This Small Cap Stock Zoomed 11% In 1 Month, Brokerage Assigns ACCUMULATE Rating, Sees High Returns

The leading brokerage firm East India Securities in its recent report assigned ACCUMULATE rating To Stylam Industries Limited (Stylam) with a target price of Rs1,267/ share, considering the future growth visibility. According to the brokerage, the stock with the given target price is likely to give a potential return of up to 8% on the investments. It is a small-cap building material sector company having a market capitalisation of Rs 1,975.55 crore.

Stylam is engaged in the manufacturing of luxury-grade decorative laminates under its eponymous brand, "Stylam". It has the largest manufacturing facility in Asia of laminates, which are used as surfacing materials for paneling, partitioning, furniture, table tops and work surfaces.

Stock Outlook & Results

The current market price of Stylam Industries Ltd's stock on NSE is Rs 1,179.90/share. The stock recorded its the 52-week high on 16 August 2022 at Rs 1,269.05, whereas, it recorded its 52-week low on 25 May 2022 at Rs 761.10. 
 
 The stock made its stock market debut on 2 August 2021, and since its listing it has given 8.09% negative returns. The stock in the last 1 week surged by 2.04%. Whereas, in the last 1 month, it surged by 11.12%. It has given 18.48% positive returns in the last 1 year.

Investment Rationale

Established player in the luxury grade laminates space since 3 decades: Stylam is a prominent player in global markets in the high‐quality decorative laminates and allied products industry. Stylam's manufacturing capacity enables it to supply products to its customers across the globe.

Diversified product portfolio: Stylam boasts of a wide range of high‐pressure laminates with over 1,500+ Designs and 150+ textures and finishes. Products such as exterior laminates, bathroom cubicles and acrylic solid surface continue to find increasing acceptance in its markets. 

Ability to maintain profitability and operational cash flow despite operating in a highly fragmented industry: In the past 5 years, the working capital cycle has been maintained at ~ 3‐month period with occasional spike upto ~100 days. Return on Capital Employed has improved over the past two years to >18%, post expansion of the capacity from 11.0 mn sheets to 14.3 mn sheets.

Vision 2022‐25 ‐ Expansion and deleveraging: Stylam has recently expanded its laminate production line. It proposes to expand into plywood segment under a wholly owned subsidiary. Stylam proposes to be a Net Debt free company over the period FY2022‐25.

Key Risks

• Stylam's exports may be impacted due to a slowdown in the global economy. 
• Raw material risks arising from supply chain constraints and the surge in oil prices can potentially hurt the near‐term growth prospects of Stylam. 
• Being a pioneer in the manufacturing of solid acrylic surfaces in India, Stylam may face some reluctance from customers in replacing products that were so far being used by them.

Valuation

Stylam is currently trading at P/E of 14.1x on FY24 basis. "We have valued the stock based on P/E methodology. Since, the entire capacity is expected to be fully utilised by FY24, we have assigned multiple of 15.1x (2‐year forward) on FY24E PAT of Rs1,426mn to arrive at a target price of Rs1,267 per share, which is potential upside of ~7.0% from current market price and recommend "ACCUMULATE" on the stock," the brokerage has said.

Disclaimer

The stock has been picked from the brokerage report of East India Securities. Greynium Information Technologies, the Author, and the respective Brokerage house are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to consult with certified experts before making any investment decision.