Siyaram Silk Mills :Revenue Growth Intact, Margins below Expectation; Reiterate “BUY” : Karvy research

Revenue Growth Intact, Margins below Expectation;
Reiterate “BUY” on Attractive Valuations
Siyaram Silk Mills (SSML) sales, EBITDA and netincome grew by
22%, 12% and 4% YoY respectively during Q1FY14. EBITDA
margin declined 88bps YoY while remained still on QoQ basis

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Revenue Growth: The Company’s top‐line grew 22.1% YoY to Rs. 2,511 mn
(our expectations Rs. 2,450 mn) during Q1FY14. Revenue growth is largely
attributable to volume growth with approx. 4‐5% realizations improvement
on enhanced product (linen) mix. However, due to challenging consumer
sentiments, SSML refrained from direct price hikes; in‐line with broader
industry practice.
Operating margins under pressure: The Company’s EBITDA grew 12.4%
YoY to Rs. 258 mn (our expectations Rs. 263 mn) during Q1FY14 on account
of higher staff and direct input costs. EBITDA margins forthe quarter slipped
88bps YoY to 10.3%. Net Income for Q1FY14 grew 4.1% YoY to Rs. 107 mn
(our expectations Rs. 117 mn).
SSML is looking to expand its retail stores under franchisee model with ~90
stores additions in FY14 while aiming ~500 stores in the next 4‐5 years from
the existing network of ~165 stores.
Expansion Plans: The Company added 129 Looms & 101 stitching machines
out of planned 286 Looms & 400 stitching machines. Therefore, on total
capex plan of 20 MMPA fabrics and 7.2 lac pcs per annum of readymade
garments, ~10MMPA and ~1.8 lac pcs capacity have been installed during
FY13 while remaining expansion is slowed down keeping in view of the
subdued consumer demand.
We keep our sales estimates intact while revised down EBITDA marginally
by 3.0% and 1.7% for FY14E and FY15E respectively. Expected net income
has been revised down by 4.1% and 2.1% for FY14E and FY15E respectively.
Outlook & Valuation:
SSML’s revenue and net income are expected to grow at a CAGR of 18% and
20%, respectively over FY13‐15E. At CMP of Rs. 237, the stock trades
attractively at 2.8x and 3.2x FY15E EPS and EV/EBITDA respectively. We
reiterate our “BUY” recommendation and revised down ourtarget by 2.1% to
Rs. 382, valuing at 4.5x FY15E EPS and 4.0x FY15E EV/EBITDA, which has a
potential upside of 61%.