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Expect 12.5% volume growth; margins to remain under-check, downgrade to NEUTRAL!

Result Synopsis

Stylam Industries Ltd (SYIL) reported muted growth in Q1FY25. Revenue increased by 7.5%YoY to Rs2.42Bn, driven by 5.7%YoY volume growth (2-year Volume CAGR stood at 5%) coupled with 1.8% improvement in ASP of laminates to Rs786/sheet. Exports (70% of sales & 57% of laminates volumes), reported a revenue growth of 13.4%YoY and ASP came in at Rs1,000/sheet. Domestic (30% of sales & 43% of laminates volumes), registered a revenue decline of 4%YoY & ASP stood at Rs583/sheet. Operating margins contracted to 17.3% Vs 18.5%/19.9% in Q1FY24/Q4FY24 respectively, largely on account of higher input cost which weighed on gross margins.

We reckon, SYIL to register a volume CAGR of 12.5% over FY24-FY26E on the back of expanding geographic presence in export markets and focus to enhance footprints in domestic markets. To cater the incremental growth, company’s new plant will commission by Q3FY25E for which orders for major machineries have been placed. Incrementally, the modular expansion at current facilities has concluded, for which SYIL expended Rs300Mn. Moreover, the Acrylic sheet business will further accelerate growth. Hence, we expect revenue to grow by 15%CAGR over FY24-FY26E. On account of higher input cost and commencement of new plant in Q3FY25E, we have revised our margin estimate downwards to 18%/19% for FY25E/FY26E respectively. Consequently, our EPS estimates have been revised downwards by 15%/10% for FY25E/FY26E respectively to Rs75/Rs92. We have valued the company at P/E(x) of 22x on FY26E EPS, arriving at a target price of Rs2,017. Hence, we have assigned a NEUTRAL rating to the stock.

Result Highlights

* Revenue for the quarter stood at Rs2.43Bn (7.5% above est), a growth of 7.5%YoY & flattish QoQ.

* EBITDA margins came in at 17.3% (est of 19.5%) Vs 18.5%/19.9% in Q1FY24/Q4FY24, respectively owing to an increase in input costs. Absolute EBITDA stood at Rs419Mn, flattish YoY & a decline of 12%QoQ.

* Net profit stood at Rs284Mn, a marginal increase of 2%YoY & a degrowth of 25%QoQ (excl exceptional loss of Rs11Mn in Q4FY24, net profit contracted by 27%QoQ).

* Volume for Q1FY25 stood at 2.96Mn sheets, a growth of 5.7%YoY & a decline of 2.6%QoQ. Average realization for Q1FY25 came in at Rs786, a marginal increase of 2%YoY & and remaining flattish QoQ.

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