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Result Synopsis

Stylam Industries Ltd (SYIL) reported a strong set of numbers for Q2FY25, an all-round beat on our estimates. Company’s revenue grew by 12%YoY which was primarily driven by 11% improvement in ASP while total volumes remained flattish. Expansion in ASP was largely owing to better product-mix. Exports, which constitute 72% of sales, registered a stellar growth of 24.5%YoY to Rs1.88Bn (2-year CAGR stood at 7%). Domestic sales (28% of sales), declined by 11%YoY. Notably the domestic biz run-rate has been at ~Rs750Mn for past 13-quarters. During the quarter, one plant operated at 90% utilization and other plant operated at ~80-85% utilization level. Gross margins improved from 46.8%/44.5% in Q2FY24/Q1FY25 to 49% in Q2FY25 which led to expansion in EBITDA margins from 20.2%/17.3% in Q2FY24/Q1FY25 to 20.7%. Hence, company registered an EBITDA growth of 15%YoY to Rs544Mn. Finance cost was elevated for the quarter owing to short-term debt of Rs66.7Mn undertaken over H1FY25, which capped the bottom-line growth.

Management is confident of growing the topline by 26-30%CAGR over FY25-FY27E with an EBITDA margin of 20-22%. With both plants at peak utilization and new brownfield expansion expected to commence operations from Q4FY25, for balance FY25E there may be capacity constraints and hence, management is focusing more on enhancing the product-mix.

We remain confident on SYIL’s growth plan and reckon company’s topline should grow by 16%CAGR over FY24-FY27E on the back of expanding clientele base, company entering new geographies, and commencement of new plant which will bolster the growth trajectory. Incrementally, higher focus on value-added products will enable the company to maintain 20% operating margins. Hence, we expect EBITDA to grow by 16%CAGR over FY24-FY27E. Owing to a healthy H1FY25, we have revised our FY25E/FY26E EPS est upwards by 8.5%/9% respectively. Also, we now value the SYIL at P/E(x) of 25x on FY27E (roll-over) EPS of Rs116.3. Hence, we upgrade the stock from NEUTRAL to BUY with a target price of Rs2,907.

Result Highlights

* Volume for Q2FY25 stood at 3.20Mn sheets, a growth of 1.6%YoY & 8.1%QoQ. Average realization for Q2FY25 came in at Rs790, an increase of 11.1%YoY & remaining flattish on a QoQ basis.

* Revenue for the quarter stood at Rs2.63Bn (7% above est), a growth of 12.3%YoY & 8.3%QoQ. Export revenue (72% of sales) expanded by 24.5%YoY & 11.2%QoQ to 1.88Bn and domestic revenue (28% of sales) contracted by 10.8%YoY & remained flat QoQ at Rs7.4Bn.

* Gross margin grew to 49% Vs 46.8%/44.5% in Q2FY24/Q1FY25 respectively.

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