Brokerage firm Prabhudas Lilladher has downgraded Supreme Industries to 'Accumulate' from 'Buy' and lowered its price target to INR 3,583. The change follows the company’s decision to cut its volume growth guidance for FY27 to 10%. Investors should watch how raw material cost volatility, particularly in PVC and polyethylene, impacts the company's profit margins in the coming quarters.
Prabhudas Lilladher has adjusted its rating on Supreme Industries, moving the stock to 'Accumulate' from its previous 'Buy' stance. The brokerage has also revised its price target for the company to INR 3,583, down from the earlier target of INR 4,414. This shift in sentiment is primarily driven by the company’s decision to lower its volume growth outlook for the 2027 fiscal year. Management now expects overall company volume to grow by approximately 10%, a reduction from its earlier forecast of 12% to 13%. Similarly, growth expectations for the plastic piping business have been trimmed to 13%, down from the original estimate of 15% to 17%.
Operational margins have come under pressure in the second quarter of FY27, partly due to the time taken to pass on fluctuating costs of PVC and CPVC materials to customers. A lag of 10 to 15 days in adjusting prices to match raw material costs has impacted profitability. Furthermore, the firm faced challenges as the cost of polyethylene increased, affecting the performance of its packaging and consumer product segments. Despite these issues, the company has maintained its expectation for EBITDA margins—which measure operating profit as a percentage of revenue—to remain within the 14% to 14.5% range.
The company remains focused on its long-term growth plans. Expansion projects, both greenfield and brownfield, are currently continuing as scheduled. To manage supply chain risks and potential shipping delays, Supreme Industries is maintaining larger-than-usual inventories of raw materials. Additionally, the company has seen resilience in its CPVC pipe segment, which grew by 30.5% compared to the previous year during the first half of FY27. To manage rising input costs, the management has also implemented price increases of 3% to 7% across certain products.
Looking ahead, analysts have slightly reduced earnings expectations for FY27 and FY28 by approximately 2.9% and 2.4%, respectively, to reflect current market conditions and input cost pressures. While long-term growth projections for revenue and profit remain in place, the immediate focus for investors will be on how effectively the company manages its raw material costs and whether it can meet its revised volume growth targets. Future monitorables include demand trends in the housing and infrastructure sectors, which drive plastic piping volume, and the company's ability to maintain margins amidst ongoing price volatility in raw materials like PVC and polyethylene.