Stylam Industries shares rally 9% on Investec's 'Buy'; 40% upside ahead for re-rating candidate?

Stylam Industries Ltd on Wednesday saw its shares rallying 9 per cent as Investec initiated coverage on the stock with 'Buy' rating and suggested a 40 per cent potential upside on the counter. Rapid revenue growth, both exports and locally in the laminates space, over FY19-24 reflects Stylam’s nimble execution on designs, SKU management and its distribution strategy, Investec said as it suggested a target price of Rs 2,362 apiece. 
 
Following the development, the stock climbed 8.85 per cent to hit an high of Rs 1,830.75 on BSE. With this, Stylam Industries shares have risen 17 per cent in the one-month period.

Investec noted that while wood panel peers have ventured into traditional categories to widen TAM, Stylam Industries is venturing into acrylic, an allied category. Stylam Industries invested Rs 50 crore and guided for Rs 400-500 crore of potential revenue by FY27. 

"A different approach on marketing/distribution vs. the market leader drove strong earnings growth (30 per cent CAGR FY04-24). Incremental expansion offers attractive RoCE profile in lam, acrylic (and widens TAM). Potential investment by an MNC could enhance Stylam’s tech capability, distribution, brand placement and aid earnings trajectory/multiples. We forecast 11 per cent EPS CAGR over FY24-26E," Investec said.

It said Stylam Industries' execution has been noteworthy with financials reflecting the same -- 30 per cent PAT CAGR FY04-24, healthy RoE trends. 

"We forecast SYIL to clock 19 per cent Ebitda CAGR over FY24-26E. We value Stylam at 25 times FY26 PE, i.e. 40 per cent discount (FY26E) to trading multiples of market leader factoring revenue mix. Potential strategic investment by MNC could aid re-rate in the story, given multiple," it said.