Growth to pick up from FY26
We interacted with the Stylam Industries (Stylam) promoter. Management is confident of doubling its revenue in the next 3-4 years. It has major plans to ramp up sales in the US market, which will accelerate the company’s growth rates. Management’s focus is to sell higher value-added products, which will improve the company’s margin profile. As per management assessment, in the next few quarters, the government will levy anti-dumping duty on low-cost and low-quality acrylic dumping by Chinese/Korean entities. This is expected to act as a key catalyst for boosting sales in this segment. Laminate brownfield expansion, costing INR 2.25bn with INR 7-8bn revenue potential, is expected to be completed by FY25-end (delayed by a quarter). We have modelled 17/22/20/20% volume/revenue/EBITDA/APAT CAGRs for FY24-27E. We expect strong laminate volume growth in FY26/27 on the back of a pick-up in demand and ramp-up of sales from ongoing brownfield expansion, which will fill the product portfolio gap of large-size laminates. So, we expect a strong 25% revenue CAGR during FY25-27E. We like Stylam for its industry-leading growth (~2x vs industry) and EBITDA margin (~20%), healthy balance sheet (net cash), and impressive return ratio (ROE ~25%). We maintain our BUY rating with a higher target price of INR 2,875/sh (25x Sep-26E consolidated EPS). Stylam is our top pick in building material sector.
▪ Demand outlook remains positive: Domestic laminate industry demand has been muted in Q2FY25. We expect domestic laminate industry demand to pick up from FY26 onwards on the back of strong real estate sales in the last few years. The company plans to add a dealer network to gain domestic market share, with no big advertisement plan like peers. Export demand has picked up in Q2FY25. As global turmoil settles, we expect further pick-up in export market demand. As Israel’s situation fully normalises, reconstruction demand should accelerate the company’s sales in this market. Due to cost competitiveness (low labour cost in India) and the closing of the laminate manufacturing unit in Europe, we expect India’s laminate exports to remain healthy. Leveraging strong client relationships, prompt service, ethical practices, and an expansion into new geographies, management is confident that the company will continue to gain market share in exports. It aims to become the No. 1 laminate exporter from India (currently positioned second). Laminate raw material cost is expected to increase QoQ in Q2. Going forward, management expects raw material prices to remain stable or decline. The company took a 3% price hike in Aug-24 in the domestic market to pass on higher raw material prices. Management is confident of doubling its revenue in the next 3-4 years. It has major plans to ramp up sales in the US market, which will accelerate growth rates. Management’s focus is to sell higher value-added products, which will improve the company’s margin profile. In upcoming years, management expects at least 18-20% EBITDA margin.
▪ Anti-dumping will be a game changer for the acrylic segment: Stylam has invested ~INR 0.5bn in the acrylic segment, which has INR 4bn revenue potential (currently operating at ~10-15% utilisation). Management believes even at this low utilisation, this segment is EBITDA positive. As per management assessment, once this segment ramps up to 40% capacity utilisation, its operating margin will be better compared to the laminate segment margin. In the next few quarters, management expects the government to levy anti-dumping duty on low-cost and low-quality acrylic dumping by Chinese/Korean entities. It will act as a key catalyst in boosting this segment’s sales. The company is focusing on acrylic sales in export too on the back of the strength of its laminate distribution network. In the absence of clarity on anti-dumping duty, we have modelled the acrylic segment to operate at ~15% capacity utilisation in FY27, implying a 33% revenue CAGR for FY24-27E (on a low base). We estimate that the acrylic segment revenue share will increase from 2.6% in FY24 to 3.4% in FY27E.
▪ Expansion delayed by a quarter: Management expects the laminate brownfield expansion, costing INR 2.25bn and having an INR 7-8bn revenue potential, to be completed by FY25-end (delayed by a quarter). This plant will manufacture largesize laminates (currently missing from the product portfolio), mainly catering to the export market. So, management is confident of crossing 50% capacity utilisation for this plant by FY26-end. Owing to less competition in these types of laminates, margins are better in this. Laminate segment revenue potential will increase to ~INR 20bn after this expansion. It has room for further brownfield expansion at this location.
▪ Valuation and recommendation: We like Stylam for its industry-leading growth (~2x vs industry) and EBITDA margin (~20%), healthy balance sheet (net cash), and impressive return ratio (ROE ~25%). We have modelled 17/22/20/20% volume/revenue/EBITDA/APAT CAGRs for FY24-27E. We expect strong laminate volume growth for the company in FY26/27 on the back of a pick-up in demand and ramp-up of sales from ongoing brownfield expansion. So, we expect a strong 25% revenue CAGR during FY25-27E. Sensing growth in the pipeline, quick ramp of sales from ongoing expansion and further diversifying export mix (higher US share), we increase our valuation multiple to 25x Sep-26E EPS, vs 22x earlier. We maintain our BUY rating with a higher target price of INR 2,875/sh (25x Sep-26E consolidated EPS). Stylam is our top pick in building material sector.
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