This Small Cap Stock Has Dipped 6% This Year, But Analysts See Over 60% Rally Ahead

Shares of Stylam Industries have remained subdued since the start of the year. However, analysts at JDFC Securities see the stock soaring to new heights in the next 12 months.

The Styalm Industries Analyst: The analysts’ team at HDFC Securities led by Keshav Lahoti maintained the “buy” rating for the stock with a price target of ₹2,550. The target indicates an over 63% upside from the stock’s last closing price of ₹1,588.15.

The Styalm Industries Thesis: The brokerage highlighted that Stylam reported a decline in revenue quarter in the December quarter due to the weak demand in domestic markets and lower export sales, influenced by the Israel-Palestine conflict which impacted revenue by approximately 9%.

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While domestic volume increased by 1% YoY, export volume remained 13% lower. Acrylic revenue stood at ₹5.4 crore in Q3, representing 3% of total revenue. However, the company saw an improvement in EBITDA margin by 200 basis points (bps) QoQ and 550 bps YoY, reaching 22.3% in Q3FY24, driven by continued gross margin expansion. Gross margin expanded by 200 bps QoQ and 500 bps YoY to 49%. The brokerage highlighted that Stylam achieved its best-ever quarterly EBITDA margin during the quarter, marking a QoQ recovery for the seventh consecutive quarter. Consequently, EBITDA and APAT rose by 21% and 30% YoY, respectively.

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The brokerage pointed out that the company anticipates significant growth in the US market, which currently contributes approximately 5% of its revenue. Stylam expects US revenue to increase substantially, potentially contributing 10-15% to overall consolidated revenue growth. It foresees stable gross and EBITDA margins, except for Q4FY24, due to increased ocean freight rates resulting from the Red Sea crisis, which may temporarily impact margins. Additionally, there is a possibility of the government imposing an anti-dumping duty on acrylic imports, as an investigation on this matter commenced recently.

Stylam completed its laminates debottlenecking expansion in Q3FY24 and is currently working on a laminates brownfield expansion project costing between ₹200-225 crore, with a peak revenue potential of ₹800 crore. This expansion project is expected to be commissioned by Q3FY25 and will double the laminate segment’s revenue potential.

Due to the ongoing conflict in Israel, weak domestic market volume, and expansion delays, the analysts reduced volume estimates by approximately 5% each for FY24-26. However, the higher margins mitigate the impact on EBITDA and APAT.

Price Action: Stylam Industries’ share price was up 0.62% to trade at ₹1,598 on Wednesday.

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