Siyaram Silk Mills Ltd - Visit Note - SPA Sec

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Siyaram Silk Mills (SSML) is a vertically integrated textile company operating 7 manufacturing units located across Tarapur, Daman and Mumbai. Company’s product line includes yarns, fabric, home textiles and apparels. Siyaram’s, J Hampstead, Mistair, MSD, Oxemberg are some of the known brands of the company. Its production capacity consists of a yarn dyeing capacity of 6,000 metric tonnes p.a along-with 494 looms and 746 stitching machines. We met the senior management of Siyaram Silk Mills to understand the business initiatives and strategy going ahead.

Branded Play and Robust Rural demand

The company markets value-for-money brands like Siyaram, Mistair, J Hampstead etc. and enjoys strong brand recall. Around 75% of its revenue comes from Tier I and Tier II cities. The poly-viscose fabric is more preferred here over cotton as it is cheaper, easy-to-maintain and much more durable. The popularity of the brand can be envisaged by the fact that the fabric division experienced a volume growth of 17% despite increase in price realisation by 12%. Fabrics contributed 85% of its sales in FY11 while Readymade contributed 11%.

Lack of any major branded player and presence of strong brands by continuous celebrity-led-advertising has helped the company to have a stronghold in this market.

Ready-to-Wear Demand to Remain Buoyant

The Indian domestic Apparel market size in 2009 was US$ 33bn and is expected to grow @ 11% CAGR to reach US$ 100bn by 2020. Ready-To-Wear share is expected to increase to 88% by 2020 as against 77% in 2009. In view of this buoyant readymade garment demand scenario, the company is scaling its garmenting capacity by 75,000pieces/month by FY13. The current capacity stands at 2.4mn pieces p.a. Management expects revenue of around INR 1,100mn from this segment in FY12.

Efficient Working Capital Management

SSML doesn’t have any owned retail outlets, thereby saving on costs. Also the company’s strict control on working capital management has seen its Debtor days to reduce from 85 days in FY08 to 64 days in FY11. These controls have helped the company to achieve high ROE of 26%, second only to 42% of RSWM.

Capacity Play

The company plans to increase the production capacity of fabrics and readymade garment divisions by 2mn meters and 75,000pieces/month respectively. The envisaged capital expenditure is around INR 2,200mn. The capex will be incurred in a phased manner in the next 2 to 3 years.

Going Forward

Company expects a top-line of around INR 10,000mn and PAT of around INR 700mn in FY12. Company currently has a debt of INR 2,855mn of which it will pay back INR 250mn every year. Debt/Equity ratio for the company stood at 1.3x in FY11. Company’s current cost of interest is approx 9.5%. At CMP of INR 372.5, the stock is available at a P/E and P/BV multiple of 6.1x and 1.6x based on FY11EPS of INR 61.5 and a Book Value of INR 234.7/share