Siyaram Silk Mills :: Karvy research

Good Growth Prospects at Attractive
Valuations
Siyaram Silk Mills (SSML) is under capex implementation of Rs. 2.2 bn over
the next 2‐2½ years, thereby adding up 286 looms and 400 machines to
increase its capacity by 20 mn metres of fabric per year and 60,000 pieces of
garments per month to the existing annual capacity of 60 mn meters of fabric
and 2.4 mn pieces of readymade garments. This expansion would lead the
Company to capitalise on the growing demand for branded fabric and
apparel across Tier II & III cities and rural markets.

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Wide Product Offering coupled with Distinct Brands: SSML is one of the
leading producers of blended fabrics in India including yarn dyeing, fabrics,
ready‐to‐wear garments and home textiles. It manufactures various kind of
fabric like polyester, wool, cotton, viscose and linen. Fabric product range
offers blended suitings / shirtings, cotton shirtings, apparels – Casual &
Formal wears and Kids’ wear – apart from various solutions under home
furnishings. In ready‐to‐wear segment, ‘J. Hampstead’, ‘Mistair, MSD’,
‘Oxemberg’, ‘Featherz’ and ‘Little Champs’ are some of the well‐known
brands of the Company.
Extensive Distribution Network & Rising Retail Outlets: SSML’s wholesale
distribution accounts for 90%‐95% of its total revenues with a strong
nretwork of over 400 Agents, 1,500 distributors and a vast network of
around 65,000 retailers across India. Moreover, SSML has 140 retail stores,
while it is planning to reach 500‐mark in 2‐3 years, adding around 150 stores
annually. SSML operates on franchisee model, each offering the entire range
of Siyaram products in an average store size ranging between 500‐1,500
square feet. In our view, though the retail stores will boost the revenue mix of
the Company over a couple of years, the wholesale business will sustaion its
position, as it has more access from Tier‐II to rural markets.
Outlook & Valuations
SSML’s net revenue and income grew at a CAGR of 19.5% and 75.9%,
respectively during FY09‐FY12. We expect that SSML’s revenue and net
income to grow at a CAGR of 12.5% and 11.1%, respectively in FY12‐14E. At
CMP of Rs. 303 per share, the stock is attractively valued at 4.1x and 4.0x
FY14E earnings & EV/EBITDA respectively. We initiate coverage on the
Company with “BUY” recommendation with a target price of Rs. 374 per
share, representing an upside potential of 23%.