Stylam Industries Limited (526951) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Stylam Industries Fourth Quarter FY '23 Earnings Conference Call hosted by Systematix Institutional Equities. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Ashish Poddar from Systematix Institutional Equities. Over to you, sir.

Yes. Thank you, Rico. Good afternoon, everyone. I'm Ashish Poddar from Systematix. It is pleasure to host the management of Stylam Industry. From the management, we have Mr. Jagdish Gupta, the Managing Director; and Mr. Kishan Nagpal, the Chief Financial Officer. The results and investor presentation is already uploaded on the BSE Exchange. So you would have got a chance to look at it. So without delay, we'll straight away go to the Q&A session. Rico you can start.

We will now begin the question-and-answer session. [Operator Instructions] Ladies and gentlemen, we will wait for a moment while the question queue assembles. Our first question is from the line of Manoj Bahety from Carnelian Capital.

Sir, just if you can give us some update on our solid acrylic surface -- If you can give update on our acrylic surface business, how the ramp-up is happening? how you are seeing the capacity utilization going forward? And outlook for the same over next 2, 3 years, Basically, sir, I wanted to understand that how successful we are in terms of displacing imports, what are the early signs, early feedback on this?

As I mentioned early, it is same type of questions. We are doing our best in Acrylic also. Like you see it is first plant in India. There are so many teething problems even if I go through our old laminates business, it took so many years for us, 15-20 years to gear up, being a first generation plant. The acrylic plant is also now start doing excellent. Even in last month, we had a turnover of more than INR 4 crores. Domestically also, it is increasing day-by-day. Export market, we are starting in many, many countries. New Inquiry, we have an exhibition on Tuesday onward in Germany. Very good stand for acrylic as well as HPL. So this -- you will see next quarter, figures will totally change. And very good future. 100% substitute. Here also this, all Korean are dumping acrylic in India, it is subsidized. We are trying our best. We already filed an application with the government for antidumping and safeguard duty on this also. We are quite hopeful that they will look at our requests. So it is doing good. We are not doing in a good way.

Okay. And sir, how is the feedback on quality as well as how is the ramp-up?

You can ask the market now 100% like your Korean quality.

No, sir, I was getting definitely a good feedback when I was chatting with the market. And how we are scaling up our distribution network on this. And basically, like how we are targeting domestic market as well as export? If you can give us some color on guidance how -- what are your aspirations on this business over the next 2, 3 years?

You see, these distributors already we have many like warehouses C&F we already booked and sales -- then you can understands sales is increasing. Now export, USA, Israel, Philippines, Singapore, [ France ] we already every month one or 2 new customers, when they will -- container will go to them, they will satisfy -- their reputation will come. Same thing happen with us in HPL 15 years back when we start in export -- but we are in a good direction. You can understand overall data.

Any aspiration, any guidance would you like to share at this stage for next 2, 3 years, sir, for this business?

No. 2, 3 years, we are doing good. For this reason, we go for a new machine, which was installed last quarter. For this reason, we are thinking that their market is so big, for this reason, we order this, we installed a new machine.

Okay. That's interesting, sir.

No. But there is no danger, nothing, no problem because we definitely -- you will see within 1 year, you are mentioning 1, 2 years, you will see altogether changes.

And sir, second question on the laminate side, since a large part of our revenue comes from export. So how you are seeing the global scenario? Are you seeing any challenges in terms of demand outlook?

I think we have no challenges. You just see our volume increasing in export. And every year, you can see exactly more than 50 % increase in turnover from the last year. Maybe something is good for someone bad for someone -- for us, you don't think there seems any problem at all.

Okay. And what is our current capacity utilization, sir?

It's 75% to 80%.

Our next question is from the line of Nikunj Doshi from Bay Capital.

Just wanted some clarity on the CapEx plan. So what are we spending on this INR 150 crores, over what period. I mean what kind of capacity additions are we looking at?

See. We are -- already we have a land, we have already company. We are going for new sizes, seeing new product, like value added product in the same field for export market as well as small quantity may be in domestic also.

And over what period we are going to spend this CapEx, INR 150 crores?

99% within this year, hopefully.

Within this year only?

Yes.

And this will help our capacity to increase by what percentage?

Sorry?

What percentage of our capacity increase will happen because of the CapEx.

That is totally different product, of course, of HPL, different value addition products, different hedging. So turnover will be minimum INR 500 crores from this.

So this INR 150 crores will help us in getting INR 500 crore turnover?

Yes.

Our next question is from the line of Keshav Lahoti from HDFC Securities.

One bookkeeping question. what is the acrylic revenue in quarter 4?

Mr. Keshav Lahoti, may we ask you to please speak up as we are unable to hear you.

So what is the acrylic revenue in quarter 4?

Approximately INR 9 crores.

And is it EBITDA breakeven as of now?

Yes.

And the new laminate expansion which you are doing. So it will be primarily focused on export or is broadly the mix of...

Mostly on export.

Okay. And what sort of guidance is there for the next year, what sort of volume growth you're looking at? Earlier you were guiding laminates margin will be back to 20% in quarter 1. Are we there?

Hopefully, everything that you can see in the fourth quarter, maybe from the last year fourth quarter, may be it is almost more than 50% increase. We are quite hopeful that the figures are going domestically as well as export, surely that you are mentioning, we will be near to that. Hopefully.

Our next question is from the line of Nikhil Gada with Abakkus AMC.

Sir, my first question is regarding the capacity plan. Firstly, sir, we were going to do some brownfield expansion of close to 40% increase in capacity. So that is done?

No. That is from the existing plant only. That is modernization of some machinery. That is an ongoing process.

Let me ask it differently. So we had a capacity of 14.4 million sheets...

Sorry, sorry, sorry, interruption. Many time I mentioned you, capacity 14 million sheets. Capacity is always on if we go for value wise. 14 million sheets is if we go for [ 0.6 and 0.7 ] and then it will be 14. If we compare to laminate and higher thickness, then it will go even nearly 9-10 million only. So many times same question, I'm mentioning that to people, and for balance sheet as project report they are mentioning quantities. But otherwise, figures -- in value figure will be more better to you for understanding.

Sir, if you can help me understand also from your perspective, with the current capacity that we have in place, what is the total revenue potential we can achieve?

Yes, yes. Absolutely correct. Many times I told you that this plant on HPL only, not in acrylic or MDF or [indiscernible]which is between INR 1,200 crores to INR 1,300 crores.

And this includes the 40%?

That's 40% yes, correct. That is already going on.

So now this INR 1,200 crores, INR 1,300 crore potential...

Minimum. There is mix match and [ definitely ] some high value.

And sir, secondly, on the margin front, we are seeing the raw material correction, especially on the chemical front. Are we passing it on in the market or we are holding on to it or are we able to ...

Actually you see passing on market. First of all there is no drastically decrease in prices of chemicals, not drastically. It is coming -- if it increase by 50% and it decrease by 20%, 25%, 30%, you cannot say it is the same level, number one. Number two, we -- then if prices increase so much, we have not increased the prices. Same, we could not people -- we could not put in our customer same prices. So there, at the moment, domestically, of course, people are forcing to reduce, reduce. Not of export market. Pressure is there, but not much pressure because everybody knows that we have merely increased 5%, 10% maximum, whereas raw material increase at that time was 40%, 50%. So not -- I think you understand what I mean.

Yes, yes, I understood. Got it, sir. And sir, just a couple of more questions. So for -- specifically for FY '23, can you give the geographical mix of our export business based on FY '23 numbers?

No, no. Same thing is going on, same domestic work is -- yes, we are more focusing on the domestic. So we are hopeful that the figure will little bit change. Right now, if now we are doing 70/30, 65/35 like 2/3, 1/3. So we are hopeful that it will be 60/40 in the future.

So I get that. For export -- specifically for export, I'm asking the breakup, which we used to 40%, 45% Europe...

No, everywhere, you have sale increase everywhere. Europe people say every time there is a recession, but we have not seen any recession in our HPL; maybe in another product there can be recession.

Any new markets you would like to call out...

Yes, yes. And now we have presence everywhere almost going -- so maybe small quantities slowly, we will increase more.

Sir how much would be U.S. as of now?

U.S. maybe 4-5% definitely total. If anything, you need specifically, Mr. Nagpal will give you the exact figure. But now we are doing good in U.S. also.

Okay. Fair enough. And sir, just lastly, on this INR 150 crores CapEx, are we going to do any -- raising any debt or it will be through internal accruals completely?

I think no need for any debt. We will do it from our own.

On internal accrual, right?

Yes.

Okay. Before we go to the next question I think he wanted to understand the current revenue potential is INR 1,300 crores without this INR 40 crore CapEx on the brownfield.

No, no, no, no. It is including that. That is already going on. Half we have already done, maybe even 2, 3 months, that is INR 40 crore means balancing of machinery.

Okay. So that includes that. That INR 1,300 crore potential is including that?

Yes.

Our next question is from the line of Aditya Sharma from Birla AMC.

I wanted to understand more about the expansion plan that we talk about, this INR 150 crore of investment. Can you please help us understand what is the value-added product that we are trying to manufacture? And what is the end product demand. If you could just elaborate on the product front, it would be really helpful?

You see it is a very initial stage. The reason being it is in different sizes, market is a very big, maybe small, but there will not be any big player in international markets, only few. Different sizes, different thicknesses. So we are going for that. And there is a very big market in export market. Next quarter, maybe in next call, we will explain you everything.

Okay. Just wanted to understand is this manufacturing setup completely different from our existing setup?

Different, sizes might different. And we will go for fully, we will try to go for a fully automation and everything. It will be most modern plant. Better than our existing plant.

Our next question is from the line of Depesh Kashyap from Invesco AMC.

My question is again on CapEx, the INR 150 crores CapEx that you're doing, is it the same location, that [ 48 ] acres that you said it is empty right now, that is going to be used for this?

Your voice is breaking, could not understand.

I think this new CapEx is going to come at the same location in Panchkula or some other location?

Yes, the same location. We have additional land already. We have land, everything, the company is there. Stylam Private Limited is already registered, everything is there.

Okay, same location. Got it. And sir, also, you said this INR 40 crores CapEx that you're going to do -- is going to happen this year, right?

50% is already spent.

50% is already spent. So, around INR 20 crores will be spent in this year.

Only maybe I mentioned 2, 3 times. It is only modernization and the upgradation of machinery and the balancing of equipment.

No, I understand. I'm just looking at the numbers. So around INR 20 crores you are saying is pending, and you're going to spend 99% of INR 150 crores this year. So it comes to around INR 170 crore CapEx kind of you're looking for in FY '24, right? And if I look at your operating cash flow, it is a INR 56 crores, right? So -- and you're also mentioning that you want to be net debt free. So I just want to understand how this all adds up.

[Foreign Language]

[Foreign Language] I will send more it offline.

We are giving just the idea. [indiscernible] . [Foreign Language]

Got it. But one thing is clear that everything is going to happen in FY '24 CapEx wise, Sir. That is clear, right?

Yes, we are trying our best.

Secondly, sir, your excellent improvement in the working capital. So I just want to understand, your receivable days have come down to 48 days, right, from 66. So this is the lowest in your last 10, 12 years of history, right? So sir, anything you want to call out, is there any structural improvement that you have seen? And any old receivables that were like pending for the last 2, 3 years?

No, no, no, yes, you're right. We are doing our best domestically, our receivable is going down. So we are trying our best. You will see next quarter, maybe it is improving every day. Is it good sign or bad sign?

No, it was a very good sign. You're absolutely doing a good job. But I want to understand the receivables which were under 2 to 3 years are pending right now is INR 15 crores...

Look, people are going to pay us. When the company is growing, brand name is established, people are...

It's already -- is it still to come or it's already booked in the numbers. I just wanted to clarify that.

[Foreign Language]

Got it. And sir, also, we are seeing the new plant, which you will start, INR 150 crore CapEx, that is mainly for the export market. But you have also said in the previous calls that going forward, your focus is going to be the domestic market. So how...

[Foreign Language] that will sell in domestic market also.

And sir, lastly, on the receivables days. [Foreign Language] So any deterioration you expect in working capital if the domestic ratio goes up.

[Foreign Language]

[Foreign Language] Do you expect any deterioration in the working capital cycle?

In working capital, we are buying everything on cash payment. There is no fact, rather -- there is still -- we have inventory, we are going to reduce that inventory also if there is any need. Not much focusing. Then the sale is increasing, your debt is always increasing, your expenses are decreasing. So I think everything is coming, next year you will see, God willing, balance sheet will be more better. But I can say not more than this.

Last question. Sir, I just wanted to understand your thoughts on the demand scenario because you are investing in a big way, according to your balance sheet in the laminate market. But when I look at your peers, right, the other bigger players, they are investing more towards the particle board, so they are not investing so much in laminate. So what is that you are seeing, and they are not seeing? Is there any export market opportunity that you have figured out? Or how is it?

[Foreign Language] 100% like his idea. It is their own perception. They are going for MDF, particle board, plywood, but for our intention, we are more focused on this laminates and different kind of products, you can see our figures. For this reason, we are more focusing as our figures are going up. And if you do for same thing, particle and MDF plant, their cost is also not more than INR 300 crores, INR 400 crores. And turnover will be not more than INR 500 crores, INR 600 crores. Their thinking -- may be they are right, maybe we are not right. But everybody has their own way of working.

[Foreign Language] in how many years can that be achieved?

Very easily you can achieve in 2, 3 years. Very easily.

Our next question is from the line of Manoj Bahety from Carnelian Capital.

Sir, just a little clarification on the CapEx. You mentioned that INR 40 crore CapEx will increase our capacity by up to 40%. So this plus INR 150 crores. So INR 40 crore will take up our existing laminate capacity up by 40%. And over and above that, we are spending INR 150 crores more to put the new capacity. Is it right?

Yes, yes, you are right, but this INR 40 crore we mentioned 6 months back, and it is an ongoing process. We are already investing on it, 50% already invested.

Okay. [Foreign Language]

[Foreign Language] [indiscernible] it can be extendable to 12. We are going for that. We are going for a different way. So more the balancing of equipment at some point. [Foreign Language] We are doing that.

Our Acrylic capacity, if you can help me on that what is our current capacity, how much revenue we can generate out of that capacity and initially our focus will be domestic market only because lot of imports are happening in India. Or we will be targeting both also?

Both. We mentioned many times both our capacity, total capacity is up to minimum INR 400 crores. But we don't know whether -- how many years, whether 2 years, it will take 3 years, we can achieve this figure. But market is growing all over the world, domestically as well as in export.

Okay. Okay. So out of current capacity, you can generate INR 400 crores, and your focus will be both exports and domestic market, right?

Both domestic and export.

Okay. Okay. And what kind of margins or contribution we can generate from this product? Is it better than laminate?

That is very initial stage, given that depends on many things again. In that also, why we it is like a liner. There are many other colors. When we will utilize the capacity, same manpower, same electricity, expansion will go down. So that we will -- but surely it looks -- it will be better; if not better, it should be the same like.

Our next question is a from Udit Gajiwala from A S Securities.

Majority of the questions have been answered. So just on the new CapEx that we are coming up with. So I just want to understand that on INR 500 crores revenue, what kind of realizations could we expect on this kind of sheet that you are dedicating for exports?

That will be certainly very good question. We hope that the margin should be more better than the existing. Definitely, it will be more. The reason being odd sizes, different sizes and there will be not much competition in that.

Thank you -- our next question is from the line of Harsh Shah from Dalal & Broacha Stock Broking Private Limited.

[Foreign Language] In Acrylic, can we reach INR 50 crores on revenue in FY '24?

Revenue, yes. Yes, of course. If we cannot get the INR 50 crore, then there is no use, we will close down the plant.

Okay. And could you give the volume split in domestic and export market for the quarter?

Only for current quarter or overall performance?

It's laminates.

Laminate. Quarter, we have INR 86 crores last quarter and INR 151 in export.

I am talking about the volume split.

[Foreign Language]

And within your domestic market, where are we growing much faster. Is it the Northern region or the Southern India?

Could you repeat the question?

Yes. So my question is within the domestic market, where are we going faster? Is it in Northern India or the southern part of the country?

If we talk about the Indian domestic market, South India is the first -- is the area where Stylam is growing and...

Sorry to interrupt, sir. May we request you to come closer to the speaker phone as the voice is not audible?

Is it fine now?

yes sir, please go ahead.

Yes. So in India, Stylam is growing better at South, we have reached a dominant position in South and we are concentrating more on South followed by North and then West and then East. Overall, if you look at the Indian domestic market, building material wise, South market is more stronger in terms of sales.

Yes. So Y-o-Y, how much would we have grown in the southern part?

Southern, we have almost grown by what we started a year to almost we have grown by 40% to 45%.

Our next question is from the line of Darshil Zaveri from Crown Capital.

Firstly, congratulations on a great set of results. So sir, I just wanted to ask what kind of -- because we've been growing so far, what kind of revenue growth can we expect for the next 2 years since we are nearing a very high capacity utilization. And will the margins now have been stable [indiscernible] this year? So what kind of margins do we see going forward? Those are my questions.

Production, production wise, we are trying our best. We are quite hopeful that every year, which should be minimum 20-25% increase. When there will be growth in sales, automatically your expenses will reduce not proportionately, there will be no expense. We have not much administrative costs and not much sales people when sales were increased. So definitely, we are expecting 20%, 30% increase in this coming year, then the capacity will increase in different sizes, then growth may be more next to next year. But margin will also improve accordingly.

That helps a lot. And sir, I just wanted to ask, are Acrylic margins will be similar to our laminate margins or will they be...

Like I told you, looks similar. Maybe more -- now we have just capacity utilizing only 5% only, 5%-6%. When it will be capacity increase, utilization will increase, automatically expenses will totally reduce.

Our next question is from the line of [ Dipanshu from Vizi Capital ].

Sir, I had a couple of questions. One of the thing is that on a quarter-on-quarter basis, if we see from last quarter, we have seen a decline in volume. So any reason you want to call out for the same?

[Foreign Language]

From demand side, there is nothing an issue. It is just a product mix thing.

Nothing on issue in demand side. Rather, it is a better we are going for a high-value product, both ways, domestic and export. [Foreign Language]

What I wanted to understand from you guys is what are the marketing initiatives, what you guys have taken in FY '23? And what are you going to spend on marketing or some other activities for expanding your domestic as well as export market. Any marketing initiatives?

No, no, you see. Export, I told you in my nephew is sitting with me. He will explain you domestically. Export, we don't need any marketing people. We already have 8, 9 people, which is more than enough. We have not our office anywhere, just marketing, traveling from here.

So domestic market, yes in domestic market, we are close to more than 150 people, 150 sales people all over India, and all our structure is in place. So looking forward, we don't feel that there will be a much addition of manpower in domestic sales business. So overall, the structure as a whole for Stylam is already in place for sales team also.

Also we have seen a good amount, as he is also mentioning, we have seen a good amount of increase in employee cost over, say, last 1 year, we have seen almost INR 4 crores, INR 4.5 crores kind of increase on a year-on-year basis. So do you think this to continue increasing? Or do you think that you have uploaded the employees expansion and now the results on the domestic market. And so the margin expansion can play out in this year? Do you have any view on this?

100%, as already told that the increase in employee cost is because of the increase in salespeople. And overall, if we look at the revenue increase, the revenue increase will happen this year and no more salespeople will increase. And overall, if you look at the employee cost at the factory end, the manufacturing facilities end, most of the people are in place and the administration cost does not increase. So employee costs should not increase.

So what are the other levers for increase in margin? So because we used to operate at a 20% plus margin. Now again we are seeing a recovery in margin. How do we see this trend to play out? What are the other levers which we have, which can help us in increasing margins, say, the transportation cost or whatever. So from which point do we see that margins can expand in this financial year?

In this financial year with better reach of the brand and more brand acceptability in the market, the -- and with more sale and more production, the cost will go down, and we feel that the margin should improve. In domestic market, overall, if we see the brand presence has increased and it should help us to increase the margin there also. And looking at the -- for the exports, the transportation cost, they're going down, like the container costs. So this all should help in increasing the margin for the next financial year, hopefully.

So can we expect 100 to 150 basis point kind of increase in the full year?

Yes, surely.

Okay, sir. Sir, 1 point on this expansion, what we are trying to do. So we are spending almost INR 150 crores. So is it -- so are you say fully committed that you want to do it in, say, 1 year or it depends upon how the cash flow situation will progress through the year?

No, I'm telling you very frankly, we were targeting to start it before March. We have already covered -- going to cover under [indiscernible] startup there is a benefit of income tax 15%. So we're targeting to finish this -- start within the year.

Ladies and gentlemen, due to time constraint, we will be only taking more 2 questions. Those will be the last 2 questions. Thank you. Our next question is from the line of Alisha Mahawla from Envision Capital.

[Foreign Language] sequential basis, the revenue is declining. So is there any seasonality or any one off?

Sorry. revenue is declining in export market. How?

In Q1, it was INR 170 crores, then it was INR 165 crores, INR 155 crores and INR 150 crores of the revenue, in exports.

Madam, actually at that time, ocean freight was almost 15%, 20%. Now it is reduced to the same level, almost pre-COVID level. But our total revenue is not declining.

Okay. Understood. [Foreign Language]

[Foreign Language]

And this quarter, the 2.7 million sheets we have sold, in that, what is the domestic volume? In laminates it is 2.7. [Foreign Language]

[Foreign Language]

[Foreign Language]

You are talking about 2.7, first quarter only. [Foreign Language]

[Foreign Language]

It will be volume, you see Madam. [Foreign Language] If there is a -- now the commodity product, volume can be more -- if there is a value additioning product, then volume can be less but revenue can be more.

[Foreign Language] ?

[Foreign Language]

[Foreign Language]

You are very intelligent. Absolutely correct, Madam.

Our next question is from the line of Puja Doshi from Praj Financial.

My first question is that we are currently at 14.3 million laminate sheet capacity. So that will increase to how many million sheets with this INR 500 crores of capital expenditure that you are doing?

Madam, I told you, mentioned that, that product is totally different. Maybe you were going from this presentation and my speech, I mentioned that sheet, number does not matter. If it is a mixed product like numbers we are producing only 0.6 and 0.7 then with 14 million. If we go for more compact, more value addition, one and one plus then quantity may go less than 10 million also. Same thing in the new products which we are going, we can only explain you after next to next quarter or next quarter but volume-wise, I cannot tell you, but value I can confirm you that it can be minimum INR 500 crores.

Understood. Okay. Okay. Got that. And sir, secondly, there's a lot of competition in laminate segment. So I just wanted to understand what is the right to win there? And if you could talk a little bit on the innovation, distribution, pricing and after-sales in laminate.

Madam, if you go worldwide, everywhere is competition. You have to go ahead with competition. [Foreign Language] we are selling in export not to Middle East country much, we are selling to Europe, U.S.A. If our brand name is moving in that country, why not in India. [Foreign Language] if you go anywhere in India, you will find our brand presence. [Foreign Language].

[Foreign Language] Demand, whether it will be driven by replacement demand or new housing demand?

[Foreign Language] People, they know our brand name. Now they have more confidence on Stylam brand. In next quarter you will find a dramatic change.

That was the last question of a question-and-answer session. I now hand the conference over to Mr. Ashish Poddar for closing comments.

Yes. Thank you all the participants for joining us today. I hope you got answers for all your questions. I wish you a good day ahead. Thank you. so much.

On behalf of Systematix Institutional Equities, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.