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Siyaram Silk Mills 4QFY2014 performance highlights and results update

June 2, 2014, Monday, 05:54 GMT | 00:54 EST | 09:24 IST | 11:54 SGT
Contributed by Angel Broking


Siyaram Silk Mills (SSML) reported a strong set of numbers for 4QFY2014, which are way ahead of our estimates, both on the revenue and profitability fronts. The company's top-line for the quarter grew substantially by 40.1% yoy to Rs.406cr, against our estimate of Rs.319cr, aided majorly by volume growth across segments. The operating margin was marginally better on a yoy basis at 10.6%, broadly in-line with our estimate. Interest and tax outgo for the quarter was Rs.8cr and Rs.11cr respectively. On the back of strong revenue growth, the company reported a strong profit growth for the quarter to Rs.20cr, 55.7% higher yoy and 22.7% higher than our estimate of Rs.16cr.

Strengthening financials make SSML a lucrative investment & re-rating candidate: For FY2014, the company showed a promising revenue growth of 25.5% yoy to Rs.1,303cr, aided by robust volume growth as well as price hikes. On account of rigorous advertisement and value for money positioning, we expect the growth momentum to continue going forward. The company also plans to launch new products and collections under the existing brands to aid growth. With improving revenue visibility, consolidating expenses, easing interest cost on account of debt repayment, and expanding profit margin leading to better return ratios for the investors (Angel ROIC estimated at 22.9% in FY2016E from 16.7% in FY2014), we believe the company is a strong candidate to get re-rated from its current levels.

Outlook and valuation: We believe that with market leadership in blended fabrics, strong brand building, wide distribution channel, strong presence in tier II and tier III cities and emphasis on latest designs and affordable pricing points, SSML will be able to post a revenue CAGR of 17.8% over FY2014-16E to Rs.1,808cr. The stock is currently trading at an attractive valuation of 3.5x FY2016E earnings compared to its peers. On account of the improved brand acceptance and strong profit growth, we expect the stock to get re-rated. We reiterate our Buy rating on the stock with upgraded target price of Rs.602, valuing the stock at a revised target PE of 5.0x FY2016E earnings.

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