Stylam Industries: Up 20% in April so far, Phillip Capital sees another nearly 50% upside in this stock; here's why

Shares of Stylam Industries have surged 20 percent in April so far. This rise comes after 4 straight months of losses between December 2022 and March 2023. In this period, the stock shed 15 percent.

Brokerage house Phillip Capital recently initiated coverage on the stock with a ‘buy’ call and a target price of ₹1,710, indicating an upside of almost 50 percent.

Stylam Industries Ltd is an India-based company, which is engaged in the manufacturing of laminates, solid surface panels and allied products. The company’s products include high-pressure laminates, performance laminates (HPL), specialty laminates, exclusive surfaces, acrylic solid surfaces and compact laminates.

The brokerage expects Stylam to deliver a revenue CAGR of 26 percent over FY22-25 (domestic + exports) backed by: (1) Strong industry tailwinds, (2) investments in technology and certification, (3) increasing share of value-added products (4) strong focus on distribution/touch-point expansion and hiring a new sales team to cater to the domestic market, and (5) shift from carpenter-based furniture to OEM/architect-based furniture.

It also believes valuations of the firm will re-rate based on higher earnings growth, strong cash flow and higher return ratios vs peers.

In the December quarter, the net profit of Stylam Industries jumped 54.14 percent to ₹24.03 crore as against ₹15.59 crore during in the year-ago quarter. Meanwhile, its sales rose 32.29 percent to ₹233.98 crore in the quarter under review versus ₹176.87 crore during the same quarter last year.

The brokerage noted that in the short term, the softness in consumer demand, and interest rate hikes could impact volumes. Meanwhile, in the long term, the China+1 strategy, increase in global certification for Indian brands, growth in real estate registrations, a high number of commercial projects under implementation, pickup in private capex, and shift in demand to branded players will benefit Stylam, it stated.

Exports: Phillip Capital pointed out that Stylam is the fastest-growing company in exports from India. Stylam’s export revenue CAGR was 16 percent over FY18-22, which was higher than the export industry. It offers products in 80+ countries. Stylam is now spending more on certification to increase its geographical presence in new markets, said the brokerage.

The brokerage expects Stylam’s exports to see a CAGR of 27 percent over FY22-25 backed by high export tailwinds + new geography addition + cost advantage + new product launches. Also, now global players like Wilsonart have started sourcing from Stylam, which shows its strong product acceptance in global markets, highlighted PC.

Domestic markets: The company has set up 5 RDCs (Regional Distribution Centres), and 150 new distributors in the last four years. Currently, its products are priced 15-20 percent cheaper than Greenlam & Century, as Stylam is increasing its presence and market share in the domestic market.

“We expect the price gap to narrow over the next 2-3 years as Stylam builds its Team + Channel + Brand, noted PC. It further observed that Stylam registered domestic revenue CAGR of 17 percent and an overall EBITDA CAGR of 19 percent over FY17-22, higher than other industry players. The brokerage expects a revenue CAGR of 24 percent over FY22-25,” said the brokerage.

Niche categories: Stylam has been the first company to introduce/manufacture value-added products such as HPL cladding, cubicles, lockers, acrylic solid surfaces, etc. The value-added category accounted for 10 percent of Stylam's revenue five years ago, and is 25 percent at present. Also, recently it added India’s first Acrylic Solid surface plant, having a revenue potential of ₹400-500 crore, stated the brokerage.

Estimates

Phillip Capital estimates earnings CAGR of 33 percent over FY22-25, at base case margin expansion of 97 bps. Stylam should generate free cash flow of ₹110 crore over FY22-25, becoming net-debt free in FY25. At CMP, the stock trades at a PE of 15x/13x on FY24/25 earnings vs Greenlam 27x/20x, it added.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie.