Operating performance continues to improve • Siyaram Silk Mills :: ICICI Securities, link

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Operating performance continues to improve
• Siyaram Silk Mills’ (Siyaram) Q2FY15 revenues increased 17.6% YoY
to | 398 crore. This is the sixth consecutive quarter that Siyaram has
reported double digit revenue growth. Revenue growth has been
driven by realisation growth in the suiting segment and both volume
and realisation growth for J Hampstead and cotton brands
• The operating margin expanded 58 bps YoY to 12.3% on the back of
gross margin expansion and lower employee cost
• Owing to higher depreciation due to the changes in the Companies
Act, PAT growth remained subdued at 19% to | 22 crore
Changing product mix to aid revenue growth, margin improvement
Over the years, the share of readymade garments has increased from 7%
in FY07 to 16% in FY14. The same is likely to touch ~20% by FY17E. In
the recent past, the company has also launched some premium products
like linen based fabrics, which have aided in operating margin expansion
from 8.4% in FY07 to 10.8% in FY14. The company was unable to pass on
the impact of inflated costs in FY14 owing to dampened consumer
sentiments. However, the company is expected to take some hikes in
FY15E. We expect the operating margin to improve to 11.7% by FY17E.
Entry into women’s segment to give added boost
In FY14, Siyaram entered the ladies’ salwar kameez and ethnic wear
segment with the brand Siya. The company sells semi-stitched cotton,
polyester and embroidered designer fabrics under this brand. While the
brand is relatively small, the company intends to scale up this brand to
| 500 crore over the next four or five years. It has also roped in leading
Bollywood actresses like Parineeti Chopra and Karishma Kapoor to
endorse the brand.
Asset light expansions to maintain balance sheet health
Siyaram has a retail network of 160 stores and plans to add another 200-
300 stores over the next two or three years. The company plans to add
these stores through the franchisee route. Hence, this will be an asset
light expansion. Even in some of the newly launched segments, the
company does not intend to set up its own capacity and will use the
outsourcing model until the segments gain critical mass. Both these will
enable the company to maintain balance sheet health.
Earnings momentum to sustain
Introduction of premium products and increasing share of garments is
aiding in revenue growth and EBITDA margin improvement for Siyaram.
We expect this to sustain and have raised our EBITDA margin expectation
for FY15E and FY16E while we have introduced our FY17E estimates and
expect earnings CAGR of 28% over FY14-17E.
Sustained growth in earnings warrants valuation upgrade
Siyaram has traded at relatively inexpensive valuations in the past.
Hence, we have always said it is a re-rating candidate. Considering that
the company is tapping newer opportunities for growth and is spending
aggressively on the promotion of its brands, we remain optimistic on its
future prospects. Some of its peers in the branded apparel space (with
similar fundamentals) are trading at significantly high multiples. We
reiterate our BUY rating with a target price of | 1150 (based on 8.0x
FY17E EPS of | 143.6). However, we advise caution while buying owing
to low liquidity in such stocks.

LINK
http://content.icicidirect.com/mailimages/IDirect_SiyaramSilk_Q2FY15.pdf