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Siyaram Silk Mills 3QFY2012 performance highlights and results update

Contributed by Angel Broking

For 3QFY2012, Siyaram Silk Mills (SSM) reported a weak performance. The company’s net sales declined by 9.2% qoq and 2.6% yoy to Rs.222cr. OPM expanded by 9bp yoy to 13.2%. Net profit witnessed a 17.0% yoy decline to Rs.13cr. We continue to maintain our Buy view on the stock.

Top line declines, EBITDA margin flat: During the quarter, SSM’s top line declined by 9.2% qoq and 2.6% yoy to Rs.222cr, on the back of slowdown in demand. EBITDA declined by 2.0% yoy to Rs.29cr on the back of lower revenue during the quarter. EBITDA margin expanded by 9bp yoy to 13.2% due to lower rawmaterial cost, which declined by 283bp yoy to 36.3% (39.1%) of sales. The decline in raw-material cost was partially offset by a 224bp yoy increase other expenditure to 21.4% (19.1%) of sales. For 3QFY2012, SSM witnessed a 17.0% yoy decline in PAT to Rs.13cr on the back of lower revenue and higher interest and depreciation cost.

Outlook and valuation: SSM is in a strong expansion mode. The company plans to add 286 looms (479 current looms) in a phased manner over FY2011-13 in the fabric segment and will be adding 400 machines in its readymade garment (RMG) segment by June 2012. Moreover, timely capacity expansion will help the  company to take full advantage of the growing demand in India, which will drive its revenue at an 11.6% CAGR over FY2011-13E. The stock is currently trading at reasonable valuation of 4.4x FY2013E earnings (as against its historical median of 6x one-year forward EPS). We continue to maintain our Buy rating on the stock with a revised target price of Rs.380, valuing the stock at 6x FY2013E earnings.