Detailed Rationale

CRISIL Ratings has reaffirmed its ratings on the bank facilities and commercial paper programme of The Supreme Industries Limited (Supreme) at 'CRISIL AA+/Stable/CRISIL A1+’.

 

The ratings continue to reflect the company’s strong business risk profile, healthy market position across segments, and robust financial risk profile. These strengths are partially offset by exposure to intense competition and to volatility in raw material prices in-line with the industry, though Supreme has the ability to pass on price fluctuations to its customers.

 

In fiscal 2024, revenues grew by 10% on-year to Rs 10134 crore, mainly led by volume growth of 26% compared to the previous fiscal. In the first six months of fiscal 2025, too revenues grew 5% on-year to Rs 4,909 crore supported by aggregate volume growth of 9% on-year despite ~10% moderation in overall realization compared to the same period previous fiscal.  However, the company’s operating performance had moderated against expectations in the first half of fiscal 2025 given low spending on infrastructure and the extended monsoons, which had led to destocking of products and had posed a challenge to the entire PVC piping industry. However, the demand from the infrastructure and agricultural sectors is expected to pick up in the 2nd half of the fiscal & support volume growth. Accordingly, the company expects overall volume growth of 14-15%  this fiscal driven by healthy volumes from end-user demand. While agricultural sector demand is augmented by government-led initiatives, increased usage of plastic products by household and growth in real estate sectors is expected to drive volumes.

 

Operating margins during fiscal 2024 was reported at 16.3% recovering from lows of 14.7% margins in fiscal 2023 when the company saw inventory loss of Rs 180 crore largely to large moderation in price of key raw materials. However, in H1FY25 the profitability saw a marginal reduction by around 60 bps to 15.7% compared to fiscal 2024, primarily due to sharp volatility in PVC prices seen this fiscal. Operating margin is expected to remain healthy at 15-16% levels with a continuing healthy share of value-added products and diversified product profile, leading to strong annual cash generation. Financial risk profile will remain strong, supported by healthy capital structure with high net worth, healthy cash position and strong debt protection metrics despite continuing capex plans.

Analytical Approach

CRISIL Ratings has combined the business and financial risk profiles of Supreme and its wholly-owned subsidiary, Supreme Industries Overseas FZE. Investment in associate company, Supreme Petrochem Ltd (Supreme Petrochem), has been recognized as per the equity method, as Supreme holds a 30.78% stake in it.

 

Please refer Annexure - List of Entities Consolidated, which captures the list of entities considered and their analytical treatment of consolidation.

Key Rating Drivers & Detailed Description

Strengths:

Diversified revenue

Supreme produces plastic-based products for piping systems (accounted for 69% of revenue in fiscal 2024), industrial goods (14%), packaging products (13%) and consumer goods (4%). Catering to a diverse end-user profile mitigates the risk of slowdown in any segment or industry. Furthermore, revenue is supported by the increasing contribution of value-added products (~40% during fiscal 2024), which have operating margin of over 17%.

 

Healthy market position across business segments

Supreme has an established track record and strong market position in each segment it operates in, backed by its widespread distribution network and the ability to introduce new products. Collaboration with international manufacturers has strengthened the product development capabilities and translated into strong revenue growth along with above-average profitability. The company has ~5,753 distributors and 30 plants across the country with total installed capacity of ~9.5 lakh MT which is expected to increase to 10.73 lakh MT by March-2025. Supreme has commenced commercial production from new greenfield plants at Assam, Tamil Nadu and Odisha. Strong country-wide presence reduces freight cost and lead time for products to reach customers thereby also providing the company competitive advantage over other players.

 

Robust financial risk profile

Financial risk profile is marked by high net worth, nil debt, healthy liquidity and strong debt protection metrics. Net worth is expected to be ~ Rs 5,100 crore as on March 31, 2025, with steady growth in cash accrual and nil gearing. Debt protection metrics were marked by net cash accrual to adjusted debt and interest coverage ratios of more than 140 and 128 times, respectively, for fiscal 2024. Supreme is expected to incur capex of Rs 1500 crore this fiscal including Rs 496 Cr carried forward from previous fiscal and ~Rs 500 crore annually thereafter. Expected annual net cash accrual of more than Rs 1000 crore should suffice to fund the capital expenditure (capex) and working capital with no reliance on any long-term debt. 

 

Weakness:

Susceptibility to intense competition and volatility in raw material prices

Prices of key raw materials, polyvinyl chloride, high-density polyethylene and polypropylene remain susceptible to movement in crude oil prices and foreign exchange rates, though Supreme has the ability to pass on any price fluctuations to consumers. With a large raw materials component in revenues (forming about 65-70%), the company also remains exposed to volatility in input prices, as particularly seen in fiscal 2023 which resulted in inventory losses leading to operating margins moderating to 14.7% as well as steep fall in PVC prices seen in H1FY25.

 

The government has announced that all suppliers intending to import PVC must be certified by the Bureau of Indian Standards. While the policy was to be implemented by August 2024, the Department of Chemicals and Petrochemicals has currently deferred this decision. This policy if implemented could result in raw material shortages given many suppliers (India imports ~ 60% of the PVC requirement) have yet to receive the BIS certification; wherein Supreme too imports more than 50% of its requirement. Hence the development here would remain a key monitorable.

 

Further, The Directorate General of Trade Remedies(DGTR) has recommended to impose provisional anti-dumping duty on the imports of PVC suspension resin from certain countries like China, Taiwan etc.  While this could bring in stability in the raw material prices, imposition of this duty could increase the input cost. Supreme has been able to pass on the fluctuations in raw material prices to the end consumer and accordingly the maintenance of volumes & operating performance would remain key monitorables.

Liquidity: Strong

Liquidity should remain strong, as the entire cash accrual can be used to meet working capital requirements in the absence of any debt. Bank lines of Rs 1,711 crore, including fund and non-fund-based limits, were utilized moderately, at 63% of non-fund based limits on average during the six months through September 2024. Cash and bank balance was healthy at Rs 683 crore as on September 30, 2024.  Capex is expected to be about Rs 1500 in fiscal 2025 including Rs 496 Crore carried forward from the previous fiscal and Rs 500+ crore annually thereafter and shall be funded internally from cash accruals. Incremental working capital levels are expected to be managed largely by internal accruals.

 

ESG Profile

CRISIL Ratings believes that Supreme’s Environment, Social, and Governance (ESG) profile supports its already strong credit risk profile.

 

The PVC Pipes industry has a high impact on the environment given the manufacturing process, raw materials sourcing, supply chain, and end-usage. Also, due to the nature of operations, the sector affects the local community and has various occupational health hazards associated with it. The company, however, scores better than its peers in the industry in environment factors given its commitment to improve resulting in bringing a positive change. 

 

Key ESG highlights:

• The company’s Business Responsibility and Sustainability Report is included in its Annual Report in fiscal 2024 having the latest quantitative parameters.
• Supreme has achieved ~29% reduction in Scope 1+2 GHG emission intensity in fiscal 2024 as compared to last year
• Through consistent efforts and strategies, Supreme has successfully achieved ~14% renewable energy mix
• The governance structure is characterized by 50% of the board comprising independent directors with the positions of chairman and CEO being split. Supreme has a grievance redressal mechanism address any grievances from investors, employees, customers, and communities at large.

 

There is growing importance of ESG among investors and lenders. Supreme’s commitment to ESG principles will play a key role in enhancing stakeholder and access to capital markets.

Outlook: Stable

CRISIL Ratings expects sustained improvement in Supreme’s operating performance, backed by its diversified revenue profile, healthy demand in end-user industries and increasing share of value-added products. The financial risk profile should remain robust too, in the absence of long-term debt. Capex is likely to be funded through internal accruals.

Rating Sensitivity Factors

Upward Factors

• Sustained healthy double digit revenue growth and operating margin above 16-18%, leading to better than anticipated cash accruals
• Efficient working capital management and prudently funded capital expenditure leading sustenance of strong financial risk profile and debt metrics
• Maintenance of healthy liquidity surpluses

 

Downward Factors

• Steep decline in revenue, with operating margin falling below 13-14%, also impacting cash generation
• Sizeable large debt funded capital expenditure or acquisitions, leading to material deterioration in debt metrics
• Sizeable reduction in cash surpluses, due to material dividend payout or share buyback.

About the Company

Supreme, India's leading processor of plastic, was incorporated in 1942. The company has a diverse product portfolio, comprising piping systems, cross laminated films and products, protective packaging products, industrial moulded components, moulded furniture, storage and material handling products, performance packaging films and composite, and liquefied petroleum gas cylinders. It has 30 facilities across India.

 

For the first six months of fiscal 2025, revenue grew 5% to Rs 4,909 crore, driven by improved volumes while profit after tax was reported at Rs 480 crore during the same period from Rs 460 crore during the same period last year.

Key Financial Indicators

Particulars	Unit	2024	2023
Revenue	Rs crore	10,134	9,201
Profit after tax (PAT)	Rs crore	1070	865
PAT margin	%	10.56	9.4
Adjusted debt/adjusted networth	Times	0.00	0.00
Interest coverage	Times	106.69	172.41

*CRISIL Ratings adjusted numbers

Any other information: Not Applicable