Stylam Industries - Robust Outlook; Regular Earnings Upgrade Driving A Re-Rating: Systematix

Systematix Research Report

Stylam Industries Ltd.’s management reiterated its positive stance on the company’s outlook at its meetings with investors. Plant modernisation and line balancing processes are on; the new ultra-modern greenfield plant at Rs 1.5 billion capex (Rs 5 billion plus revenue potential) is likely to be operational by March 2024. It also retained its guidance of Rs 3 billion plus revenue from its acrylic solid surface product over the next two-three years.

Greater mix of -added stock keeping units will further boost Stylam Industries’ market positioning, margins and return ratios. While concerns of global economic slowdown may temporarily pause volume growth (not yet witnessed), easing prices of key raw materials (phenol and formaldehyde down ~25% in three-month and ~50% in a year) would support margins and earnings.

On these factors, we further upgrade FY24E/25E earnings by 5-7% (a similar upgrade post Q4 result) and estimate laminate-volume/revenue/Ebitda/profit after tax compound annual growth rate at 19%/23%/29%/32% over FY23-25E with strong ~17.5% Ebitda margin (Q4: 17.1%) and return on equity/return on capital employed (~24%/34%).

Our revised target price of Rs 1,976 (20 times FY25E price/earning versus 18 times earlier) has further re-rating potential owing to robust outlook and regular earnings upgrade.

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