Pipe maker Supreme Industries Ltd is hoping to find respite from demand and margin woes in the second half of the financial year (H2FY26) after a patchy first half. The likely imposition of an anti-dumping duty on PVC resin in November, and improved agriculture and plumbing demand are expected to buoy earnings prospects.
Still, following the muted September quarter (Q2FY26) performance, a meaningful earnings revival may be easier said than done. Overall Q2 volumes increased around 12% year-on-year. The key plastic piping segment rose 17%, partly aided by Wavin Industries’ plastic pipes business acquisition in August. Consumer products, industrial and packaging are the other businesses in which Supreme Industries operates.
Consolidated Ebitda margin fell 160 basis points year-on-year to 12.4%, missing the consensus estimate of 13.6%. Operating margin was hurt primarily by higher ‘other expenses’ arising from the Wavin acquisition and integration. A worry is that margin pressure may linger even as volumes improve. Blended realization fell around 6% year-on-year in Q2, primarily due to lower realization in the plastic segment.
The company saw an estimated overall inventory loss of ₹50-60 crore in H1FY26 owing to falling prices of various materials such as PVC, CPVC and polyethylene. Currently, channel inventory levels are lower than usual. For pipe companies, dealers’ restocking and destocking decisions are highly influenced by changes in PVC prices. According to management, polymer prices have remained under pressure, but the decline is likely to stabilize unless there is a significant drop in crude oil prices.
Guidance cut prompts downgrades
The company does not expect inventory loss in H2FY26, but a downward revision in guidance upset investors, causing the stock to fall more than 4% on Tuesday. While volume growth guidance for the pipes segment was maintained at 15-17%, overall volume guidance was lowered to 12-14% from 14-15%. It also cut the upper band of consolidated Ebitda margin guidance to 14.5-15% from 14.5-15.5%.
Consequently, various brokerages have downgraded their earnings estimates. “We have revised downwards our FY26, FY27 and FY28 earnings per share estimates by 7%, 6% and 4%, considering lower margin and higher depreciation led by the Wavin acquisition,” said an Antique Stock Broking report on 28 October. Wavin has a total installed capacity of 71,000 million tonnes per annum. It recorded 3,000 tonnes of volume in August and September, and is expected to achieve 20,000 tonnes in FY26. Supreme has stabilized Wavin’s operations by reducing warehousing and employee costs, and raising production, thus preventing losses.
Supreme Industries incurred capital expenditure of ₹870 crore in H1FY26 and expects full-year cash outflow of ₹1,300 crore toward existing and new capital commitments, including the Wavi acquisition. The entire capex will be funded internally. A new material handling plant is to be set up in Malanpur, Madhya Pradesh, and new pipe facilities are coming up in Bihar and Jammu, and a packaging plant in western Maharashtra. All new capacities are likely to be operational by H1FY27.
Supreme Industries’ shares are down around 19% so far in 2025, versus a 5% gain in the Nifty Midcap 50 index. Global macroeconomic headwinds and volatile input costs have affected the entire pipe industry, including Supreme, over the past few quarters. While stabilizing PVC prices could help to a certain extent, unless growth momentum picks up as expected, a re-rating is unlikely. “We believe Supreme Industries may see near-term profitability headwinds due to increased competition and tepidness in demand,” said an ICICI Securities report dated 28 October.
