By Centrum Wealth
Siyaram Silk Mills (SSML), for Q2FY18 reported good numbers on an operational basis. EBITDA margins expanded by 270 bps to 15.2%, on the back of lower raw material cost (down 592 bps y-o-y to 43.1% of sales). Revenue was flat at Rs 423 crore, hinting slow pick-up in consumer demand (due to implementation of GST). Good operational performance and lower interest cost (down 23% to Rs 7 crore) led to net profit growth of 19% to Rs 31 crore. As of Sept’17 SSML’s debt stood at Rs 435 crore. As of the ex-date 25 Oct’17, the stock of SSML has been split from 1 equity share of Rs 10 each to 5 equity shares of Rs 2 each. Adjusting for the same, post our Q1FY18 result update click here (28 Jul’17 @ Rs 440, Rating: Long Term Outperformer), in-line with our expectation the stock touched its 52 week high of Rs 630 (on 13 Nov’17), surpassing our then target price of R512. At the CMP of Rs 579, the stock is giving a return of 32% since the update and clients with a short term horizon may be recommended to book partial profit. Currently, SSML trades at 22.7x P/E on FY19E basis. Although the valuations seem to be mature, we believe SSML will continue outperforming over long term given the company’s consistent financial performance (EBITDA ~12%, RoE 17%+, Debt/Equity. SSML has been focusing on its readymade garment business and registered revenue CAGR of 16% over FY15- 17.
SSML has launched various brands from value for money (Siyaram’s, Mistair, Oxemberg, MSD) to premium brands (J Hampstead, Cadini, Zenesis, Moretti and Royale Linen). SSML has been focusing on its brand building exercise, which is expected to ensure high brand recall and aid demand. We anticipate contribution of readymade garments to business to increase to 27% in FY19E vs 21% in FY17. Increasing focus on premium brands and high margin readymade garments segment is likely to bode well for the company. SSML, has been expanding via the franchisee mode making the business asset light in nature. This has helped to maintain a healthy balance sheet with RoE of 17 % and asset turnover of 2-3x.