Revenue growth, margin set to improve… • Siyaram Silk Mills:: ICICI Securities, report

Please Share::

�� India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details ��

��

-->
Revenue growth, margin set to improve… • Siyaram Silk Mills’ (Siyaram) Q3FY15 revenues increased 7.2% YoY to | 330.3 crore. After six consecutive quarters of double digit revenue growth, Siyaram has reported single digit revenue growth. Revenue growth has been muted on account of fabric, which was reporting handsome double digit growth over last few quarters has increased marginally by 3.7% YoY. • The operating margin expanded 40 bps YoY to 10.6% on the back of reduction in other expense to sales ratio from 20.6% in Q3FY14 to 18.7% in Q3FY15 • Owing to higher depreciation due to the changes in the Companies Act and higher tax rate , PAT declined by 7.8% to | 13 crore Increasing share of readymade garments to aid margin improvement Over the years, the share of 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 increased focus on higher margin readymade garment segment would further aid margin expansion. 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 earnings CAGR of 28% over FY14-17E. Strong earning growth; inexpensive valuation; Maintain BUY 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_Q3FY15.pdf