Siyaram Silk Mills Limited is an India-based company engaged in textile business. The Company’s portfolio includes yarns, home furnishing, ready to wear, fabrics and retail outlets. The Company offers blended shirting and suiting fabrics. The Company’s brand includes Siyaram’s, J.Hampstead, MiStair, MSD, Oxemberg, Zenesis, Moretti, UniCode, Little Champs, Miniature and Casa Moda. The Company’s fabric products include polyester viscose fabric, polyester viscose linen fabric, polyester cotton fabric, polyester wool fabric and polyester wool lycra fabric. The Company’s manufacturing plants are located at Tarapur, Daman and at Silvassa. The Company also focuses on exporting suitings, shirtings, readymade garments and furnishing items.
For 1QFY2016, Siyaram Silk Mills (SSML)’ results have come in slightly below our estimates. The company has reported a flattish top-line and bottom-line growth. Flattish top-line growth: For 1QFY2016, Siyaram Silk Mills (SSML) reported a muted set of numbers. The top-line for the quarter declined marginally by 0.5% yoy to Rs301cr. The same is below was our estimate of Rs325cr. Underperformance at the EBITDA level: The EBITDA for the quarter declined by ~4% yoy to Rs31cr and the EBITDA margin slipped by 38bp yoy to 10.3%. The raw material cost as a percentage of sales declined by 297bp yoy to 45.7% but there was a 133bp yoy and 203bp yoy increase in employee and other expense, respectively, resulting in an almost flat EBITDA margin for the quarter. We had built in an EBITDA margin estimate of 11.0%. Flattish PAT growth: The interest and depreciation expenses declined by 14.1% yoy and 10% yoy, respectively, but taxes were higher on a yoy basis (38.3% of PBT in 1QFY2016 vs 32.1% of PBT in 1QFY2015). As a result, the net profit came in flat at Rs12cr vis-ŕ-vis our estimate of Rs15cr, for the quarter. 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 11.4% over FY2015-17E to Rs1,873cr with an EBITDA margin of 12.2% by FY2017E. We expect profit to grow at a CAGR of 21.3% over FY2015-17E to Rs114cr. SSML is trading at a PE multiple of 9.1x its FY2017E earnings. We recommend an Accumulate rating on the stock with a target price of Rs1,221.
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