SEBI (Research Analyst) Registration Number: INH200004471


8 April 2018

Stylam Industries - Fundamental Analysis

Stylam Industries (Formerly Golden Laminates) is into the manufacturing of laminates. The company is based out of Panchkula (Chandigarh, Punjab) and is currently led by Mr. Jagdish Gupta.


Products

The company's products can be classified into the following categories:
  • High Pressure Laminates such as decorative laminates, compact laminates, unicore laminates, etc under the brand names Violam and Viotouch
  • Exterior cladding under the brand Fascia
  • Cubicles and lockers under the brand name Cuboid
  • Exterior floor boards under the brand name Walkon
Violam

In 2017, the company has a capacity of producing 12 million sheets per annum, which the company claims is the largest capacity for a laminate plant in Asia. The earlier capacity was 7 million sheets per annum and the company had been toying with the plan of capex since FY13.

Better flexibility

Revenues



Over the last 3 & 5 years the company has grown it's revenues at a CAGR of 17.67% and 23.74% and at the same time, the company has seen an expansion in margins. This indicates a positive pricing power.

The company is an export focused one and it's major market in geography terms is Europe. However, off late much focus is being placed to increase the share of domestic sales in total revenues.


The laminates market is expected to grow faster than the global GDP growth rate and in India the laminates industry is expected to grow in the range of 15% to 20% CAGR (For organized players). The local demand will primarily be driven on the back of more residential units being constructed, increasing levels of income, higher per capita spending and imcreasing urbanization. This growth rate is expected to last till 2023-25.

Debt

Stylam Industries is constantly taking debt to increase it's revenues. Despite generating good operating cash flows, the company is taking debt for increasing capacity and also to venture into an unrelated business of BPOs.


Once you add another Rs 109 Crores of Capital Work In Progress, you can see that the company's cash flow from operations have not been enough to meet the capital expenditure.

The company had constructed an 8 storey building with 2 basements in Panchkula's IT park to setup a BPO business in FY13; however the management has decided to sell off the entire building (as per FY17 annual report) and focus only on the "building materials" business. The sale proceeds from this tower could go towards reducing debt and bringing down the interest cost which is nearly 20% of the operating profits. The sale of the land and the building could fetch atleast Rs 35 Crores.

Ratios



Stylam Industries has improved its Fixed Assets Turover ratio and margins thereby offering a higher return on equity. The company has made significant capacity addition in FY18 and it remains to be seen how much of this can translate to higher revenues, profits and cash flows. It is a positive that the management has decided to not get into an unrelated business. With a good growing demand for laminates in the domestic markets and a management that has consistently delivered good growth, improved margins and generated cash flow from operations, Stylam Industries definitely has the potential to deliver good returns to it's shareholders.

Peer Analysis



The above table shows a snapshot of the growth in Gross blocks and revenues of some of India's top laminates makers. Stylam has been quite consistent in revenue growth and in general, the industry has been adding on more capacity indicating a positive outlook on the products

However, one needs to dive into the finer aspects of the company's financials, products and scuttlebutt and quality of growth before taking a decision of adding Stylam Industries to the portfolio.

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