFC Securities.

Please go ahead.

Keshav Lahoti Thank you for the opportunity.

Just wanted to check one thing, last time you mentioned that your capacity will increase by net-net 60,000, overall, it will be 80,000, but a plant from Maharashtra to Erode will transfer by 20,000.

This call you have guided your capacity will increase by 90,000.

So, what are your reason for the same and what will be your capacity segmental wise in FY23 end?

Somani The capacity realignment with the Erode etc., we will put up the new lines also.

We’ve expanded the capacity for the plastic water tank, that’s why the capacity increases better and now visible, and everything will be in production by end of February mostly.

Our segmental capacity for the end of the March 23, which is close to 8,15,000 metric tons, the in the plastic piping system- 610,000, industrial product- 83,000, packaging product- 90,000 and consumer product- 30,000.

Keshav Lahoti Okay.

Sir, while PVC recent prices have pulled up from 160, 170, odd levels to 90 level, do you think now there would be some demand impacted of CPVC?

M P Taparia No, CPVC had a growth of 32% in 9 months and CPVC demand is going in the plumbing segment, housing the requirement will continue.

So, we don’t see any demand downside also.

We don't see a downside.

Keshav Lahoti Okay.

One last question from my side.

Again, I'd like to ask you on resin prices.

Is it fair to assume that resin prices will settle at 90 level or do you think the volatility will continue in this?

Thank you.

We have a follow up question from Rajesh Ravi from HDFC Securities.

Please go ahead.

Rajesh Ravi As you mentioned in the earlier question, the pipes plastic capacity is now increasing to 6,10,000 by year end.

And even if I do 25% volume growth you would be closing the year with close to 5,00,000 tons of volumes for FY23 and that would mean you will have a good amount of capacity surplus for next 2-3 years.

So, just wanting to understand how that impact or slowed or will it lead to a slower CapEx program for you for next 2 -3 years and you would focus more on asset setting?

Somani Here you see the capacity work we’re talking is installed capacity per annum.

As our utilization remains around 65% or so.

So, effectively if we have 800,000 tons capacity and if you would go by 65% then you require further capacity. there's a number of SKUs, then items, the change of product line..

Rajesh Ravi Right.

Understood.

Somani So, put together capacity utilization cannot be or will not be more than say 70%.

Apart from that we also need to expand geographically to make our product more accessible to the various part of the country.

Thank you.

Next question comes from Sujit Jain from ASK Investments.

Please go ahead.

Sujit Jain Sir, if I look at your volume growth, 5-year CAGR from FY14 to FY19, it was 8%.

Of course, this was a sluggish real-estate period.

Over the medium term, 5 years hence from today, let's say FY23 end, what kind of industry level volume growth one can expect?

M P Taparia For which segment?

Sujit Jain For overall piping segment.

M P Taparia 15% our company should grow Sujit Jain 15%, you’re saying?

M P Taparia 15% volume growth to go, next 5 years.

Yes.

Thank you.

I request the participants to ask two questions in the initial round and join back the queue for more question.

Next question comes from Venkatesh V from Axis Capital.

Please go ahead.

Venkatesh V Thank you for this opportunity.

Most of my questions have been answered.

Just a very simple question.

I know it is still early days and after the full year numbers are over you look at next year FY24. But as of today, given that we would do almost 25% kind of volume growth in the current year.

What kind of volume growth next year?

M P Taparia We may grow 15% next year.

Venkatesh V 15%, okay.

Okay.

And if raw materials do not fluctuate too much, that if PVC prices remain where they are, we should be in that 15% to 16% kind of EBITDA margin band?

Thank you.

Next question comes from Utkarsh from Haitong Securities.

Please go ahead.

Utkarsh Nopany Based on the current demand environment in the resin prices, can we do more than 10% volume growth on a YoY basis for the pipe segment in this current March quarter?

M P Taparia For this January-March?

Utkarsh Nopany Yes, January to March, Sir.

M P Taparia It will be more than 10%.

We’ll do more than 10%.

Utkarsh Nopany Okay.

And lastly, Sir, like how is the competitive scenario in the pipe segment at the moment?

Whether the small and midsize players have become more aggressive in the market after easing of the PVC resin supplies in the domestic market?

Thank you.

Next question comes from Miraj Shah from Arihant Capital.

Please go ahead.

Miraj Shah Hi, Sir.

Thank you for taking my question.

So, I think the question is repetitive.

Just wanted to understand, first thing is the rural demand.

How do we see the rural demand right now?

And secondly, what would be our view if the China opens up and then what would happen to the raw material pricing scenario over there if China opens up?

Because I believe imports would increase from there.

Just these two questions.

M P Taparia With rural area we have two items an agriculture pipe and our cross laminated film for various agricultural applications.

Both the segment we are seeing good demand coming from rural sector.

Coming to the second point, we believe that the China has now released strong restriction on COVID movement and China economy will be opening up from 30th of this month when the China opens the market expect that the polymer prices may harden.

And PVC at least we are too much dependent on imports.

Our 60% of our requirement has to come from imports.

Thank you.

That will be the last question for the day.

Now, I hand over the floor to management for closing comments.

M P Taparia Thank you very much.

Thank you, Sir.

Ladies and gentlemen, this concludes the conference call for today.

You may disconnect your lines now.

Thank you and have a pleasant evening everyone.

M P Taparia Thank you, everybody.

Thank you very much.

P C Somani Thanks R J Saboo Thanks

Questions and answers

Moderator · Conference Operator

Thank you, Sir.

Ladies and gentlemen, we will now begin the question-and-answer session.

If you have a question, please press * and 1 on your telephone keypad and wait for your turn to ask the question.

If you would like to withdraw your request, you may do so by pressing * and 1 again.

We will wait for a moment while the question queue assembles.

Ladies and gentlemen, if you have a question, please press * and 1 on your telephone keypad.

First question comes from Rajesh Ravi from HDFC Securities please go ahead.

Rajesh Ravi Hello, sir, good evening, everyone and congrats on strong volumes in the pipe segment, seems demand is quite good in this segment.

Could you quantify how much is the inventory loss booked in 3rd quarter, you said there is a partial recovery but on a net basis what is the impact?