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ICICI Direct Report
After posting approximately 27% YoY revenue drop in Q1 FY21, Supreme Industries Ltd. saw a strong demand recovery at the start of Q2 FY21.
Despite intermediary lockdowns and concerns over low discretionary expenditure, the piping segment saw approximately 98% demand recovery in May-August 2020.
Demand was largely driven by housing and infrastructure projects in non-metro regions.
Also, dealers have started building inventory in anticipation of a reversal in raw material prices (High-density polyethylene, low density polyethylene - HDPE, LDPE prices were up 24%, 16%, respectively, from lows in April 2020).
We believe saving in other costs in addition to better gross margins (due to inventory gains, rising proportion of added products) would help drive Ebitda margin in FY21E-23E.
Further, the company will continue its Rs 350 crore of capex plans in FY21 to augment capacity of the piping and packaging business.
This would help it to gain market share in the long run.
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