Home / Market / Mark-to-market /  Supreme Industries: volume prospects beat raw material risks

Despite the fall on Wednesday, shares of Supreme Industries Ltd have held up rather well despite the firm reporting muted performance for the September quarter. Sales rose just 1.7%. Profit fell 2% as the sharp drop in feedstock prices weighed on performance. What’s more, the performance is expected to remain subdued in the current quarter too.

The continuing volatility in polymer prices, which is the firm’s feedstock, is estimated to result in inventory losses in the current quarter. According to Antique Stock Broking Ltd, polymer prices continue to be on a downtrend, which could weigh on revenue. “The fall in realisation across product segments is expected to put pressure on revenue growth in the current quarter," said the brokerage firm.

Investors, however, are not too worried. With the recent gains, the stock has regained a significant part of the losses it saw earlier in the year. What seems to be providing support to the share price is healthy volume growth.

Despite the volatile raw material costs, the company continues to see strong volume. Volume increased 16.5% in the quarter ended September. Analysts expect volumes to continue to see strong growth, helped by good demand for piping products and new launches. “Supreme Industries launched four new products last year—silent pipe system, solvent adhesive, special type of plumbing and bathroom fittings. All these products were well accepted by the market and the company is adding more capacity for all of them," Nirmal Bang Equities Pvt. Ltd said in a note.

Also, according to Antique Stock Broking, torrential rain in southern parts of the country may increase demand for tarpaulin products. “We expect SILPAULIN segment (plastic tarpaulin) to witness significant uptick in volume following the torrential rains in South India during the current quarter. Overall, we expect 2Q (December quarter) volume to grow in excess of 15%," it added.

While volume prospects look good, the December quarter results will test Supreme Industries’ ability to maintain its margins. Though in small doses, companies are passing on the benefits of drop in raw material prices. Like in the September quarter, if Supreme Industries manages to maintain margins in the current quarter also, then subdued revenue growth should not bother investors as the company will be scoring on key parameters such as profitability and volume growth.

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