Buy Siyaram Silk Mills; target of Rs 655: ICICI Direct

November 29
06:42 2017

ICICI Direct’s research report on Siyaram Silk Mills

Siyaram Silk Mills (SSML) reported a mixed set of Q2FY18 numbers. Revenues for the quarter remained flattish YoY. However, PAT rose 19% YoY during the quarter Revenues for the quarter came in at Rs 422.6 crore vs. Rs 422.2 crore in Q2FY17. Total fabric sales declined 7.6% YoY to Rs 283 crore with a volume decline of 7.3% YoY to 197 lakh metre. Garments continued on their strong trajectory with 33.9% revenue growth to Rs 125 crore, driven by 43% volume growth (22.7 lakh pieces) EBITDA margins for the quarter improved 270 bps YoY to 15.2%, mainly on account of a significant expansion in gross margins to the tune of 592 bps YoY to 56.9%. However, higher processing & employee expenses, up 56.7% & 10.0% YoY, respectively, stemmed EBITDA growth, to a certain extent. Subsequently, absolute EBITDA increased 21.6% YoY Rs 64.3 crore Resultant PAT came in at Rs 30.7 crore, up 19.1% YoY. Higher depreciation cost (up 15% YoY) and decline in other income (down 19.5% YoY) moderated PAT growth.

After making a mark in the fabric industry, Siyaram has forayed into the readymade apparel segment. The company sells garments under the brands, ‘Oxemberg’ ‘J Hampstead’ and ‘Cadini’. The management is well on track to increase the proportion of garmenting in their overall revenues. In H1FY18, the garmenting segment reported robust revenue growth of 24% YoY to Rs 198 crore driven by 34% volume growth. The shift towards garmenting is visible as share of garments has increased from 16% in FY16 to 27% in H1FY18. With a strong fabric backbone, the company is well placed to forward integrate into the garmenting segment, which would yield higher margins. Going forward, we expect revenue and earnings to grow at a CAGR of 12% and 21%, respectively, in FY17-20E. Furthermore, we expect RoCE to improve to 20% by FY20E, from current 15%. Hence, we reiterate our BUY recommendation with a revised target price of Rs 655 (19.0x FY20E EPS of Rs 34.5).

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