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Cementing its position in wood panels; we initiate coverage with a Buy

Incorporated in 1991, Stylam Industries has emerged as one of the leading entities in wood panels (laminates). The encouraging demand context would raise utilisation levels and drive its healthy revenue growth. Its strong brand recall would help it retain its position in exports and its wider distribution network would boost its domestic sales. Input cost tailwinds would support margin expansion. We initiate coverage on the stock with a Buy and a TP of Rs.1,653.

Export-centric, focus on scaling up its domestic business. Operating in 80+ countries, the company derives significant revenue from exports (67%). To enhance its domestic revenue, it is scaling up and strengthening its distribution channel.

Capacity expansion to drive volumes. To meet mounting domestic and overseas demand, the company is expanding capacity 40% in a phased manner. Hence, we expect offtake to clock a 21% CAGR over FY22-25 with the utilisation/sales ratio improving from 64.3% to 81.3%.

Expects to be net-debt free by FY25. Efficient working-capital management and healthy cash-flow generation are expected to help the company pare down debt and become cash surplus by FY25.

Healthy growth prospects, promising outlook. The business environment, both domestic and overseas, continues to be encouraging. We believe the stock will deliver 25%/ 27%/32% revenue/EBITDA/adj. PAT CAGRs in FY22-25

Trades at attractive valuation. At the CMP, the stock trades at P/E of 15.7x/13.8x FY24e/FY25e earnings. It looks attractively priced; hence, we initiate coverage on the company with a Buy rating and a target price of Rs1653 based on 20x (2-year average) FY25e earnings. Risks: Slowdown in economic activity, heightened competition, volatility in raw-material pricing and adverse currency fluctuations.

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