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Siyaram Silk Mills 2QFY2013 performance highlights and results update

Contributed by Angel Broking

Siyaram Silk Mills (SSM) reported a mixed set of numbers for 2QFY2103. The revenue grew 9.3% yoy and came in at Rs.267cr, in line with our estimate of Rs.268cr. However, the operating margin showed contraction of 383bp yoy to 9.6% for the quarter. The company reported other income of Rs.10cr which included a one-time insurance premium payment from the directors, leading to a bottom-line of Rs.18cr, a growth of 5.5% yoy. Following the tradition, the company is expected to post strong numbers in the 2HY2013 with the festive and wedding season coming in.

Leadership in blended fabrics, wide distribution channel and strong branding to drive growth: Being the largest manufacturer of blended fabric in India, SSM enjoys 4% market share in this segment. Polyester viscous fabric, which has become a cheaper substitute of cotton fabric, is the major contributor to SSMRs.s revenue (~Rs.700-800cr in FY2012). With a portfolio of strong and value for money brands like SiyaramRs.s, J Hampstead and Mistair in its fabric segment, SSM is well placed to cater to the increasing demand for polyester viscose fabrics. The company is engaged in aggressive marketing with celebrity brand ambassadors like M S Dhoni, Neil Nitin Mukesh and Hrithik Roshan. Moreover, the company has one of the largest distribution networks in the country. These factors together are expected to drive the sales at a 12.0% CAGR over FY201 2-14E.

Outlook and valuation: We expect SSM to post a revenue CAGR of 12.0% over FY2012-14E to Rs.1,149cr with an operating margin of 12.9% in FY2014E. On the profitability front, the company is expected to post a profit of Rs.62cr and Rs.69cr for FY2013E and FY2014E respectively. The stock is currently trading at a reasonable valuation of 4.2x FY2014E earnings. We continue to maintain our Buy rating on the stock with a revised target price of Rs.366, valuing the stock at 5x FY2014E earnings.