Buy Siyaram Silk Mills; target of Rs 160: ICICI Direct

ICICI Direct's research report on Siyaram Silk Mills

Since Q4 is a critical quarter for Siyaram (~32% of revenues), Covid-19 disruptions impacted financials in Q4FY20. Revenue for the quarter de-grew 20.6% YoY Rs 466.7 crore. As per the management, January-February was a decent period for the company. It was on track to surpass the previous year’s topline. However, owing to supply chain issues (logistics issues), the company was unable to execute orders in March. Lower gross margins, coupled with negative operating leverage led EBITDA margins to contract 610 bps YoY to 8.9%. Absolute EBITDA de-grew 53% YoY to Rs 41.5 crore. PAT fell 50% YoY to Rs 23.3 crore (effective tax rate: 23% vs. 31% in Q4FY19). While Q1FY21E is expected to be a complete washout quarter, better rural spending and revival in demand owing to festive and wedding season are expected to aid growth. Stringent working capital policy has enabled it to gradually bring down its debt levels (0.5x in FY20 vs. 0.9x in FY18).

Outlook

Owing to significant correction in stock price (down 41% YTD), we upgrade the stock from HOLD to BUY with a revised target price of Rs 160 (8.0x FY22E EPS).

Siyaram Silk Mills 01072020