Strong revenue visibility from upcoming plant
We interacted with the Stylam Industries (Stylam) promoter. Management is targeting to double its revenue in the next 4 years. It is confident domestic sales will pick up in next 2-3 quarters. 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 months, the government might 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 2.5bn with INR 7-8bn revenue potential, is expected to be completed in H1FY26. We have modelled 15/21/20/19% 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 26% revenue CAGR during FY25-27E. We like Stylam for its industry leading growth and EBITDA margin (~19-20%), healthy balance sheet (net cash), and impressive return ratio (ROE ~20-25%). We maintain our BUY rating with a lower target price of INR 2,800/sh (25x Sep-26E consolidated EPS).
▪ Demand outlook remains positive: Domestic laminate industry demand has been muted in Q3FY25. We expect this demand to pick up from FY26 onwards on the back of strong real estate sales of the last few years. The company is focusing more on South market and OEM to revive domestic growth and is confident of delivering healthy growth in the domestic market after 2-3 quarters. The company plans to add a dealer network to gain domestic market share, with no big advertisement plan like peers. It is aiming for 30-35% domestic revenue mix. However, in our view, revenue mix will get more skewed towards export with commissioning of new brownfield expansion (export-focused plant). Export demand should pick up further as global turmoil settles down. 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 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 remain stable in upcoming quarters. So, management expects 19-20% operating margin for the company in upcoming quarters. Management is confident of doubling their revenue in the next 4 years. It has major plans to ramp up sales in the US market, which will accelerate growth rates. Its focus is to sell higher value-added products, which will improve its margin profile.
▪ Anti-dumping can 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 sub 10% utilisation). 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 months, management thinks the government might levy antidumping 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 sub ~10% capacity utilisation in FY27.
▪ Expansion plan in place: Management expects to incur INR 2.5bn Capex for the laminate brownfield expansion with INR 7-8bn revenue potential. 12*5 size press is expected to be operational in Feb-25. It believes this press will quickly ramp-up above 70-80% utilisation in next two quarters. The company’s brownfield expansion will be fully operational by H1FY26-end. This plant will manufacture large-size laminates (currently missing from the product portfolio), mainly catering to the export market. 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 and EBITDA margin (~19-20%), healthy balance sheet (net cash), and impressive return ratio (ROE ~20-25%). We have modelled 15/21/20/19% 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 26% revenue CAGR during FY25-27E. Considering Q3FY25 earnings miss and increase in raw material price, we cut our APAT estimate by 2/5/5% for FY25/26/27E and lower the multiple to 25x Sep-26E EPS vs 30x Sep-26E earlier. We maintain our BUY rating with a lower target price of INR 2,800/sh.
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