CRISIL assigns valuation grade of 3/5 to Siyaram Silk Mills

Siyaram Silk Mills Ltd’s (SSML’s) Q4FY11 revenues were higher than CRISIL Equities’ expectations driven by strong growth across brands, whereas margins remained in line with expectations. Going forward we expect demand for clothing and furnishing fabric to remain strong. We maintain our fundamental grade of 4/5.

Q4FY11 result analysis
• SSML’s Q4FY11 revenues increased 30% y-o-y to Rs 2,455 mn owing to strong volume growth across brands and products.

• EBITDA margins contracted by about 80 bps to 13% y-o-y largely on account of higher other expenses. Operating profitability remained flat qo-q.

• Lower EBITDA margin coupled with higher interest expenses lowered PAT margin by around 100 bps y-o-y. However, higher other income and stable operating profitability augmented PAT by 17% q-o-q to Rs 186 mn and improved PAT margin by 60 bps to 7.6%.

• The company has declared a dividend of Re 7 per share. At the current market price, dividend yield is 2%.

Revised capacity expansion on schedule
The management had announced a revised capacity expansion plan for the FY11-13 period in the previous quarter. The plan entailed a revision of timelines for the fabric capacity owing to uncertainty surrounding the TUF scheme. The government has restructured and extended the scheme till FY12, as a result the revised plan is on schedule.

Revenue estimates revised marginally upwards
We have marginally raised our revenue estimates for FY12 and FY13 in view of the strong demand for the company’s products. However, earnings estimates for FY12 are revised marginally downwards on account of higher interest rates.

Valuations: Current market price is aligned
We continue to value SSML based on the discounted cash flow method and retain our fair value of Rs 374. The stock has risen by 25% since our report dated February 14, 2011. At the current market price, the stock merits a valuation grade of 3/5.

Disclaimer: This report (Report) has been commissioned by the Company/Investor/Exchange and prepared by CRISIL. The report is based on data publicly available or from sources considered reliable by CRISIL (Data). However, CRISIL does not guarantee the accuracy, adequacy or completeness of the Data / Report and is not responsible for any errors or omissions or for the results obtained from the use of Data / Report. Opinions expressed herein are CRISIL's opinions as on the date of this Report.  The Data / Report are subject to change without any prior notice. Nothing in this Report constitutes investment, legal, accounting or tax advice or any solicitation, whatsoever. The Report is not a recommendation to buy / sell or hold any securities of the Company. CRISIL especially states that it has no financial liability, whatsoever, to the subscribers / users of this Report. This Report is for the personal information of the authorized recipient only. This Report should not be reproduced or redistributed or communicated directly or indirectly in any form to any other person or published or copied in whole or in part especially outside India, for any purpose.

© CRISIL Limited . All Rights Reserved. Published under permission from CRISIL"