Stylam IDBI Capital 200516

May 20, 2016
COMPANY
COMPANY
Stylam Industries
REPORT
REPORT Decorating path for sustainable growth BUY
Nifty: 7,783; Sensex: 25,340 Summary
Stylam Industries Ltd. (Stylam), manufacturer of high pressure decorative laminates for home and
CMP Rs230 industry use, derives over 70% of revenue from export market from over 60 countries. The company is
Target Price Rs355 doubling its capacity to nearly 12 mn sheets with a greenfield project at an estimated capex of ~Rs600
Potential Upside/Downside +54% mn, which is likely to complete by July 2016. Almost 35% of the new capacity is dedicated to wider
sheet (14ftX6ft), where Stylam would be pioneer in India and has a huge demand in export market
(commands 10%-15% premium over regular sheets). Further, the company is strengthening its
presence in domestic market with direct penetration (gradually phasing out distributors), giving better
margin and higher brand recall. The company opened 25 branches within a couple of years and likely
to expand upto 40 within a year. Further, implementation of GST would change the landscape of
Key Stock Data entire highly unorganized (65%) industry and could act as a key catalyst for significant re-rating. As the
major capex is getting over along with improving working capital & return ratio, FCF is set to improve
Sector Consumer Discretionary from FY18. Its revenue/EBITDA/PAT has grown at a CAGR of 27%/30%/50% during FY12-FY15 and we
expect it to grow at 23%/27%/29% during FY15-FY18. The stock is currently trading at a P/E of
Bloomberg / Reuters SYIL IN/STYL.BO
11.8x/8.4x to FY17E/FY18E earnings. Initiate with a BUY rating (TP Rs355/share on P/E multiple of 13x
Shares o/s (mn) 7.3 FY18E; 54% upside).
Market cap. (Rs mn) 1,678
Market cap. (US$ mn) 25
Investment rationale and outlook
3-m daily average vol. 15,020 Doubling capacity, change in product-mix to drive growth
Stylam, one of the top 3 laminate exporters in India, has a strong presence in both domestic and
international market (contributes 70% in total revenue). The company is doubling its capacity at a
capex of Rs600 mn, likely to complete by July 2016. Total capacity would increase to over 12 mn
sheets post expansion. The company expects utilization to reach 50% for new plant within a period
of six months due to introduction of new product (14ftX6ft wider sheet) which has strong demand
Price Performance in export market and commands a premium of 10%-15% from regular products.
Change in strategy for domestic market yielded healthy result
52-week high/low Rs244/82
The company is strategically moving towards end-users by opening their own depots in domestic
-1m -3m -12m market (eliminating distributors). They have currently opened 25 stores primarily North and Eastern
Absolute (%) 4 25 126 region in the span of just two years. It has resulted in higher margin and better brand recall which
also translated into higher volume in FY16. Overall, contribution from domestic market has gone up
Rel to Sensex (%) 6 18 134
to 30% in 9MFY16 from 20% in FY14. The company expects to increase the number of depots to 40
within a year and expects domestic contribution to go up to 40% by 2020.
Margins to sustain; better earning visibility post capex
The benefit of lower chemical cost, better volume growth (due to capacity expansion) along with
the combination of debt reduction process (gradually) and continues focus on working capital
Shareholding Pattern (%) management (112 days in FY13 to 75 days in FY16 and further 61 days in FY18E) would give strong
boost to the earnings.
Promoters 58.8 Major capex to over H1FY17; benefit to accrue fully in FY18
FIIs 1.8 As major capex is getting over by Q2FY17, the visibility of improvement in return ratios and free
cash flow persist. OCF/FCF should improve to Rs148/128 mn in FY18 from Rs10 mn/(Rs115 mn) in
Non Promoter Corporate 5.9
FY15. ROE/ROCE is expected to improve to 25.4/18.8% in FY18 from 23.9/15.8% in FY15.
Public & Others 33.5
Initiate coverage with BUY recommendation and a TP of Rs355
Its revenue/EBITDA/PAT has grown at a CAGR of 27%/30%/50% during FY12-FY15 and we expect it
to grow at 23%/27%/29% during FY15-FY18E. The stock is currently trading at a P/E of 11.8x/8.4x to
Relative to Sensex FY17E/FY18E earnings. Initiate with a BUY rating with a TP Rs355/share (based on P/E multiple of
300 13x on FY18E), which offers 54% upside from current level.
250
200
Table: Financial snapshot (Rs mn)
150
100
Year Revenue EBITDA EBITDA (%) Adj. PAT EPS (Rs) P/E (x) EV/EBITDA (x) RoE (%) RoCE (%)
50 FY15 2,138 224 10.5 94 12.8 18.0 11.0 23.9 15.8
May-15
May-16
Feb-15
Mar-15
Sep-15
Jan-16
Feb-16
Mar-16
Apr-15
Jun-15
Apr-16
Aug-15
Oct-15
Dec-15
Nov-15
Jul-15
FY16E 2,389 287 12.0 120 16.4 14.1 9.4 24.0 16.7
FY17E 3,010 351 11.7 144 19.6 11.8 8.2 22.9 16.1
SYIL Sensex
FY18E 3,998 455 11.4 201 27.3 8.4 6.0 25.4 18.8
Source: Capitaline
Source: Company; IDBI Capital Research
Company Report Stylam Industries
Key Investment Rationale

Capacity expansion to tap growing export market
Doubling the capacity by H1FY17
Currently, the company is operating at a capacity of nearly 6.4 mn laminate sheets per annum with its plant in
Panchkula, which is operating at over 90% of capacity utilization. The company is currently expanding it
capacity to meet the growing domestic demand on all India basis and export needs. The company is investing
~Rs600 mn to set up Asias largest laminates manufacturing unit under one roof and likely to increase its
capacity by 6mn sheets which would almost double its capacity. New capacity would include 8000-tonne
hydraulic press of 14ft x 6ft sheet and three 4ft x 8ft production line. The new capacity is expected to complete
by July 2016.
Table: Capacity expansion at different phases
Total capacity addition Total capex
Year
(Lakh sheets/annum) (Rs mn)
1991-2010 34 300-340
2010-2013 14 120-140
2013-2015 16 160-180
2013-2015 4 40-45
2016E 60 550-600
Export business continue to report robust growth

Since beginning, the company maintained its focus in export market which reflects its superior quality and
healthy relationship. The company exports to over 60 countries with higher dominance in European region. The
companys ~50% of revenues comes from Europe where UK is the largest contributor with nearly Rs280 mn.
Also, Far-East market also growing very fast especially Singapore and Malaysia region. Far-East market, which is
currently contributing nearly 25% of total export, is expected to increase to 30% by FY18. Also, Contribution
from Middle East is currently about 20% which is likely to decline slightly due to higher growth else-where.
Figure: Geography wise contribution
UK, 16%
Others, 25%
Rest of Far- Rest of

East, 15% Europe, 34%
Singapore, 10%
2
Figure: Export contribution
3,000 90%
73% 73% 74% 80% 76%
68% 68% 80%
2,500 67%
70%
2,000 60%
Rs mn)
50%
1,500
40%
1,000 30%
20%
500
602 765 1,069 1,551 1,639 1,672 2,106 2,765 10%
0 0%
FY11 FY12 FY13 FY14 FY15 FY16E FY17E FY18E
Export revenue (Rs mn) % of total gross revenue
14ft X 6ft product is likely to strengthen its presence in overseas market

As the company is implementing Asias largest laminate manufacturing unit which would be able to make much
wider sheet from current levels. Stylam claims it to first of its kind in India which can produce 14ftX6ft laminate
sheet which has lower wastage and wider application. This finds huge demand in foreign including US where
the companys presence is currently negligible. The company expects it to tap the US market with this product
which would fetch nearly 15% better pricing from current 8ftX6ft (for an equal size). Out of the total new
capacity, almost 30% would be dedicated to this product, which is expected to expand overall margin for the
company.
Figure: Share of new 14ftX6ft product post expansion
Larger width
product
20%
Smaller width
product
80%
Constructing building at Panchkula IT Park: regular income expected from FY17

The company is constructing a building at Panchkula IT Park, Haryana with a total built-up area of 2.25 lacs
square foot. Out of the total area, the company is planning to occupy nearly 20,000sq ft for its own office
purpose and planning to shift all its existing office under one roof, which would take care of entire planning,
sourcing and marketing for both domestic and export market. Also, the company is planning to lease out rest of
the area for the commercial purposes which would provide them a fixed rental income. The management is
expecting average rate of nearly Rs30-35/sq ft, which is expected to generate annual revenue of about Rs70-80
mn on full occupancy. The company expects the building to complete within three months. However, on a
conservative basis, we are not factoring any revenue from rental income.
3
Domestic market: Change in strategy driving higher growth

Removing distributorship in phases helping in many ways
Prior to FY15, the companys entire focus was on export business which was contributing nearly 80% of
revenues. Stylam was operating through distributors to reach to the end market. However, since FY15 the
company started cutting down distributors and directly opened their own branches which helped in multiple
ways. Firstly, it started saving the margins which they were giving to the distributors; Secondly, cash realization
also started improving as most of the dealers are taking the cash discount of 4% (if they pay within 2 days);
Thirdly, the company raising prices more effectively where they start grabbing market share, which helped in
improving margins.
Contribution from domestic market improved to 30% from 20% within 2 years
The company opened nearly 25 own depots since FY15 primarily in Northern and Western region like Punjab,
Haryana, Delhi, Rajasthan, Gujarat, Maharashtra, Madhya Pradesh and also have little presence in Southern
market which includes Chennai and Bangalore. Consequently, domestic market also started marking a
significant contribution which is expected to increase to nearly 30% in FY16 from 20% in FY14. The company is
planning to increase its own presence in at least 40 cities within a year and expects contribution from domestic
business to increase further to nearly 40% by FY18.
Figure: Revenue from domestic market and contribution
1,600 32% 32% 33% 35%
1,400 27% 27% 26% 30%
1,200 24%
25%
1,000 20%
20%
Rs mn)
800
15%
600
400 10%
200 5%
226 288 378 378 516 801 1,009 1,378
0 0%
Domestic revenue (Rs mn) % of total gross revenue
Figure: Volume break-up
60
52.4
50
41.9
40 33.9 34.9
(Lakh sheets)
31.5
25.3 27.3
30
20.8 21.0
17.5 17.5
20
11.4 11.4 10.0
9.0 8.4
10
0
Domestic volume Export volume
4
Going aggressive on brand building exercise to augment its domestic business

The company is currently spending almost Rs20 mn (just 1% of net sales) on account of business promotional
activities. As the company has strengthened its presence in domestic market, the company is required to
aggressively market its brand name. In view of that, recently the company has hired a new PR firm Thinkstr for
creating and marketing its brand name in broadcast media, digital media and print media. The company is
planning to invest over Rs50-100 mn for the brand building exercise which would be hardly 2% of the sales as
compared to its peer group average of about 3-4%. This is likely to bolster its presence in domestic market and
would allow the company to charge some premium over its product.
Working capital cycle set to improve further

Stylams working capital cycle has improved significantly over the past couple of years due to better inventory
management. The companys working capital cycle has come down to nearly 75 days from over 110 days in
FY13 driven by better inventory management. The company has increased its sourcing bandwidth to multiple
countries which gives it flexibility to operate at even lower inventory level. Currently, nearly 60% of raw
material in FY15 was imported from different countries primarily Europe, which has increased from 27% in
FY11. Also, as the new capacity would be operational from Q2FY17, we expect that working capital cycle would
further go down due to much better inventory management. Management expects it to improve further to 60
days from current around 75 days.
Figure: Working capital cycle
120 110 112

96
100
76 75
80 69 68
61
(Days)
60
40
20
0
5
GST: A Big Trigger Ahead

The plywood and laminates industry faces huge competition from the unorganized sector, which contributes nearly
70% of the total industry. But laminates manufacturers in the organized sector expect the rollout of the goods and
services tax (GST) to boost their sales in a market dominated by the unorganized sector. GST will address
complexities and inefficiencies of current indirect tax framework through robust technology platform. Post GST
clandestine business will be almost impossible. GST will be a win-win situation for all stake holders i.e. Government,
Honest Businessmen and Consumers as it will lower tax incidence, ease business and increase tax buoyancy coupled
with tax collection. As per a study carried out GST will have significant positive impact on GDP growth. Under the
GST regime, companies with turnover of more than Re1 mn will have to pay the tax against the earlier threshold of
Rs.15 mn.
Effects on unorganized sector
Price advantage enjoyed by them will actually diminish which makes high quality laminate competitive.
Lowering of excise duty to less than 10 per cent would force the unorganized laminate units to make excise
payments regularly.
As inferior-quality laminate would become less competitive. This would also lead to a reduction in the import of
low-cost Chinese laminate in the coming years.
Table: Comparison of before and after GST
Pre-GST Post-GST
Rs/sq ft Organised Unorganised Rs/sq ft Organised Unorganised
Basic price 100.0 100.0 Basic price 100.0 100.0
Excise duty (12.36%) 12.4 0.0 VAT (25%) 25.0 25.0
VAT (12.5%) 14.0 12.5 Total price 125.0 125.0
Total price 126.4 112.5 Basic price for dealers 100.0 100.0
Basic price for dealers 112.4 100.0 Dealer margin (10%) 10.0 10.0
Dealer margin (10%) 11.2 10.0 VAT (25%) 27.5 27.5
VAT (12.5%) 15.4 13.8 Less: Input tax 25.0 25.0
Less: Input tax 14.0 12.5 Final price 112.5 112.5
Final price 125.0 111.3 Source: Industry; IDBI Capital Research
Source: Industry; IDBI Capital Research
6
Laminates industry: on a growth trajectory

India has nearly 165 laminate producing establishments in India including both decorative and non-decorative.
Laminates industry is currently manufacturing over 17mn sheets every month that includes domestic and
export market both. Indian Laminate industry is estimated to be of Rs 60-65 bn per annum in India including
the export market. Out of the total market, just ~35% is organized while almost 65% is unorganized market.
Merino and Greenlam are the market leaders with almost 7% of overall market share (20% of organized) in
volumes and 26%-31% market share in value terms in organized space. Industry has grown at a CAGR of 7.6%
during FY11-FY15 and expected to grow at a CAGR of 12.2% during FY15-FY18E. Growth in Laminate industry
generally grows at 1.5 times the GDP growth.
Figure: Wood panel Industry (FY15 Rs 247bn) Figure: Laminates Sector - Market size and trend
Veneers, 2 80 72
Particle 0
board, 20 70 65
58
60 51
MDF, 15 50 42 45
38 40
Rs bn
40
30
20
Laminates, Plywood, 1
10
42 50
0
FY11
FY12
FY13
FY14
FY15
FY16
FY17E
FY18E
Source: Company; IDBI Capital Research Source: Company; IDBI Capital Research
Figure: Branch offices for key players Figure: Organised Market share : Player-wise
Rushil Others, 10
Dcor, 7% % Greenlam,
Merino
31%
19
Royal
Century Ply Touch, 7%
35
Stylam, 8%
Stylam
Greenlam
25
Ind
29
Century
Ply, 11% Merino, 26
%
Marino Laminates (Merino), has a market share of nearly 26% in organized space which has a capacity of
almost 13mn sheets per annum placed in three locations in India (Ghaziabad, Haryana and Tamilnadu). The
company has over 19 branch offices and exporting to over 60 countries. The company has more than 10,000
designs and textures and has strong brand recall in domestic market.
7
Figure: Demand matrix : Segment-wise
Exports, 20%
Residential, 35%
Commercial, 45%
The growth of laminate industry is primarily led by increasing demand from housing sector. As per the study done
by Ministry of Housing and Urban Poverty Alleviation, total housing shortages was estimated at almost 18.8 mn at
the end of March 2012. We believe, with the governments focus on housing for all, with increasing affordability and
implementation of GST would continue to drive sectors growth.
Figure: Shortage in housing sector
Household living in Household in

non-serviceable in homeless condition
Katcha house 3%
5%
Household living in
obsolescent houses
12%
Housing living in
cngestion nedds
new house
80%
Source: TGUHS; IDBI Capital Research
Rising proportion of working age population and growing urbanization to drive growth
The average mean age in India is 24 years (Source: ASSOCHAM) with ~48% of population below the age of 25
years and ~92% below the age of 60 years in 2010. A young population with increasing urbanization will result
in high consumption demand growth over the next two decades. The % of working age group population
(between age group of 15-64) is expected to increase from ~64.6% in 2010 to ~67.6% by 2030. Over the next
two decades ~230 mn will be added to this group which will thus result in a sustained demand growth for the
new housing thus laminates.
8
Figure: Growing Urbanisation
1,800 60%
1,600 55%
1,400 50%
1,200 45%
(mn)
1,000 40%
800 35%
600 30%
400 25%
200 20%
0 15%
1990 1995 2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050
Total population (mn) Percentage urban (%)
Source: United Nations; IDBI Capital Research
Figure: India to have a young till 2050

100.0%
8.0% 9.0% 10.0% 11.6% 13.2%
90.0% 16.7% 20.1%
80.0%
70.0%
60.0% 62.0% 63.0% 63.5% 63.6% 63.3% 61.9%
50.0% 60.1%
40.0%
30.0%
20.0%
30.0% 28.0% 26.3% 25.0% 23.5%
10.0% 21.4% 19.8%
0.0%
2010 2015 2020 2025 2030 2040 2050
60-100+ 15-59 0-14

Source: United Nations; IDBI Capital Research
9
Competitive Scenario Indian Peer group

Bigger in export but smaller in domestic market
The companys almost 70% of revenue (~Rs1.7 bn) comes from the export market as compared to 30% of
Century Ply and 48% of Greenlam Industries. The company has bigger market share in export market compared
to domestic market where competition from unorganized market is very heavy. Merino and Greenlam are the
major companies in domestic market with almost equal no of market share. Stylam is ranked three in terms of
export after Greenlam and Merino.
Table: Peers Business matrix
Capacity Production Capacity Export EBITDA Promotion
Company
(Lakh sheets) (FY16) utilisation (%) (% of revenue) (%) spend
Stylam Ind 70 53.0 75.7% 70% 12.0% 1% of sales
Century Ply* 48.0 42.6 87.7% 30% 15.8% 4.9% of sales
Greenlam Ind 120 118 98.3% 48% 13.1% 5.7% of sales
*Laminates only
Source Industry; IDBI Capital Research
Table: Peers Financial matrix
Particulars Revenues EBITDA (%) PAT (Rs mn) ROE (%) P/E (x) EV/EBITDA (x)
Mkt Cap
(Rs mn) FY16E FY17E FY18E FY16E FY17E FY18E FY16E FY17E FY18E FY17E FY18E FY17E FY18E FY17E FY18E
Stylam Ind. 1,693 2389 3010 3998 12.0 11.7 11.4 120.4 144.0 201.2 22.9 25.4 11.8 8.4 8.2 6.0
Century Ply
36,625 3434 4018 4701 15.8 15.7 15.6 447.3 523.3 612.3 31.6 29.0 18.9 16.2 11.99 10.3
(Laminates only)
Greenlam Ind 14,584 10181 11726 13276 13.1 12.4 12.0 400.0 460 520 18.8 24.9 31.7 28.0 13.3 12.2
Figure: Peers Distribution network (FY16E) Figure: Peers A/O Ratio (FY16E)
16,000 6
14,500 5.6
14,000
12,000 5
12,000
4
10,000
8,000 7,000 3
6,000 2.0
2
4,000 1.4
2,000 1
0 0
Stylam Ind Century Ply* Greenlam Ind Stylam Ind Century Ply* Greenlam Ind
*FY16 Actual Numbers *FY16 Actual Numbers

Source: Industry; IDBI Capital Research Source: Industry; IDBI Capital Research
10
Figure: Peers W.Capital cycle (FY16E) Figure: Peers D/E & Interest Coverage ratio (FY16E)
80 75 6.0
70 5.2
70 5.0
60
4.0 3.4
50 2.8
41
3.0
40
1.8
30 2.0
1.1
0.9
20 1.0
10 0.0
0 Stylam Ind Century Ply* Greenlam Ind
Stylam Ind Century Ply* Greenlam Ind D/E Interest coverage ratio
*FY16 Actual Numbers *FY16 Actual Numbers

Source: Industry; IDBI Capital Research Source: Industry; IDBI Capital Research
11
Financial Matrix
Table: Financial Summary (Rs mn)
Particulars FY12 FY13 FY14 FY15 FY16E FY17E FY18E
Domestic volume (Lakh sheets) 11.4 11.4 8.4 10.0 17.5 21.0 27.3
YoY growth (%) 26.2 0.0 (26.2) 19.7 74.4 20.0 30.0
Domestic revenue 287.5 378.0 377.8 516.1 801.0 1,009.2 1377.6
YoY growth (%) 27.0 31.5 0.0 36.6 55.2 26.0 36.5
Export volume (lakh sheets) 20.8 25.3 31.5 33.9 34.9 41.9 52.4
YoY growth (%) 18.8 21.8 24.3 7.7 3.0 20.0 25.0
Export revenue 765.3 1,068.9 1,550.7 1,639.4 1,671.7 2,106.3 2764.5
YoY growth (%) 27.2 39.7 45.1 5.7 2.0 26.0 31.3
Total net revenue 1,041.7 1,402.1 1,849.4 2,138.2 2,388.8 3,009.9 3997.7
YoY growth (%) 25.3 34.6 31.9 15.6 11.7 26.0 32.8
EBITDA 101.4 124.6 179.7 224.0 286.6 350.7 455.1
EBITDA margin (%) 9.7 8.9 9.7 10.5 12.0 11.7 11.4
YoY growth (%) 127.2 22.8 44.2 24.7 27.9 22.4 29.8
Net profit 28.2 40.7 68.4 94.0 120.4 144.0 201.2
NPM margin (%) 2.7 2.9 3.7 4.4 5.0 4.8 5.0
YoY growth (%) (25.1) 44.5 68.0 37.6 28.0 19.6 39.7
EPS (Rs) 3.8 5.2 9.3 12.8 16.4 19.6 27.3
Table: Standalone quarterly performance (Rs mn)

Particulars Q1FY15 Q2FY15 Q3FY15 Q4FY15 Q1FY16 Q2FY16 Q3FY16 Q4FY16E
Revenue 486.1 513.8 539.5 585.1 603.2 602.5 580.9 602.1
YoY growth (%) (8.3) 5.7 5.0 8.5 3.1 (0.1) (3.6) 3.7
EBITDA 60.9 65.1 33.2 48.3 62.1 73.7 73.1 77.7
EBITDA margin (%) 12.5 12.7 6.2 8.3 10.3 12.2 12.6 13.0
YoY growth (%) 906.3 6.9 (48.9) 45.2 28.7 18.5 (0.7) 6.2
Adjusted net profit 21.1 22.6 26.5 21.0 26.7 25.7 28.6 39.4
YoY growth (%) 4.3 4.4 4.9 3.6 4.4 4.3 4.9 6.5
EPS 2.9 3.1 3.6 2.9 3.6 3.5 3.9 5.4
Revenue to see 23% CAGR during FY15-FY18E

During FY12-FY15, Stylams revenue saw a robust CAGR of 27% driven primarily by strong growth in its export
business. Export grew at 29% during that period led by 18% volume growth and 10% realization growth. At the
same time, domestic business witnessed a growth of 21.5% primarily due to higher realization which increased
27%, partially offset by 4% fall in volume.
Going forward, we expect its volume in export/domestic market to grow at a CAGR of 15%/40% during FY15-
FY18E, while realization to remain almost stable. As a result, we expect its revenue to grow at a CAGR of 23%
during the period fuelled by capacity addition from H2FY17.
12
Figure: Revenue break-up

4,500 40%
4,142
4,000 37% 33% 35%
30% 33%
3,500 27% 1,378 30%
3,116
3,000 26% 25%
2,473
(Rs mn)
2,500 1,009
2,155 20%
2,000 1,929 801
378 516
1,447 15% 15%
1,500 12% 2,765
828 1,052 378 10%
1,000 288 2,106
226 1,551 1,639 1,672
500 1,069 5%
602 765
0 0%
Domestic revenue (Rs mn) Export revenue (Rs mn) % growth - total gross revenue
Higher contribution from export and better cost management lifted profits
Contribution from export market increased from 73% in FY12 to 76% in FY15 which is a higher margin market.
Along with this better cost management helped Stylam to achieve EBITDA CAGR of 30% during FY12-FY15 while
EBITDA margin witnessed marginal improvement of 75bps. Also, due to the companys efforts to replace high
cost debt with low cost foreign debt bodes well for its earnings. PAT saw a CAGR of 49.5% during FY12-FY15.
Going forward, we expect the companys EBITDA to report a CAGR of 26.6% during FY15-FY18 with margin
expansion of 90bps owing to benefit from lower chemical prices. This is expected to translate into a PAT CAGR
of 28.8% during the period.
Figure: Raw material break up
Others
13%
Kraft paper
28%
Melamine resins
17%
Phenolic resins Design paper

20% 22%
Figure: PAT and EBITDA margin
30.0 12.0 14.0

11.7 11.4
25.0 10.5 12.0
9.7 9.7
8.9 10.0
20.0
(Rs mn)
8.0
15.0 5.4
6.0
10.0
4.0
5.0 2.0
1.3 3.8 5.2 9.3 12.8 16.4 19.6 27.3
0.0 0.0
Adjusted PAT (Rs mn) EBITDA margin (%)
13
Lower debt level to keep interest cost under check

Till H1FY16, Stylam had a total debt level of Rs866 mn which includes a foreign currency debt of Rs 310 mn for
the capacity expansion project and Rs250 mn for its upcoming Pankchkula IT park. Interest rate for these
projects are at a very attractive level of LIBOR + 3% for expansion project and LIBOR +2.5% for the IT Park
building. The companys total earnings from export market is nearly Rs1,750 mn and imports raw material of
worth nearly Rs 300 mn. Still the company is net inflow of about Rs1,200 mn which provide natural hedge to
foreign currency loan.
Figure: Total debt and D/E trend

1,400 2.5
2.1
1,200 1.9
1.8 1.8 1.7 2.0
1.6
1,000 1.5
800 1.2 1.5
Rs mn)
600 1.0
400
0.5
200
305 387 583 659 774 998 1,174 1,059
0 0.0
Net debt Net debt/Equity

Return ratio to improve significantly post end of capex cycle

The companys capex is getting over where both of its project new production line and IT park building is
completing by H1FY17. Stylams return ratio is on an uptrend from past several years due to its rising capacity
utilization. ROE/ROCE has improved from 12.5%/12.4% in FY12 to 23.9%/15.8% in FY15E. However, due to its
higher capex, these ratios would be under pressure for next couple of years before witnessing significant
improvement in FY18 where it is expected to improve to 25.5%/18.8% in FY18E, respectively.
Fig.: ROE/ROCE for last 6 years Fig.: OCF/FCF profile

30.0 20.0 18.8 300
16.7 16.1 176
15.1 15.8 18.0
25.0 200 109 122 148128
16.0 64
12.4 12.2 100 22 10
20.0 14.0
10.7 0
12.0
(Rs mn)
15.0 10.0 -100 -14 -20

-81 -76-125
8.0 -200 -104
10.0 6.0 -182 -168
-300 -196 -115
-251 -224
5.0 4.0 -290
8.9 12.5 14.9 21.9 23.9 24.0 22.9 25.4 2.0 -400 -373 -333
0.0 0.0 -500 -437
FY16E
FY17E
FY18E
FY13
FY11
FY12
FY14
FY15
FY16E
FY17E
FY18E
FY15
FY11
FY12
FY13
FY14
ROE (%) ROCE (%) Capex OCF FCF

14
Valuation and Outlook

Initiate coverage with TP of Rs355 provides 54% upside potential; BUY
The company is trading at a P/E multiple of 8.4x and EV/EBITDA of 6.0x on FY18E. However, its peer group is
trading at an average P/E multiple of 22.1x and EV/EBITDA of 11.3x. Further, on a laminate business, its capacity
and utilization level is almost similar to Century Ply which has an advantage of superior brand name. Even,
return ratio is likely to reach closer to its peer group in FY18 post utilization of new capacity. Looking at the
strong growth in export market, strengthening its position in domestic market along with brand building
exercise, improving return ratio and declining debt levels, we believe Stylam to be a potential candidate for
strong re-rating. We are valuing the company on a P/E multiple of 13x (20% discount to Century Ply and 40%
discount to average) on FY18E, which gives us a target price of Rs355. At current price, it gives an upside
potential of 54%. Any upside from its rental income from the building in Panchkula IT Park would provide
further upside which we have currently not factored in. We are initiating coverage on the company with BUY
rating.
Table: Valuation summary
Particulars FY18E
EPS (Rs) 27.3
P/E mutiple (x) 13.0
Target price (Rs) 355
CMP (Rs) 230
Upside potential (%) 54
Figure: One-year forward P/E chart

250
200
150
100
50
0
Apr-08
Apr-09
May-10
May-11
Jun-12
Jun-13
Jun-14
Jul-15
Mar-07
Nov-10
Nov-11
Dec-12
Dec-13
Jan-15
Jan-16
Oct-07
Oct-08
Oct-09
1 yr fwd PE 3x 6x 9x 12x
15
About the Company

Stylam Industries Ltd. (Stylam) manufactures high pressure plain and decorative Laminates for home and office
purpose with under the brand name of STYLAM. The company was incorporated on 28th November 1991 as a
Private Limited company with the name of Golden Laminates Ltd and got listed four years later in BSE in 1995. Later
in year 2010, it changed its name to Stylam Industries Ltd. The company is headquartered in Chandigarh and has its
manufacturing capacity in Panchkula, Haryana. It implemented phase 1 capacity with 3L sheets per annum at a capex
of Rs36.8 mn, which was completed in December 1992. It started manufacturing mixed laminate sheets with lower
width of 0.6mm to 1mm. Gradually, it keeps adding capacities as it started capturing market share and expanded its
footprint in new geographies and currently operating at a capacity of nearly 60l sheets/year. Since inception, the
companys focus was on export market which contributes about 70%-80% to the revenue.
The company was started by Late Mr. N R Aggarwal in 1991 and is currently promoted by two brothers Mr. Jagdish
Gupta (Managing Director) and Mr Satish Gupta (Executive Director) who are primarily focused for export market
and domestic market respectively. The company is primarily engaged in manufacturing high pressure laminates.
However, since FY15, the company upgraded its product profile and started manufacturing decorative laminates
(Brand name: VIOLAM), exterior cladding (Brand name: FASCIA) and exterior floor boards (Brand name: WALKON).
Currently, contribution from these three products is nearly 30% of the domestic sales which is witnessing huge
demand mainly from northern region.
Key risks
Delay in GST implementation: GST would be significantly positive for the company and for the entire sector
which would kill the unorganized players in a big way. This would be more positive for smaller players in
organized space as large player anyway enjoys the premium. Any delay in implementation of GST would be a
key risk to the growth of the company.
Change in consumer preference: Currently, wood panel industry is dependent on plywood, laminates, veneer
and MDF. Any change in consumer preference for MDF or veneer over laminates may hurt the companys
growth.
Foreign currency fluctuation: The companys almost 70% of revenue comes from export market where it has
exposure in US dollar and Euro. Any significant foreign exchange fluctuation on either side may impact the
companys revenue positively or negatively.
16
Annexure
Laminate Manufacturing process
Laminates can be broadly classified into two types High Pressure Laminates (HPL) and Low Pressure
Laminates (LPL). When it is manufactured under pressure of 70 to 100 bars and temperature of over 300
degree Fahrenheit, it is called HPL while LPL is developed under lower pressure of below 50 bars and higher
temperature of above 330 degree Fahrenheit. HPL generally have higher durability and it comes at higher price
compared to LPL. Manufacturing process is shown below:
Diagram: Laminate Manufacturing Process
17
Financial summary
Profit & Loss Account (Rs mn) Cash Flow Statement (Rs mn)
Year-end: March FY15 FY16E FY17E FY18E Year-end: March FY15 FY16E FY17E FY18E
Net sales 2,138 2,389 3,010 3,998 Pre-tax profit 139 183 218 305
Growth (%) 15.6 11.7 26.0 32.8 Depreciation 42 48 68 87
Operating expenses (1,914) (2,102) (2,659) (3,543) Tax paid (44) (61) (72) (101)
EBITDA 224 287 351 455 Chg in working capital (128) (61) (91) (141)
Growth (%) 24.7 27.9 22.4 29.8 Other operating activities 1 (0) (1) (2)
Depreciation (42) (48) (68) (87) CF from operations (a) 10 109 122 148
Capital expenditure (125) (333) (290) (20)
EBIT 182 238 282 368
Chg in investments - - - -
Interest paid (49) (71) (78) (80)
Other investing activities - - - -
Other income 6 15 14 17
CF from investing (b) (125) (333) (290) (20)
Pre-tax profit 139 183 218 305
Equity raised/(repaid) - - - -
Tax (45) (62) (74) (104)
Debt raised/(repaid) 99 227 175 (100)
Effective tax rate (%) 32.4 34.0 34.0 34.0
Dividend (incl. tax) - - (8) (13)
Net profit 94 120 144 201 Chg in minorities - - - -
Adjusted net profit 94 120 144 201 Other financing activities - - - -
Growth (%) 37.6 28.0 19.6 39.7 CF from financing (c) 99 227 167 (113)
Shares o/s (mn nos) 7.4 7.4 7.4 7.4 Net chg in cash (a+b+c) (16) 4 (1) 16
Balance Sheet (Rs mn) Financial Ratios

Year-end: March FY15 FY16E FY17E FY18E Year-end: March FY15 FY16E FY17E FY18E
Net fixed assets 794 1,078 1,300 1,233 Adj EPS (Rs) 12.8 16.4 19.6 27.3
Investments - - - - Adj EPS growth (%) 37.6 28.0 19.6 39.7
Current assets 701 785 921 1,152 EBITDA margin (%) 10.5 12.0 11.7 11.4
Inventories 255 284 328 396 Pre-tax margin (%) 6.5 7.6 7.3 7.6
Sundry Debtors 336 375 442 548 RoE (%) 23.9 24.0 22.9 25.4
RoCE (%) 15.8 16.7 16.1 18.8
Cash and Bank 19 23 22 37
Turnover & Leverage ratios (x)
Loans and advances 88 98 124 164
Asset turnover 1.5 1.4 1.5 1.7
Total assets 1,495 1,863 2,221 2,385
Leverage factor 3.6 3.4 3.2 2.9
Net margin (%) 4.4 5.0 4.8 5.0
Shareholders' funds 441 561 697 885 Net Debt/Equity 1.8 1.8 1.7 1.2
Share capital 74 74 74 74 Working Capital & Liquidity ratios
Reserves & surplus 367 488 623 812 Inventory days 43 43 40 36
Total Debt 793 1,021 1,196 1,096 Receivable days 57 57 54 50
Secured loans 415 465 465 415 Payable days 25 25 25 25
Unsecured loans 378 556 731 681
Valuations
Other liabilities 16 18 19 22
Curr Liab & prov 244 263 309 382 Year-end: March FY15 FY16E FY17E FY18E
Current liabilities 217 233 271 331 PER (x) 18.0 14.1 11.8 8.4
Provisions 27 30 38 50 Price/Book value (x) 3.8 3.0 2.4 1.9
Total liabilities 1,054 1,301 1,524 1,499 PCE (x) 12.4 10.0 8.0 5.9
Total equity & liabilities 1,495 1,863 2,221 2,385 EV/Net sales (x) 1.2 1.1 1.0 0.7
Book Value (Rs) 60 76 95 120 EV/EBITDA (x) 11.0 9.4 8.2 6.0
18
Notes
Dealing (91-22) 6637 1150 dealing@idbicapital.com

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Stocks:
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Key Investment Rationale

Export business continue to report robust growth

Rest of Far- Rest of

Source: Company; IDBI Capital Research

Figure: Export contribution

Source: Company; IDBI Capital Research

14ft X 6ft product is likely to strengthen its presence in overseas market

Source: Company; IDBI Capital Research

Constructing building at Panchkula IT Park: regular income expected from FY17

Domestic market: Change in strategy driving higher growth

Source: Company; IDBI Capital Research

Figure: Volume break-up

Source: Company; IDBI Capital Research

Going aggressive on brand building exercise to augment its domestic business

Working capital cycle set to improve further

120 110 112

Source: Company; IDBI Capital Research

GST: A Big Trigger Ahead

Source: Industry; IDBI Capital Research

Laminates industry: on a growth trajectory

Figure: Demand matrix : Segment-wise

Source: Company; IDBI Capital Research

Household living in Household in

Source: TGUHS; IDBI Capital Research

Figure: Growing Urbanisation

Source: United Nations; IDBI Capital Research

Figure: India to have a young till 2050

60-100+ 15-59 0-14

Competitive Scenario Indian Peer group

Table: Peers Financial matrix

Source Industry; IDBI Capital Research

*FY16 Actual Numbers *FY16 Actual Numbers

*FY16 Actual Numbers *FY16 Actual Numbers

Table: Standalone quarterly performance (Rs mn)

Revenue to see 23% CAGR during FY15-FY18E

Figure: Revenue break-up

Source: Company; IDBI Capital Research

Phenolic resins Design paper

Source: Company; IDBI Capital Research

Figure: PAT and EBITDA margin

30.0 12.0 14.0

Source: Company; IDBI Capital Research

Lower debt level to keep interest cost under check

Figure: Total debt and D/E trend

Net debt Net debt/Equity

Return ratio to improve significantly post end of capex cycle

Fig.: ROE/ROCE for last 6 years Fig.: OCF/FCF profile

15.0 10.0 -100 -14 -20

ROE (%) ROCE (%) Capex OCF FCF

Valuation and Outlook

Figure: One-year forward P/E chart

Source: Company; IDBI Capital Research

About the Company

Source: Company; IDBI Capital Research

Balance Sheet (Rs mn) Financial Ratios

Dealing (91-22) 6637 1150 dealing@idbicapital.com

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