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Siyaram Silk Mills 3QFY2014 performance highlights and results update

January 30, 2014, Thursday, 06:14 GMT | 01:14 EST | 11:44 IST | 14:14 SGT
Contributed by Angel Broking

Siyaram Silk Mills (SSML) reported marginally lower-than-expected numbers for 3QFY2014. The company's top-line for the quarter grew by 10.5% yoy to Rs.308cr, marginally lower than our estimate of Rs.319cr as dampened market sentiments weighed down festive season sales. The operating margin dipped by 99bp yoy to 10.2%, because of higher employee cost compared to the same quarter last year. Interest and tax outgo for the quarter stood at Rs.7cr each, both marginally lower than our estimates. Consequently, the profit for the quarter remained flat on a yoy basis at Rs.14cr, against our estimate of Rs.15cr.
Gloomy market condition to weigh in the short term: SSML reported a moderate set of numbers for the quarter. The outlook remains uncertain going forward amidst a gloomy market scenario. The company is planning to push sales in the coming wedding season through various schemes and by launching sub-brands for specific occasions. The last festive season was not good for the company, leading the Management to adhere caution. Though we are watchful of the near term performance of the company, we believe that in the long run the driving factors like 1) leadership position in blended fabric manufacturing, 2) increasing demand for polyester viscose fabric, 3) shift in demand from unbranded fabrics to branded ones in tier II and tier III cities, 4) focus on improving product mix towards premium and high margin products, and 5) apt brand positioning and advertisement, will help the company in maintaining its top-line growth. At the same time, we remain conservative on the profitability front because of the debt in the company’s books.
Outlook and valuation: With market leadership in the blended fabrics segment, strong brand visibility, wide distribution channel and emphasis on latest designs and affordable pricing points, we expect SSML to post a revenue CAGR of 15.8% over FY2013-15E to Rs.1,396cr with an EBITDA margin of 10.9%. The stock is currently trading at an attractive valuation of 3.4x FY2015E earnings. We continue to maintain our Buy rating on the stock with a revised target price of Rs.315, valuing the stock at 4.0x FY2015E earnings.

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