Stylam Industries Limited (526951) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Stylam Industries Limited 3Q FY '24 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 Mr. Ashish Poddar from Systematix Institutional Equities. Over to you, sir.

Yes. Thank you, operator. Good morning, everyone. This is Ashish Poddar from Systematix Institutional Equities. We welcome you all for Stylam's 3Q FY '24 earnings conference call. From the management, we have Mr. Jagdish Gupta, the Managing Director; and Mr. Kishan Nagpal, the Chief Financial Officer. Result was published last week, and we believe that we have got a chance to look at them. In the interest of time, we'll directly get into the Q&A, and we request participants to avoid repeated questions. Operator, you can start the Q&A session.

[Operator Instructions] We have our first question from the line of Keshav Lahoti from HDFC Securities.

Hello?

Hello. Yes, sir. Go ahead, sir. Hello, [ Mr. Dhruv, ] you're not audible, sir. You're not audible, Dhruv-sir.

Hello.

Yes, yes, you're audible now.

You actually said Keshav Lahoti, so I got confused. Yes, no issue. Sir, so my first question was that what was the reason behind this low volume growth especially in the domestic market, where we were actually projecting close to 30% to 50% revenue growth in the near term because of the lower base as our presence is currently very less compared to our peers?

Absolutely correct. First of all, in export term, we have an almost damage of INR 18 crores to INR 20 crores due to this Palestinian and Israel war, and we are #1 in this area. You see the reason for export. Rather we are happy that we have a growth in export.

Yes, sir. Okay. Sir, what was the reason behind degrowth in domestic market?

The domestic market actually, again, and I have no big reason for this. We are trying our best productively, best acceptability there. We are opening new branch offices also. But really not correct, honestly. Maybe it is that we are waiting for every time that it will increase, it will increase. Unfortunately, it's not going -- let's see for this quarter also. But export, definitely, it is growing in a big way and in a right way, right direction. We have many, many new OEM customers adding with us, very big brands of world with us. Domestic also, we are, maybe even let's hope for this 2 months more. Otherwise, we will change our strategy, see what we can -- how we can improve in domestic also in spite of the fact that we have more expenses this quarter, last quarter. Revenue down, top line is down, even then our margin EBITDA is better than last year also.

Right, sir. Sir, how do you see the Red Sea crisis plays out in the near future...

It's a very big problem again. Now even then, ocean freight increasing 2 sides, in Israel plus Europe, U.S.A. not much affected. Almost 6, 7 times. And our 50% customer affected our 50% increase. But if it is -- this month or next month, we will pass on everything, they understand that it is a genuine problem. But it will temporary phase. I don't know, maybe 1, 2, 3 months, how much time it will take.

Okay, sir. Sir, how do you look at the raw material price trend in the near term because the margins have already improved substantially?

It is stable now.

Okay, sir. Do you expect this type of gross margins to be maintained going forward?

Yes, yes. If it is going, there should not be any dramatically change, very, very high -- 2%, 3%, 4% or 5% increase, no matter. When our top line will increase, everything will be covered. The other expenses are not for this -- meant for this sale. All expenses are minimum INR 90 crores to INR 100 crores per month with sales. There is no increase in any type of expenses. But we are -- I'm myself personally very happy that in spite of the fact these all circumstances, that our margins were better than last year.

Definitely, sir. That is very commendable. Sir, I wanted to understand how big will be the scale of the new laminate plant, which is expected to be operationalized by Q2 FY '25? And what will be the target user base?

Not Q2. Q3 end. We never said 2 -- like again, there is already place heavy machinery order, leveling is going on, everything. Maybe within 2 weeks, we will start the construction part also. All government -- mostly government send already legal formalities with us.

Okay. Sir, and you have already mentioned that it will be used for exports. But do we have any idea that will the customer be from contract manufacturing?

Already. That is a different sizes, different things. We will get immediately sales from that.

Okay. So that will be primary through contract manufacturing and not our own label, right?

No, no, no. Same, 50-50. Right now, we are doing the same thing.

And sir, just one last question from my side. Will this plan be completely focused on laminates or we will keep some land parcel for future CapEx as well or something like particle...

We don't need any CapEx after that. I mean, we are utilizing whole thing. Maybe it is a more value-addition product we will produce here.

Okay. So sir, what is the size of the CapEx like in terms of revenue terms, if you can quantify, in terms of the current capacity so that we can...

In terms of current capacity, we target, we had a revenue of almost INR 200 crores, INR 225 crores, total plant. And total capacity will be minimum INR 800 crores. But I don't know it will 2-year take, 3-year take to utilize the whole capacity.

The next question is from the line of [ Kunal ] from Kitara Capital.

Sir, am I audible?

Yes, Mr. Kunal.

Sir, I wanted to know outlook for Solid Acrylic Surface and...

I'm not hearing you properly.

I just wanted to check how Solid Acrylic Surface business going and...

Yes. It is actually -- again, it is growing, not like where we started export like in U.S., in other country. Now the [indiscernible]. Nobody wants to give. Laminates, of course, we are #1, so the reason they are paying the ocean freight. Now it is in domestic also, we increased a little bit. Now we are hopeful that there will antidumping very soon. They already -- government already -- China and this Korea is dumping here in India. Too much import from China now.

So how much revenue do you expect from the business in the next 2, 3 years?

No, 2, 3 years -- we are quite hopeful it should very soon, we can get INR 200 crores, INR 300 crores business, machines are ready, everything, capacity is there. Whenever anybody visits from U.S., any country, they appreciate the -- and we are quite hopeful that very soon it will be.

Sir, both the lines are operational or one of them is operational?

One. We have no much order. So far we have not utilized. We are utilizing capacity only 10%, not more than even 10%.

Is it because you're not getting orders or...

Yes, we're not getting orders.

The next question is from the line of Viraj Parekh from Carnelian Asset Advisors.

Am I audible, sir?

Yes.

Yes. Sir, I just wanted to understand a follow-up on the previous question. I mean [Foreign Language]. I mean, now what are we trying -- like you're saying, you're not getting orders. So what is the plan to ramp up this capacity utilization because [Foreign Language].

[Foreign Language] we actually go through our past history of laminates HPL. At least, when we start, we are not at losses from acrylic. And when we start our laminates in '92, '93, we suffered almost 15 years, if you go through our total older balance sheet. We have covered so many losses, so many things. Even that HPL was already available in India in so many factories. Even then, it took so many years. But acrylic, we are number first company in India to start with Europe technology with the same. So when you want to build your own brand name, which takes many if we want to sell it as an OEM to anywhere in India, we can sell it easily. We don't want to go that way. We want to have more patience that our Granex brand should be established. This is the reason for the long -- more delay and not getting immediately. We want to build our brand name. [Foreign Language]. We don't want to sell like OEM. Whatever we are selling in our acrylic, whichever, it is 100% our own brand name, even overseas. And as you have heard very soon, expecting every week, every day thinking about this thing.

Understood. Sir, just one thing if you can help me understand, the 9 months of FY '24, how much of revenue have you earned from acrylic? And can you split that up in export and in domestic?

No. Our sales is -- approximately INR 4 crores.

INR 4 crores for 9 months, sir?

INR 5.37 crores.

Yes, for 9 months. No, no, third quarter. Sorry, sorry, it is third quarter.

Okay. INR 5.37 crores for the third quarter. And sir, total for the 9 months, how much is it?

Total is almost INR 20 crores.

INR 20 crores. And sir, can you split this INR 20 crores in export and domestic?

Domestic is almost INR 11 crores. Export is almost INR 9-point-something crores -- INR 8-point-something crores.

Understood. So just a question on this, going ahead, we have -- it's been quite a number of years that we have tried and tested the export and domestic markets...

Not many -- only 2 years. We started it after COVID, actually.

Correct, sir. Correct. It's been 2 years since we commercialized the first laminate line. So just wanted to understand in this 2 years of your experience in the market, where do you think your next -- your would be concentrated focusing on? Would it be the export market? Or would it be the domestic market?

No, no domestic market is also very big. We started with -- we actually -- it is mostly for domestic, but export market is also big. It is only China and Korea is capturing whole -- the whole of the world. This was our reason. I told you if we want to sell it to OEM, we can sell it easily. But what is the problem -- not a problem, we are facing is, to make our brand name. Even if you go to India market, if you ask, everybody know Granex now.

Understood. My question is from the point of view, not that the opportunity is big, but where will you considerate more of your efforts on? Do you want to focus to first establish Granex as a domestic brand and then keep it global? Or do you want to see that global is much more easier to build than domestic?

No, no, no. Both are -- for us, both are the same. But I'm sure it will not be like HPL in India we are doing. It will grow more in India, domestic market. It is export substitute. Still there is a INR 700 crores to INR 800 crores export -- import from Korea and China in India every year. And government has already started -- initiated antidumping duty on this. This will also help us. Just started 2 weeks back.

Sorry, sir, can you repeat the last thing? Government has import duties? I could not hear.

Government has started -- initiated antidumping.

Government has initiated the antidumping duty [indiscernible] also. So more or less, in the next 1 year, antidupmping will be implemented.

If it is implemented, we don't know, and then it will be a great help to us to curb this import which they are dumping in India.

Understood. Last 2 questions before I get up in queue. So earlier participant asked that about the freight impact versus the Red Sea. You're saying as of now, you've not passed on to the customers. You are taking some of the hits on our margins. [indiscernible] fully passed on?

Yes, yes. When something starts, immediately, you have an order for 2 months and something immediately happened. Then that you have to pay from your own pocket for few days or few months. You cannot -- but now the new orders are coming -- it is coming with a surcharge, reversion rate. It is already in last quarter balance sheet. In spite of that, our margin increased.

Yes. Sir, my actual question was that [Foreign Language] -- so is there like [Foreign Language] raw material cost be more or less stabilized right now -- as we pass on this cost to the customer fully, is there scope for the margin to improve going ahead?

I really cannot confirm that right now, but I'm sure it will not decrease. It will be -- we are trying to maintain it.

Sure. So just last, last question is last quarter, we did sales volume of 3.15, this quarter 2.8. If you could give a breakup of that last quarter and this quarter in domestic and export volume?

Pardon?

Q2 [Foreign Language]?

Q3 [Foreign Language], domestic [Foreign Language] 12.86.

Domestic [Foreign Language] 12.06?

12.86.

Sorry, [Foreign Language] it's very muffled. I can't hear you clearly.

12.86.

Okay.

15.17 exports.

Okay. And sir, last quarter Q2?

Q2 [Foreign Language] 15.47, domestic.

15.47?

15.98 for export, sir.

15.98.

The next question is from the line of Ritesh Shah from Investec.

Sir, a couple of questions. First is, sir, acrylic as a product. Sir, [Foreign Language]?

Per sheet.

It is on per sheet?

Per sheet by 760 mm by 3,660 mm.

Okay. Sir, secondly, [Foreign Language] antidumping duty [Foreign Language]...

Mostly China [Foreign Language]

Okay. But sir, [Foreign Language] Montelli sheet [Foreign Language], Max acrylic sheet [Foreign Language], PMMA [Foreign Language] antidumping [Foreign Language] is it on a particular HSN code?

[Foreign Language] that is under one HS code only. [Foreign Language] we cannot say. But otherwise, it is under one head.

Okay. Sir, [Foreign Language] my understanding, I think, [Foreign Language] 3920 series [Foreign Language], 3921 [Foreign Language], 3506 [Foreign Language]...

Maybe [indiscernible]. I think our solid surface [Foreign Language], it is coming under 1 head only.

[Foreign Language] antidumping [Foreign Language] basically, is it for a particular HSN code, particular thickness? What are the specifications over here?

[Foreign Language] in my opinion [Foreign Language], that is a separate issue. Like our laminates -- thickness wise, yes, it is initiating thickness, that is okay [Foreign Language] 6 mm is also salable, 12 mm is also now. So it is initiated to thickness 6 to 12 mm.

Okay. And sir, any specific composition [Foreign Language]?

[Foreign Language] we don't know too much about this. We just request -- sent a request with the data that this is happening in this product. And in next quarter [Foreign Language].

Correct. Sir, secondly, acrylic market India [Foreign Language]?

[Foreign Language].

Okay. Sir, [Foreign Language] we are the first players -- first company to actually put up a facility and target the local market?

For this, yes. Solid surface [Foreign Language] acrylic, pure acrylic [Foreign Language] we are the only company, pure acrylic. [indiscernible] both lines are from Europe.

Okay. Okay. And sir, just one last question, sir, on the paper, basically for laminates, [Foreign Language], sir?

Mostly paper Europe [Foreign Language]. Germany, Spain [Foreign Language]. Some, only few is coming from China also.

Okay. And sir, [Foreign Language], sir?

Like India, market is growing still.

Sir, pricing trend, sir, [Foreign Language]?

[Foreign Language] there are 2 types: Number one, the craft paper; second is the design paper. [indiscernible]. Craft paper, we're buying from India. [Foreign Language] prices increase, a little between increase [Foreign Language].

Okay. Sir, so my question was [Foreign Language] import duty [Foreign Language]?

Taxes are never exported. If we want to export any product and all raw material we can import duty free.

Okay. So we are taking that benefit?

Every company, not we. Every -- not laminates. On any product which you want to export, you can import that raw material duty free.

The next question is from the line of Deepak Lalwani from Unifi Capital.

Sir, just wanted to confirm, you mentioned that if not for the Israel situation, your revenues and exports would have been up by INR 18 crores to INR 20 crores for this quarter, right?

Right, right.

Okay. So has this been postponed -- the shipments have been postponed to Q4 or...

No, no, no. Now it is -- I'm quite hopeful, but not [Foreign Language] now it is a cold war. Same thing happening in Palestine and Israel. We have an agent in Israel. Hopefully, very soon, life will be normal, whether they will -- fighting is going on and off. But we are hopeful that coming month, business will rather grow there when they will rebuild everything which is damaged in the Israel war.

Okay. But sir, [Foreign Language]?

[Foreign Language] They already started the flight to Europe. India [Foreign Language].

Okay. Right. Got it. And sir, [Foreign Language] export market is growing, right? So in which regions, if you can mention that?

Every region, almost [Foreign Language] in spite of the slowdown [Foreign Language] everywhere, global.

Sir, [Foreign Language] region-specific [Foreign Language] trend [Foreign Language] Europe [Foreign Language], Middle East [Foreign Language]?

[Foreign Language] even then we're then we are not improving [Foreign Language].

Okay. Sure. And sir, is this backed by end demand, which is increasing for laminates or [Foreign Language] you are gaining some market share from other players in the market?

No, no, market is also growing. We are getting unorganized share also.

Sure. Got it. And sir, raw material prices [Foreign Language] last few quarters [Foreign Language], are we passing on this through lower realization in...

[Foreign Language] pre-COVID [Foreign Language] understand nobody is asking us to do some little, little -- that is a part of business [Foreign Language].