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Monday, August 22, 2016

Chemfab Alkalies - ROI @ 175% within 12 Months

Dear Reader,

We are pleased to inform you that our Hidden Gem stock of August 2015 - Chemfab Alkalies Ltd (BSE Code: 506894, NSE Code: CHEMFALKAL) which was released on 6th Sept'15 has given absolute returns of 175% to our Hidden Gems members within period of 1 year. Our team suggested Buy on Chemfab Alkalies Ltd at average price of Rs. 90.80 on 06 Sept'15 with a target price of Rs. 170, stock has already achieved its target price in matter of 10 months and we suggested our members to continue to hold the stock. Chemfab Alkalies stock made its 52 week high of Rs. 253 today and currently trading at Rs. 250 giving absolute returns of 175% to our Hidden Gems members within period of 12 months.

Company has posted strong set of numbers in June 2016 quarter, net profit of Chemfab Alkalies rose 294.27% to Rs 6.19 crore in Jun'16 as against Rs 1.57 crore during the previous quarter ended June 2015. Total income from operations rose 32.87% to Rs 30.48 crore in the quarter ended June 2016 as against Rs 22.94 crore during the previous quarter ended June 2015. 

We suggested our members to continue to hold the stock in our Hidden Gems Flash Back report released on 1st August 2016.

Below is the summary of Chemfab Alkalies Ltd shared by our team under Hidden Gem stock of August'15 released on 06th September 2015.

Note: This report is shared only for the purpose of information and not an investment advice. Kindly carry out your own due diligence in case of investment in Chemfab Alkalies. 

Company Background:

A Chennai based company Chemfab Alkalis Ltd (CAL) was incorporated in 1983. The company was promoted by M/s Titanium Equipment and Anode Manufacturing Company Limited. CAL manufactures chemicals for industrial applications. In June 2009, chlorates division has been closed permanently due to frequent power problems and labor unrest. Company established India’s first Membrane Cell Caustic Soda Plant and commenced production from July, 1985.

CAL is the first Indian company to use the power saving ion exchange membrane cell technology to manufacture caustic soda. Chemfab Alkalis (CAL) also produces Sodium Hypochlorite and sodium Chlorate and the bye products of caustic soda like chlorine and hydrozen. Chemfab Chlorates, a group company was amalgamated with Chemfab Alkalies Ltd during the year 2001-02 on the approval from High court of Madras.

The company has also takenover the management of Salt fields by the way of backward integration. The salt fields are situated at marakanam 25 kms from the factory of the company. Chemfab Alkalis was selected for the 1988 award of excellence in Environment Preservation and Pollution Control by the Federation of Indian Chambers of Commerce and Industry for its membrane cell technology which totally eliminated the use and disposal of mercury.

Products
  • Caustic Soda Lye in two grades (33% & 48%)
  • Liquid Chlorine
  • Hydrogen Gas
  • Hydrochloric Acid 
  • Sodium Hypochlorite / Bleach Liquor 
  • Barium Sulphate

The above products are completely free from mercury and are used in food processing industries as well.

The first ever pollutant free caustic soda in the country was from CAL. The quality of the products matches the requirements of BIS and meets international specifications.

CAL commenced the operation with the production capacity of 25 TPD and now operates at 100 TPD. The features of the plant recently revamped it’s with the latest-state-of-the-art BiTAC technology, and looking forward to double its production capacity to 200 TPD.

Chlor alkali market in India has witnessed healthy growth in recent years, largely driven by increasing demand from end user industries due to higher output from the chemicals sector. Chlor alkali market is broadly categorized into three segments, namely Caustic Soda, Chlorine and Soda Ash. Caustic Soda finds major application in diverse industries, such as soap & detergents, pulp & paper and textile processing among others. Chlorine is produced as a by-product during caustic soda production and is widely used during PVC manufacturing, drinking water disinfection and pharmaceutical production. Soda Ash is used mainly during glass, soap & detergent and silicate production.

With strong growth anticipated in all these end use industries, the market for chlor alkali in India is forecast to grow considerably in the next five years.

According to India Chlor Alkali Market Forecast & Opportunities, 2019, the market for chlor alkali in India is projected to exhibit a CAGR of around 7% during 2014-19. The market is expected to witness high penetration rate in the Western and Northern regions of the country. The market, though highly fragmented at present, is gradually moving towards consolidation, particularly with the entry of foreign players and expansion in distribution network of existing players. Among the three market segments, caustic soda held the highest revenue share, followed by chlorine and soda ash segments.

Soap & detergent is the main end user industry in the chlor alkali market, followed by glass, pulp &paper, alumina and other industries.

Research & Development

The Company has an in-house Research Development Department, where the main areas of focus are Energy Conservation, Process Upgradation and Environmental Preservation. The Ministry of Science and Technology, Department of Scientific and Industrial Research, Government of India, has recognized the Company’s inhouse R & D facilities, which is valid upto 31st March, 2017. The Company has a sophisticated Quality Assurance (QA) Laboratory recognized by DuPont, USA for the analysis of Chlor- Alkali brine.

The Brine from various Chlor- Alkali Industries in India is being analyzed at CAL-QA Laboratory. The Company continues to take all possible steps to conserve energy in every area of its operations recognized by DuPont, USA for the analysis of Chlor- Alkali brine. The Brine from various Chlor- Alkali Industries in India is being analyzed at CAL-QA Laboratory. The Company continues to take all possible steps to conserve energy in every area of its operations.

The company continues to use hydrogen gas instead of conventional fuel reducing the carbon footprint. The company has also installed solar street lightings and also the Bio Gas plant for replacing conventional energy sources by making investment of Rs. 10 lakhs.

2. Recent Developments: (as on 6th Sept'15)

i) Replacement of old plant with Bipolar BiTAC Electrolysers Plant from CEC, Japan.

In 2014, company introduced a new BiTAC® Electrolysers from CEC, Japan for the first time in the Country. The new Plant was commissioned during August 2014, and is operating well within the agreed operational parameters and will result in savings in energy consumption to the tune of 30% to 40%.

Company has also replaced the old Caustic Concentration plant with a new Plant and this was commissioned in the month of March 2015. This will also result in improved operational efficiencies.

ii) Ongoing Expansion Plans to drive Revenue Growth & Profitability

Company awaits the statutory clearances for its expansion plans and a favourable decision on its appeal before the National Green Tribunal. Company has also made plans for venturing into newer areas for Chlorine utilisation.

The Company is in the process of developing 632 acres of salt fields and the production of salt is expected to commence post completion of the development activities.

The new Salt fields which were acquired are slated to commence production shortly. With all these measures, management is confident that company is poised for a great leap ahead and achieving good results in the forthcoming years.

3. Financial Performance:

Chemfab Alkalis standalone net profit declines 51.69% in the June 2015 quarter

Net profit of Chemfab Alkalis declined 51.69% to Rs 1.57 crore in the quarter ended June 2015 as against Rs 3.25 crore during the previous quarter ended June 2014. Sales declined 25.78% to Rs 22.92 crore in the quarter ended June 2015 as against Rs 30.88 crore during the previous quarter ended June 2014.

Chemfab Alkalis standalone net profit declines 6.08% in the March 2015 quarter

Net profit of Chemfab Alkalis declined 6.08% to Rs 1.39 crore in the quarter ended March 2015 as against Rs 1.48 crore during the previous quarter ended March 2014. Sales rose 4.83% to Rs 25.60 crore in the quarter ended March 2015 as against Rs 24.42 crore during the previous quarter ended March 2014.

For the full year, net profit declined 37.81% to Rs 10.23 crore in the year ended March 2015 as against Rs 16.45 crore during the previous year ended March 2014. Sales declined 1.97% to Rs 109.85 crore in the year ended March 2015 as against Rs 112.06 crore during the previous year ended March 2014.

Company performance was impacted in FY 2014-15 mainly due to the fall in international caustic prices which averaged during the year between USD 320 – 340 per MT CIF. However, we believe that international caustic prices will remain in the range of USD 350-380 per MT CIF in the short term which will have a positive impact on company’s realizations.

Moreover, we believe company to post significant improvement in operating margins considering replacement of old caustic concentration plant with a new plant which was commissioned in the month of March 2015.

4. Peer Group Comparison:

5. Key Concerns & Risks:

i) The Rupee depreciation during the year will make imports cheaper, resulting in increased flow of caustic soda imports into the country thereby impacting company’s product realizations.

ii) International caustic prices were at USD 330-380 per MT CIF levels during the year and are expected to remain in this band in the short to medium term, any drop in prices below USD 330 will have a negative impact on company’s realizations. On the chlorine utilization front, slow demand growth continued to have an adverse impact on the Industry.

iii) Dependence on the grid power continues to be a risk though the Puducherry power scenario remains reasonably stable but with the cost of power continuing to be a concern. The Company is working with the Puducherry Government for the implementation of open access which would help de-risk our power sourcing.

6. Saral Gyan Recommendation: (as on 06 Sept'15)

i) Chlor-Alkali is the basic Heavy Chemical Industry, manufacturing Caustic Soda, with Chlorine, Hydrogen, Sodium Hypo Chlorate and Hydro Chloric Acid as by-products. Overall, the Financial Year 2014-15 was an average year for the Industry, primarily due to the fall in international caustic prices which averaged during the year between USD 320 – 340 per MT CIF. International caustic prices have now moved to USD 360-380 per MT CIF levels and are expected to remain in this band in the medium term which will have a positive impact on company’s realizations.

ii) Caustic Soda finds major application in diverse industries, such as soap & detergents, pulp & paper and textile processing among others. Chlorine is produced as a by-product during caustic soda production and is widely used during PVC manufacturing, drinking water disinfection and pharmaceutical production. With the rebound in the country’s GDP, the demand for caustic is likely to grow strong which will help company to boost its revenue growth with higher capacity utilization. However, slower chlorine demand is expected to continue to impact the capacity utilisation of the company.

iii) In 2014, company introduced new BiTAC® Electrolysers from CEC, Japan for the first time in the country. The new Plant was commissioned during August 2014, and is expected to result in savings in energy consumption to the tune of 30% to 40%. Company has also replaced its old caustic concentration plant with a new plant which was commissioned in Mar’15. These initiatives will help company to improve its profit margins significantly with increase in revenues going forward.

iv) With the rebound in the country’s GDP, the demand for caustic is likely to grow strong. However, slower chlorine demand is expected to continue to impact the capacity utilisation of the industry. The investments and efforts taken by the Company during last financial year are expected to result in significant savings in its manufacturing costs, especially power cost.

v) Company’s EBITDA and PAT margins are expected to improve significantly considering investments and efforts taken by the Company during last financial year which will result in significant savings in its manufacturing costs, especially power cost.
vi) Chemfab Alkalis is virtually debt free with reserves of Rs. 125 crores in its books which is much more than the company’s current market capital of Rs. 87 crores. Promoter’s shareholding is at 75% without pledging any shares and rest is held by non-institutional investors. FII and DII shareholding is nil in the company.

vii) Company awaits the statutory clearances for its expansion plans and a favourable decision on its appeal before the National Green Tribunal. Company has also made plans for venturing into newer areas for Chlorine utilisation. The new Salt fields which were acquired are slated to commence production shortly. With all these measures, management is confident that company is poised for a great leap ahead and achieving good results in the forthcoming years.

viii) Management has rewarded shareholders by paying regular dividend in the past. For FY 14-15, company has declared dividend of Rs. 1.25 per share.

ix) As per our estimates, Chemfab Alkalis Ltd can deliver bottom line of 13.5 crores for full financial year 2016, annualized EPS of Rs. 14.7 with forward P/E ratio of 6.4X for FY16. Valuation looks attractive for a debt free company with expected expansion in its profit margins.

x) On equity of Rs. 4.59 crore, the estimated annualized EPS for FY 15-16 works out to Rs. 14.7 and the Book Value per share is Rs. 142.86. At current market price of Rs. 94.40, stock price to book value is 0.66.

Considering recent initiatives taken by the management in terms of improving operational efficiencies and company’s expansion plans to drive business growth, Saral Gyan team recommends “Buy” on Chemfab Alkalis Ltd at current market price of Rs. 94.40 for target of Rs. 170 over a period of 12 to 24 months.

Buying Strategy:
  • 70% at current market price of 94.40
  • 30% at price range of 82-85 (in case of correction in stock price in near term)
Portfolio Allocation: 3% of your equity portfolio

To Read / Download Saral Gyan Hidden Gem - Aug'15 Research Report - Click Here

Add power to your equity portfolio by investing in best of small & mid cap stocks - Hidden Gems & Value PicksIts our mission to ensure that you reap the best returns on your investment, our objective is not only to grow your investments at a healthy rate but also to protect your capital during market downturns.

An opportunity missed is an opportunity lost, subscribe to Hidden Gems & Value Picks and start investing systematically in fundamentally strong small and mid cap companies.

To subscribe to Hidden Gems online, click hereAvail attractive discounts by subscribing to our combo packsclick here for details.

Do contact us in case of any queries, we will be delighted to assist you. 

Wish you happy & safe Investing. 

Regards, 

Team - Saral Gyan

Saturday, August 20, 2016

Releasing Soon! Wealth-Builder Portfolio Update - Aug'16

Dear Reader,

We continue to remain invested in high quality small and mid cap companies with strong fundamentals and increase allocation in these companies in case of fall in stock prices during market correction.We believe any significant correction in market from current levels must be considered as a buying opportunity. We expect cyclical stocks with strong fundamentals will continue to outperform going forward considering ease in interest rates, stable crude oil prices and higher spending.

If we look at 2015 and 2016, we find stock market extremely volatile as major indices - Sensex and Nifty made all time high in March last year, later corrected by almost 25% over period of next 12 months followed by sharp recovery of more than 25% during last 6 months from recent lows of Feb'16.

Sharp fall in stock prices in the month of Jan and Feb 2016 created panic situation for many new investors without any cues and put them on back foot when it comes to investing in equities. In the month of Feb'16, many investors were expecting further fall in stock market with indices testing new lows and hence remained on sidelines. However post union budget, we have witnessed strong rally across all broader indices as FII turned to be net buyers in the month of March and later in April and May this year considering positive developments like Union budget with focus on fiscal discipline, change in Fed views regarding US rate hike, stability in commodity prices and above normal monsoon and passage of GST bill which helped major indices, Sensex and Nifty to rise by more than 25% from their recent lows made in last week of Feb this year.

We believe correction of 4% to 5% in major indices from current levels can't be ruled out going forward. However as mentioned earlier, we do not believe in timing the market and always suggest our members to avoid it and invest in equities in a systematic way keeping a long term horizon. 

Moreover, any sharp corrections give great entry point to long term investors as they get an opportunity to add high quality companies with strong fundamentals at discounted price.

High quality companies reporting 20-30% + annualized growth can deliver exceptional returns for the shareholders in long termIn case you have not yet started building a portfolio of high quality and high growth stocks for long term wealth creation, please find below the Wealth-Builder portfolio allocation for your reference.


We believe, investing in Wealth-Builder portfolio with regular portfolio review from our end can help you achieve market beating and very good returns over a longer term and help you take care of yourself and your family needs, which ultimately lead to a healthy and wealthy life after retirement. 

Since inception, our Wealth-Builder portfolio has outperformed Nifty and Sensex by wide margin. Since 1st Jan 2013, Nifty has given returns of 45.6%, Sensex returns is 43.4% where as our Wealth-Builder portfolio has given returns of 250.4% to our members.
In terms of performance, 9 top performer stocks out of 15 of Wealth-Builder portfolio have given returns in the range of 70% to 730% since 1st Jan'13 that too when couple of stocks out of 15 were added in portfolio during last year and this year. Moreover, 10 stocks out of 15 have made 52 week high / all time high recently. We continue to hold these stocks as we believe these companies are registering good growth every quarter and doing all the right things to continue delivering robust top line and bottom line with strong operating margins.

There were few laggards also which have not performed up to our expectations and we exited these stocks and allocated the available funds to other good investment opportunities to ensure that Wealth-Builder portfolio continue to outperforms major indices by wide margin. 

Note: Wealth-Builder portfolio update - Aug'16 will be released on Saturday, 27th Aug'16 and we will share the same with our Wealth-Builder members.


Wealth-Builder is our offline portfolio management service. Using Wealth-Builder, you can manage your portfolio like a professional.

1. You Plant – You will manage your money at your own. Using your own Dmat account, you will purchase and sell shares at right point of time.

2. We Nurture – We will guide you with detailed report suggesting which stock to buy, at what price to buy and of course how much to buy, when to sell and how much to sell. Based on our recommendations, you will create and modify your portfolio to maximize your returns on your investments over a period of time.

3. You Harvest – It’s a fact that equities can give you maximum returns compared to any other asset class if invested with a long term horizon (5 years and above). Investing in fundamentally strong small and mid cap companies ensures that you keep harvesting your money in form of regular and higher dividends year after year along with capital appreciation.

Below are the unique advantage and benefits of Wealth-Builder over conventional PMS and Mutual Fund:

1. You manage your money at your own without giving it to mutual fund or PMS with benefit of any time access to your portfolio.

2. You will not be charged any asset management fee, exit / entry load, administration charges. Only one time nominal annual subscription cost will be charged.

3. Wealth Builder ensures capital protection; your portfolio will not be over churned to earn higher brokerage like many brokerage houses.

4. Exposure to our well researched stocks - Hidden Gems and Value Picks.

5. Limited transactions – once or twice in a month, you can manage your portfolio giving only 30 – 60 minutes in a month without affecting your busy schedule.

Wealth-Builder ensures giving better returns compared to major indices like Sensex or Nifty.

Wealth-Builder subscribers need to replicate our recommended portfolio in exact proportion. For ex: If we recommend to invest Rs 50,000 in “x” company with portfolio allocation of 5% in Rs. 10 lakh portfolio, subscriber starting his portfolio with Rs. 2 lakh need to invest Rs. 10,000 in “x” company with similar portfolio allocation i.e. 5%. On monthly basis, we review Wealth-Builder portfolio and update our members in terms of any changes in allocation or exit / entries in stocks based on fundamental analysis and recent developments in these companies.

Start managing your equity portfolio like a professional, subscribe to Wealth-Builder by paying nominal annual fee of  Rs.15,000 for entire year.

Click here to subscribe to Wealth-Builder online. You can avail attractive discounts on our combo packs, click here for details.

In case if you are not comfortable in making online payment, click here to know about our other payment options and bank details.

Do contact us in case of any queries, we will be delighted to assist you. 

Wish you happy & safe Investing.

Regards, 
Team - Saral Gyan

Friday, August 19, 2016

Understanding Down & Upturn of Indian Equities in 2016

Dear Reader,

Stock prices were on rise till March last year and we have seen significant increase in retail investors participation compared to previous years. However i
n beginning of this year, with lot of pessimism building around equity market globally, we have seen a severe correction in Indian equities in the month of Jan and Feb this year with major indices - Sensex and Nifty falling by more than 24% from all times high made in March last year. If we look into broader markets, stock prices of many mid and small cap companies have seen a steep fall in the range of 30% to 50% or even more in first 2 months of 2016. In such situation every investor looking to create wealth is confused whether to exit, hold or enter the stocks and at what levels to enter or exit.

Later since March this year, we have witnessed strong rally on positive global as well as local cues. Major indices, Sensex and Nifty have risen by more than 25% from their lows made in last week of Feb this year.

Being an equity investor, its important to understand what exactly has caused severe fall in Indian equity market in Jan and Feb 2016 and sharp rally during later part of this year. Its important to note that the volatility in stock market during last 7 months is mainly because of changing sentiments of investors towards global as well as Indian equities.


Below are the major factors which initially hurt and later boosted sentiments of equity market in 2016.

Major reasons for severe fall in Indian Equities in Jan & Feb 2016

i) Continuous Selling by FIIs - Since beginning of the year, foreign investors have sold shares to the tune of Rs. 17,000 crore. With continuous redemption pressure from sovereign wealth funds of the middle east, China woes in terms of sustaining growth, dampening global sentiments led to sell off in emerging markets. Investors who were sitting with hefty profits and invested in Indian stocks during last 18 months also started selling to book profits against falling rupee. Moreover, signs of recovery in the US economy has also resulted in funds travelling from Asian markets back to the US markets.


ii) Slowdown in China Economy - China, world's one of the fastest growing and 2nd biggest economy has shown signs of slowdown. There was a panic because of China's continuous poor manufacturing growth. Moreover, fall in crude prices due to oversupply of oil, fall in base metals prices due to sluggish demand not only hurting China but all the stock markets of the world resulting in major sell-off in markets in US, Europe and Asia.


iii) Weak Corporate Earnings - For any stock market to deliver good returns, it is very important for the earnings of the companies to match its valuations. But in last 18 months, the valuations of India Inc has sky rocketed but the earnings were not seen at par. This was the major concern of the investors and thus we have seen profit-booking in last year and now facing the heat due to redemption pressure in emerging markets from the global funds.


iv) Delay in Reforms took off the Premium - There was lot of expectation from Modi led NDA government with major announcement made to bring reforms by passing two major reform bills - the goods and service tax (GST) and the Land Acquisition Bill. Given the build-up of political opposition to his government, there was more than a fair chance that two major reform bills will not get passed which further impacted Investors sentiments in terms of future growth outlook of Indian economy, this took off the premium valuations which India had last year compared to other emerging markets.  

v) Cognizant forecast slowest Revenue Growth in 14 Years - IT services provider Cognizant forecast its slowest quarterly revenue growth in 14 years, adding to mounting worries about clients keeping a tight lid on technology spending. Cognizant, whose rivals include Indian IT services firms such as TCS and Infosys recently took a beating due to fear of overall slowdown expected in the IT sector. 

vi) Surge in Bad Loans of PSU Banks - A significant surge in bad loans and provisions hurt PSU Bank stocks. Its important to mention here that the Reserve Bank of India recently directed banks to reclassify loans and set aside more money against stressed assets. The central bank has set banks a deadline of March 2017 by which time it expects banks to recognize stressed assets and make adequate provisions to cover them.


Major reasons for sharp rally in Indian Equities since March 2016

i) Positive Union Budget with Focus on Fiscal Discipline - Overall market sentiments turned positive as government decided to stick to its fiscal consolidation road map despite the pay commission, targeting 3.5% of GDP in FY17, the third lowest fiscal deficit in 40 years. Moreover, another major positives for equity market were no increase in the service tax, which was speculated to rise by 2 percent and also no change in capital gains tax.

ii) Change in Fed view regarding US Rate hike - In the last Federal Open Market Committee (FOMC) meet on March 16-17, the Fed maintained its status quo on interest rate. FOMC signaled that the future rate hikes will be on the low gear, indicating only two rate hikes in calendar year 2016 due to tepid global growth compared to consensus in December of four rate hikes in 2016. This apart, central banks across the world were increasing their liquidity to support economic and financial activities. The latest data from China were also showing signs of stabilisation, diminishing fears about the extent of the slowdown. This is positive for emerging markets to attract foreign funds.

iii) Continuous Buying by FIIs post Union Budget - India remains one of the most favourable investment opportunity for long term investors considering the fact that India is now the fastest growing major economy in the world, expanding by 7.3% and cementing its position as one of the sole bright spots in a flailing global economy. Foreign institutional investors (FIIs) poured in over Rs 5,000 crore into the Indian equity market in a matter of three sessions after the Union Budget of 2016, which pushed the benchmark indices above their key resistance levels.With favourable Union budget and positive stance taken by FED, FIIs turned to by net buyers pouring more than Rs. 24,000 crores in Indian Equities in March month, maximum in any single month since March 2014.  

iv) Expectation of a Rate Cut by RBI - Expectation of a rate cut by the Reserve Bank of India after a six-month pause has also heightened the buying frenzy on the Street. India's central bank cut its repo rate by 25 basis points to 6.50 per cent on 5th April, making a widely expected first reduction since September to bring the rate to its lowest in more than five years.  But in a surprise move, the Reserve Bank of India also raised the reverse repo - or the rates lenders charge to the central bank - by 25 basis points to 6.0 per cent, taking measures to ensure more availability of cash in the banking system.  A cut in the repo rate means lower cost of funds for the banks. Assuming banks pass on this rate cut to the borrowers of home, car and other loans, it will help in growing demand and hence the overall economy. 

v) Positive Monsoon Forecast - After two consecutive deficient rainfall years, the country is expected to receive good rainfall this year. The India Meteorological Department (IMD) has predicted above normal South-West monsoon in 2016. As per IMD, the monsoon rainfall is likely to be 106% of the Long Period Average. This year the rainfall is expected to be 6% more than normal, which was 14% deficient last year. Forecast of above normal monsoon and inflation falling below 5% boosted the overall market sentiments, uplifting Sensex and Nifty to higher levels. 

vi) Stability in Commodity Prices - Stable commodity prices, aided by weakness in the dollar, also pushed risk assets such as emerging market equities higher, adding to the cheer in the Indian markets. Moreover, highly volatile crude prices also stabilized by trading between USD 45 - 50 per barrel.

vii) Passage of GST Bill - The Constitution amendment bill for roll-out of GST was pending in Rajya Sabha for a long time and the government was keen to see its passage. The Goods and Services Tax seeks to bring a uniform tax structure subsuming a number of imposts and the government claims that it will help add 1 to 2 per cent to the country's GDP.  Stock market gathered pace considering reports of discussion between the Congress and the government which fueled hopes that the crucial Goods and Services Tax (GST) Bill is likely to be passed soon. Further, the progress of the monsoon in the country with good rainfall so far also aided market sentiments.

During last week of June, Brexit event has shaken all global markets. However, considering lesser impact on India with significant buying from Domestic Institutional Investors, market recovered sooner than later.

Historical data indicates that most of the new investors get fascinated towards stock market to make quick bucks and finally end up loosing their capital as they cant hold on their stocks in case market corrects and sell out their stocks in a panic. Stock market is not a money making machine, you need not to be greedy on rising market or fearful when stock market falls, simply buy right and sit tight having sufficient patience with you to see your investment growing over a period of time. The investors who got worried with severe fall in stocks prices early this year and sold off their holdings thinking to buy the same again at lower levels might be repenting now by looking sharp rally of more than 25% in all broader indices during last 5 months.

We always suggest our members not to time the market and follow a disciplinary approach while investing in equities with medium to long term perspective. Its important to know, whether you would be able to hold on your positions in case stock market tanks? We believe market has already bottomed out in February this year and any significant downside going forward must be considered as buying opportunity. We may not see Feb lows again, indices are expected to move much higher from current levels during next one year if there is no negative surprise on global front and monsoon prediction goes right.

The Bottom Line - Stay for Long Term & Be Greedy when Others are Fearful

Smart investors do not listen to the herd and take a rational approach with their wise & intelligent thinking. As rightly quoted by Warren Buffett - Be Fearful when Others are Greedy and Greedy when Others are Fearful. At the point of time when Nifty closed below 7,000. We started listening majority of TV analysts and media person giving target of 6,300 with another 10% downside. It was the time to invest rather than waiting for another 10% downside. We do not believe in timing the market and always advice our readers to take a systematic approach while investing in equities with a long term horizon. Moreover, such severe corrections must be considered as buying opportunity to add on good quality stocks at discounted prices.

We would like to update our members that we published article titled Know your Risk Tolerance While Investing in Equities dated 11th Feb'16 informing our readers to start accumulating good quality stocks and do not try to time the market. 

Below are the few paragraphs worth reading from the same article:

If Sensex hits 22,000, in that case its price to earnings (P/E) multiple will be similar to what it was during the time of Lehman crisis in 2008. That was a stressed situation with lot of fear among global as well as domestic investors like today, The average six-month P/E on a one-year forward basis for the Sensex was 14 times after the Lehman crisis and if we keep the same earnings multiple on FY17 earnings estimates, it gives a target of 22,000 on the Sensex which means correction of another 4-5% from current levels. But we do not want to set any target here, it is just an estimate, Sensex may bottom out around 22,000 levels or it may go down to 21,000 i.e. 30% correction from all time highs made in March 2015 or it may rebound from current level of 23,000.

With every fall, Indian equities valuations are getting attractive day by day. Moreover, once the markets bottom out and form a base, we can see renewed buying interest from global investors. Moreover, upcoming budget can boost the sentiments of investors, hence its time to start accumulating good quality stocks which are now becoming available at discounted price.


We always suggest our members not to time the market and follow a disciplinary approach while investing in equities with medium to long term perspective. Its important to know, whether you would be able to hold on your positions in case stock market tanks?


To read full article: Know your Risk Tolerance While Investing in Equities - Click here

Considering the fact that with every fall, Indian equities valuations were getting attractive day by day. We released 6 Stocks to Buy / Accumulate Report under Hidden Gems Rand Value Picks subscription on 21st Feb and 7th March respectively, suggesting our members to add on / increase allocation in these stocks in their portfolio. It was the right time to accumulate good quality stocks which were available at much discounted prices.

Time has shown that smart investors have made their fortune by investing in equities in long term. None other asset class can match giving you such extra ordinary returns. Yes, its important for you to invest in right set of companies at right price with medium to long term perspective. If you think to invest in stocks for period of 3 months or 6 months, we suggest you to stay out of stock market because you are not investing, you are betting on volatility of stock market which could be risky. 


If you have patience and want to add extra power in your portfolio, start investing some portion of your savings in fundamentally strong small and mid cap companies - Hidden Gems & Value Picks.   

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Do contact us in case of any queries, we will be delighted to assist you.  

Wish you happy & safe investing!

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Team - Saral Gyan.

Wednesday, August 17, 2016

Stylam Industries - Investment Returns @ 177% in 3 Months

Dear Reader,

We are pleased to inform you that our Hidden Gem stock of April 2016 - Stylam Industries Ltd (BSE Code: 526951) which was released on 8th May'16 has given absolute returns of 177% to our Hidden Gems members in period of 3 months. Our team suggested Buy on Stylam Industries Ltd at price of Rs. 217.80 on 08 May'16 with a target price of Rs. 430. We are glad to inform our readers that stock has already achieved its target price in matter of 2 months, stock has recently made its 52 week high of Rs. 625 and currently trading at Rs. 604 giving as on date absolute returns of 177% to our Hidden Gems members in period of 3 months. W
e have not suggested any profit booking considering robust growth outlook of the company in long term and suggest our members to continue to hold the stock.

In Jun'16 quarter, net profit of Stylam Industries rose 79.93% to Rs 4.93 crore in the quarter ended June 2016 as against Rs 2.74 crore during the previous quarter ended June 2015. Sales rose 16.10% to Rs 70.03 crore in the quarter ended June 2016 as against Rs 60.32 crore during the previous quarter ended June 2015. Company has delivered much better revenue growth with significant improvement in margins compared to other bigger players like Century Plyboards and Greenlam.  

In FY15-16, net profit rose 29.39% to Rs 12.15 crore in the year ended March 2016 as against Rs 9.39 crore during the previous year ended March 2015. Sales rose 16.45% to Rs 249.41 crore in the year ended March 2016 as against Rs 214.17 crore during the previous year ended March 2015.

Stylam Industries has delivered consistent profit growth of 25.2% over 5 years and growth prospects of the company look bright. Stylam is a manufacturer of high pressure decorative laminates and has almost doubled its capacity recently. This segment has more unorganised players (almost 65%) while Stylam is the organised player in the sector and will directly benefit with implementation of GST.

Once the GST comes into force, the tax advantage currently enjoyed by the unorganised players would diminish sharply and the market share of the organised players would surge. Moreover, the government imposed a heavy anti dumping duty on imports of medium density fibre board (MDF), mainly used in decorative furniture. Anti-dumping duty on plain MDF Board (also known as custom-wood or craft-wood) will be levied on boards having a thickness of 6mm or above and will be valid for five years. The duty is highly positive for domestic players in laminate and plywood segment as these companies will be able to improve their business margins going forward.

Below is the summary of Stylam Industries Ltd shared by our team under Hidden Gem stock of April'16 released on 08th May 2016.

Note: This report is shared only for the purpose of information and not an investment advice. Kindly carry out your own due diligence in case of investment in Stylam Industries. 

1. Company Background:

Stylam Industries Limited (Stylam) manufactures high pressure laminates for home and industry use, under the brand name ‘STYLAM’. It offers decorative, compact industrial, fire retardant, fabric based, post forming, cabinet liner and metal laminates. These products constitute basic interior building materials responsible for residential and commercial space attractiveness, safety and security.

Company is the pioneer in up-bringing the decorative laminates in India. Company’s capability to provide end-to-end high quality decorative laminate designs has helped company to consistently innovate and create value-added products for its clients.

Stylam was set up by late Mr. N R Aggarwal in 1991, by the name of Golden Laminate Pvt Limited. Later in 1995, company got listed on BSE as a public limited company. The company changed its name from Golden Laminates Ltd. to Stylam Industries Ltd. in January 2010.

Stylam is promoted by Jagdish Gupta and Satish Gupta. Jagdish Gupta is the managing director and Satish Gupta, executive director, manages production and marketing operations of the company. Stylam headquarter is at Chandigarh and the company has its manufacturing facility in Panchkula (Haryana).

Stylam manufactures high pressure decorative environmental friendly laminates. The organization specializes in manufacturing premium quality wide array of laminates and adhesives. Over the years, Stylam has developed products that have become benchmark in the laminate and adhesive industry. Stylam become foremost manufacturing company of high pressure laminates, adhesives, exterior cladding, exterior flooring and door skins throughout PAN India and across the globe.

Stylam today has state-of-the-art manufacturing plant of laminate and adhesive at Panchkula near to Chandigarh with installed capacity of around 7 million (60 lakhs) sheets per annum. The company has witnessed remarkable growth from past 25 years of excellence in producing high quality laminates.

Stylam is well equipped with advanced technology machines with latest sophisticated moulds of various finishes from France & Germany to assure maximum production of laminates in minimum time. The back sanding of the laminates is done by the ITALIAN IMEAS Machine, one of the best manufacturers of sanding machines in the world.

Product Range

Stylam decorative laminates: These are suitable for a wide range of applications in both home furniture and professional environment like wooden claddings/lining of walls and columns, lift linings, doors, shelves, vanity units, table tops, worktops, office partitions, counters, cubicles, store fittings, desks, storage units etc. Stylam decorative laminates are available in wide range of colours in Solids and Woodgrains designs and in many evergreen and new texture finishes and are available in 5 different sizes to cater to varying needs.

Stylam Metallic (metal foil) laminates: These laminates provide a modern decorative and innovative appeal to interiors. Stylam Metallic laminates have bright and reflective surface aspects which render the ambience a modern and sleek look. These laminates are ideal for use in the hospitality, interior design, gaming, entertainment, retail, display and furniture industries.

Stylam Compact laminates: These are formulated with inner core of celluloid fibres impregnated with special thermosetting resins. These resins and the special heat and pressure cycles impart properties of a solid, load bearing hard laminate, which is resistant to wide range of atmospheric and chemical agents for use in internal and external atmospheric conditions. High values of flexural strength and tensile strength ensures that these laminates are suitable for saw cutting, drilling, machining and punching as per requirement.

Stylam Exterior laminates: These laminates are manufactured by European technique to withstand adverse action of atmospheric Ultra Violet Rays and to withstand exterior atmospheric effects with minimum fading of colours.

Adhesives: Company has developed adhesives with decades of understanding and expertise in the furnishing industry. Company offers highly specialized range of adhesives suited for decorative laminates, wood and other industrial uses. Laminates and wood are extremely versatile mediums. Therefore, only specialized and high quality adhesives will ensure their application.

Stylam has recently launched the pre-laminated particle boards on wood base. They are laminated on both surfaces with imported design paper by short cycle lamination. The products are known for color-fastness and being eco-friendly and conforming to the above standards.

Globally Renowned Quality Credentials

The company has ISO 9001:2008, FSC, Greenguard and many more environmental related credentials for manufacturing laminates and adhesives.  Today, Stylam has a strong brand presence in all over India and around the world. Stylam is recoginized as Star Export House from the Govt. of India; company exports to more than 80 countries across globe including important markets - USA, Asia, Australia, Middle East, Europe, Russia and Africa

i) Greenguard – By using Greenguard certified laminates, one can substantially reduce or eliminate the negative effect of toxic emissions on the nature and the health of occupants and habitants. This ensures superior indoor air quality and increased work productivity of staff in case of commercial establishments as it is healthier for the people living in it.

ii) FSC - The Forest Stewardship Council (FSC) is an international not for-profit, multi-stakeholder organization established in 1993 to promote responsible management of the world’s forests. As part of its corporate responsibility towards sustainable forest development, Stylam is among the very few laminates manufacturer who has been awarded the FSC certification by Rain Forest Alliance, Indonesia.

iii) CE - Stylam Industries Limited has achieved pioneer European CE Certification for both Internal and External application Compact laminates range by ITC Inc., Czech Republic and has fulfilled all the requirements as applicable as per the harmonized standard EN 438-7:2005. Stylam is the first laminate manufacturer in India and among very few in the world to be awarded this coveted certification.

iv) Green Label - The Singapore Green Labelling Scheme Secretariat has granted Stylam Industries Limited the right to use the Singapore Green Label for Stylam High Pressure Laminates for environmentally improved low emission low toxicity.

v) ISO 9001:2008 - Stylam Industries Limited being awarded the latest ISO 9001:2008 certification for the complete range of laminates manufactured from certification agency accredited with reputed certification agency JAS-ANZ.

vi) ISO 14001 - World’s most recognized environmental management certification standard. Environmental management system certification, ISO 14001, basically requires the organization to monitor and manage its impact on the environment.

vii) OHSAS 18001 - Includes Policy and commitment, Hazard identification, risk assessment & risk controls, Legal requirements, Objectives and Programs, Organization and personnel, Training, Communication and Consultation, Documentation and records, Operational Controls, Emergency Readiness, Measurement and monitoring, Accident and incident investigation, corrective and preventive action, Audit and Review, and Application and Relevance in the Industry.

viii) BIS - Stylam Industries has achieved ISI certification as per IS:2016-1995 from Bureau of Indian Standards for its thin laminates range of 0.8 mm and 1.0 mm thickness.

ix) Biocote – Stylam Industries HPL laminate has achieved the Biocote minimum antibacterial performance requirement of 95% “Reduction against the initial for E.Coli and MRSA” according to ISO 22196: 2011 (certificate of antibacterial) analysis.

x) EXOVA - This determines the performance if product subject to its specifications. The test is performed in according to a specified procedure for measuring the lateral spread of flame along the surface of a product oriented in vertical position.

Understanding Laminates as a Product

Laminates, also known as Sunmica, is commonly used for furniture fabrication purpose.  Because of excellent durability, these Laminates can be used as substitutes to veneer, melamine, paints, varnish and furniture foil.

Laminates are broadly classified into 2 types - High Pressure Laminates (HPL) and Low Pressure Laminate (LPL), the actual difference in these 2 type of laminates is mainly due to the manufacturing process that goes into developing these products.

HPL is manufactured under pressures of 70 to 100 bars and temperatures of 270 to 320 degrees Fahrenheit using adhesives. On the other hand LPL is developed under pressures of 20 to 30 bars and temperatures of 330 to 375 Fahrenheit with no adhesives.

The main difference between the two products is the price & durability. LPL is available for much cheaper prices than HPL. On the other hand, high pressure products score high on durability as compared to LPL.

Materials used for developing HPL and LPL include impregnating layers of Kraft paper. It can be defined as a cardboard or firm paper. The paper is generally impregnated with melamine resins to create a laminate. After that, the product is merged with a decorative film layer. The final straw is to attach it to a wooden substrate. The bases widely used include fiberboard or particle boards. Thus, the final product is on the table for use. These products are widely used for designing furniture, walls, floors, countertops, kitchen tops and much more.

Types based on Usage - Based on the final or intended use of the product, the laminates are of two types viz. Decorative and Industrial. For decorative laminates the look and feel are the important aspects as they are commonly used to decorate and protect wooden furniture, while for industrial laminates the focus is more on having a surface that has higher strength, higher resistance to scratches and wear and tear, and which is very durable. Industrial use products such as circuit boards are made using industrial laminate materials.

The High Pressure Laminates (HPL) drives the market mainly due to three key features:
  • Design & Style Trends – New colours and patterns representing style and panache must continue to hit the market. These products must also score high on longevity and usability.
  • Global Accessibility – Many companies are looking to target the international markets by developing unique collection of product range for Europe, Asia and North America.
  • Technology – Various companies that produce High Pressure Laminates are now looking to implement various technologies to create products where solid colours coordinate with patterns to provide a better end product.
Laminate Industry Outlook

Rebounding construction activity, high credit availability, increased interest in home decor and interior improvement options, and a surge in demand for non-residential upgrades, will provide ample opportunities for decorative laminates industry to grow by leaps and bounds. High Pressure Laminates are put to use for churning out a large variety of building components such as cabinets, countertops, store fixtures and wall panels. The enhancement of this industry and continuous evolution and implementation of these products will always open doors for sales growth amongst the people that consider value for money. In addition, laminate manufacturers continue to focus on improved textures and printing techniques that rival the aesthetics of solid wood, natural stone and other materials, but at a lower cost.

The growth of laminate industry is mainly driven by increasing demand from housing market and growing significance of new construction industry. The Indian real estate market is expected to touch US$ 180 billion by 2020. The housing sector alone contributes 5-6 per cent to the country's Gross Domestic Product (GDP).

In construction, after cement, plywood laminate and steel related products are essential part right from initial brick to final stage of furnishing; the demand for these products is directly related to the growth of infrastructure and real estate sector, the demand for company’s products is expected to remain buoyant.

In the period FY08-20, the market size of this sector is expected to grow at a CAGR of 11.2 per cent. Retail, hospitality and commercial real estate are also growing significantly, providing the much-needed infrastructure for India's growing needs.
Laminates have become an indispensable part of big and evolving segment in housing sector, it is widely used in furniture, modular kitchen as well as in flooring. The increasing demand of better interiors are major triggers for demand of laminates.

The domestic laminates industry is highly fragmented with majority of sector comprising unorganized players leads to pricing pressure for the players in the industry. However, the implementation of goods and service tax (GST) in the near future will provide an impetus to organized players in the laminate industry. In the exports segment, demand has been stable on account of shift from the wood based panel products to engineered panel like MDF and particle board.

India is the one of the largest exporters of the laminates in the world. Players with the establish track record of delivering quality products in the export markets, including Stylam have been consistently able to register growth in turnover over the years despite the global slowdown though the prospects of the company will be primarily driver by the demand from the real estate sector and its ability to manage currency fluctuations.

2. Recent Developments:

i) Stylam Industries wins Power Brand Rising Star Award 2016 – 11th Apr 2016

Planman Media – a journalism, through its ‘Power Brand Rising Stars’ platform recognizes promising brands that have shown sustained growth over the past and have been able to create a huge impact etching a strong impression to ‘elevate’ and capture the imagination of a resurgent India.

Given the unmatched capabilities and competitiveness of Stylam Industries Ltd. amidst decorative laminate & adhesive industry, the organization was selected for the Power Brands Rising Star Award 2016 on account of its superior Brand Equity assessed through research on Brand Image & Perception, Brand Performance, Brand Loyalty, Brand Awareness and Brand Association. The award was conferred at a scintillating ceremony held in the Capital, New Delhi presided over by Dr. Najma A. Heptullah Hon’ble Union Minister of Minority Affairs, Sh. Syed Shahnawaz Hussain with others of India Inc. in attendance.

ii) Stylam Ind emerges as a leading exporter of laminates in Italy – 31st Jan 2016

Stylam Industries has emerged as country prominent exporter of laminates in Italy. The demand of products of company in Italy is on rise due to their astonish designs and quality. Stylam is specialist in manufacturing avant-garde premium quality wide array of laminates, exterior cladding, exterior flooring and adhesives. The company is also a leader in manufacturing high quality environment-friendly decorative laminates in India.

Stylam has established itself as a strong Indian player with great significance on exports. Being a star export house of laminates and having realized the demands of international markets, company has expertise in understanding the global design requirement and fulfilling them respectively. Company has developed products that have become benchmark in the laminate industry. At present, Stylam laminate has a strong brand presence in more than 80 countries and company intent to take this number to 100 plus countries in this fiscal year.

Moreover, Stylam has a committed R&D division which takes constant steps to evolve with global markets. The company has been investing heavily in the R&D.

Recently, the company has also introduced anti bacteria and chemical resistant laminates in the country.  The company has a passionate group of workforce who travel round the world to develop and innovate with laminates designs with global suitability.

iii) Development of New Building at Panchkula IT Park, Haryana – 2nd Sept 2015

To put all the inventiveness measures under one roof, this includes development of new designs, finding of new vendors, to study product dynamics and to explore market for export and domestic business; at their separate location at Panchkula Technology Park, Haryana. The construction of building having built-up areas of 20697.200 sq. mtrs is almost complete.

The company has planned to lease out portion of constructed building to other players for commercial office space and for service sector businesses. The building will be operational before the close of this financial year.

iv) Stylam Industries embarks on Expansion Plan – 8th Jun 2015

The company is putting up an 8,000-tonne hydraulic press of 6 x 14 feet, and three 4 x 8 feet production lines, which would be the first of its kind in terms of technology and innovation in the world of laminates. As per management, this environment-friendly and energy conservation know-how will result in less carbon emission and less power consumption.

After this expansion, Stylam's production capacity will increase by 6 million (60 lakh) sheets a year. The automated cutting edge technology will boost the quality of products and increase efficiency with less human intervention. This will help company to extend its outreach in the Indian market with the aim of growing the domestic business along with exports as the total production will increase to match the demand on both fronts. 

The new hydraulic press would be fully operational by this year and this will make Stylam one of the largest manufacturers of laminates in Asia. The company is one of the world's top exporters, with a major presence in European markets.

Stylam Industries has one unit each at Panchkula and Ramgarh in Haryana and the new facility is coming at Raipur Rani, in the vicinity of the existing units with an approximate cost outlay of Rs. 45 crore.

3. Financial Performance:

Stylam Industries standalone net profit rises 7.35% in the December 2015 quarter

Net profit of Stylam Industries rose 7.35% to Rs 2.92 crore in the quarter ended December 2015 as against Rs 2.72 crore during the previous quarter ended December 2014. Sales rose 7.67% to Rs 58.09 crore in the quarter ended December 2015 as against Rs 53.95 crore during the previous quarter ended December 2014.

Stylam Industries standalone net profit rises 13.30% in the September 2015 quarter

Net profit of Stylam Industries rose 13.30% to Rs 2.64 crore in the quarter ended September 2015 as against Rs 2.33 crore during the previous quarter ended September 2014. Sales rose 17.26% to Rs 60.25 crore in the quarter ended September 2015 as against Rs 51.38 crore during the previous quarter ended September 2014.

With growing demand of HPL (High Pressure Laminates) globally, Stylam achieved revenue of Rs. 178 crores from exports in FY 14-15, which is 78.25% of its total revenue. This is expected to increase significantly as company plans to increase its exports to almost 100 countries in this fiscal year.

As company has doubled its capacity recently, we believe company will post decent growth sales and profits in coming quarters.

4. Peer Group Comparison:


On valuation parameters, we find Stylam Industries trading at significant discount compared to other listed players in the Industry. Moreover, important financials like OPM (operating profit margin) and ROE (return on equity) of Stylam are better compared to Greenlam Industries. Also once recent capacity expansion is completed, Stylam Industries Laminate capacity will be at par with Greenlam Industries
5. Key Concerns & Risks:

i) Competition from Unorganized Players – The domestic laminates industry is highly fragmented with majority of sector comprising unorganized players though there has been increasing shift in consumer preference from unbranded to branded goods. Competition from both organised as well as unorganised players leads to pricing pressure for the players, hence impacting margins of the company.

ii) Delay in GST Implementation – Implementation of GST will be a positive for Stylam as it would bring in a shift of consumers from the unorganised to organised space with a reduction in the price differential, going ahead. GST will address inefficiencies in the current tax system. However, any delay in implementation of GST could impact Stylam, as it would be difficult for company to gain market share in domestic market.

iii) Change in Consumer preference & trend – Currently, in the furniture industry, products like plywood, MDF, particle board and laminates are being widely used. However, going ahead, with a change in consumer preference or trend, substitutes like plastic or steel could evolve and pose a challenge to the plywood and laminate industry.

6. Saral Gyan Recommendation: (as on 08 May'16)

i) With recent expansion, Stylam production capacity will get almost doubled to 13 million sheets from existing capacity of 7 million (70 lakh) sheets per annum. As per management, the automated cutting edge technology implementation will boost the quality of products and increase efficiency with less human intervention. This will help company to extend its outreach in the Indian market with the aim of growing the domestic business along with exports as the total production will increase to match the demand on both fronts. The company currently exports to more than 80 countries and plans to expand its reach to 100 countries in this fiscal year

ii) Stylam is investing heavily on R&D to stay ahead on the innovation curve in the global Laminate Industry to develop with global markets. The company has showcases its products in major exhibitions in strategically important markets. Company is exporting its products in European and Southeast Asian countries. More than 80% of the products are being exported to more than 80 countries around the world, along with exports to 20 countries in Europe which is testimony to best in class quality products manufactured by the company. Moreover, Stylam enjoys strong reputation for its products with globally renowned quality credentials.

iii) Stylam continues to explore markets to understand product dynamics for exports and domestic business. The company has developed HPL exterior grade premium flooring product, under the brand name of ‘Walkon’. The company is the first to manufacture this product in India. Beside this, the company has enhanced production of Exterior Cladding which is marketed under the brand ‘Fascia’. Moreover, the interior grade laminates for premium and standard grades are marketed under brand name ‘Violam’ and ‘Wakalam’ respectively. Company is aiming for healthy growth which will be achieved through an appropriate mix of international and domestic business. The Company is also trying to add a new product segment in Laminates which will help to penetrate into newer markets

iv) In last 5 years, OPM increased from 5.37% to 10.96% and company managed to sustain OPM above 10% in 2015 which is good indication about operating efficiency of the company. Company also managed to bring Debt to Equity ratio below 2 from 2.38 in FY13. However with recent expansion, debt may be high on books for this fiscal but can be managed with strong cash flows from operations. Working Capital Days also reduced from 140 days to almost 100 days which is another positive.
v) Apart from Laminate business, Stylam has also set up a new building having built up areas of 2.23 Lacs square foot at Panchkula IT Park, Haryana. Company has planned to lease out the major portion of this built up areas to other players for commercial office space and for service sector business which will boost company’s revenue growth and profitability going forward.

vi) As of Mar’16, promoter’s shareholding in the company is at 58.83% out of which promoters have pledged 10 lakhs shares i.e. 23.23% of their holding since Dec 2011. In Public shareholding, 4.86% stake of Stylam is held by Mr. Manav Gupta, who is the son of Mr. Satish Gupta. Hence, promoters total in direct holding in the company is at 63.69%. Institution shareholding is negligible at 0.91%.

vii) In view of continuous expansion and investment strategies, company has not paid dividend to its shareholders during last 5 years. The last dividend paid by the company was in 2010, since then Stylam is retaining its profits to continuously increase its capacity. With significant expansion, the company has achieved revenue CAGR of 27.3% and profit CAGR of 25.2% during last 5 years.  As company has taken aggressive expansion by doubling its capacity with outlay of almost 45 crores recently, we expect company may continue retaining its profit in near future. 

viii) As per our estimates, Stylam Industries can deliver PAT of 13.75 crores for full financial year 2016-17, annualized EPS of Rs 18.80 with forward P/E ratio of 11.6X for FY16-17. Company’s valuation looks discounted compared to peer group companies on account of better financials. With completion of recent capacity expansion and increase in value added products, we believe company will continue to deliver strong revenue growth and profitability going forward.

ix) On equity of Rs. 7.32 crore, the estimated annualized EPS for FY 16-17 works out to Rs. 18.80 and the Book Value per share is Rs. 71.55. At current market price of Rs. 217.80, stock price to book value is 3.04.

Considering high earning visibility and attractive valuations of the company compared to other peer companies, growing demand of decorative laminates globally and company’s plan to extend its outreach to domestic market along with exports with recent capacity expansion, Saral Gyan team recommends “Buy” on Stylam Industries Ltd at current market price of Rs. 217.80 for target of Rs. 430 over a period of 12 to 24 months.

Buying Strategy:
  • 75% at current market price of 217.80
  • 25% at price range of 190-195 (in case of correction in stock price in near term)
Portfolio Allocation: 3% of your equity portfolio

To Read / Download Saral Gyan Hidden Gem - April'16 Research Report - Click Here

If you have patience and want to add extra power in your portfolio, start investing some portion of your savings in fundamentally strong small and mid cap companies - Hidden Gems & Value Picks. 

The stocks we reveal through Hidden Gems & Value Picks are companies that either under-researched or not covered by other stock brokers and research firms. We keep on updating our members on our past recommendation suggesting them whether to hold / buy or sell stocks on the basis of company's performance and future outlook.

Subscribe to Hidden Gems & Value Picks and start investing systematically. Avail attractive discounts by subscribing to our combo packsclick here for details.

Do contact us in case of any queries, we will be delighted to assist you. 

Wish you happy & safe Investing. 

Regards, 
Team - Saral Gyan