Buy Siyaram Silk Mills; target of Rs 410: ICICI Direct

ICICI Direct's research report on Siyaram Silk Mills

SSML reported decent revenue growth of 13.4% YoY to Rs 446.3 crore despite market conditions remaining subdued. The fabric division grew 13% YoY to Rs 332 crore while growth in the garmenting segment grew marginally by 1.4% YoY to Rs 87 crore. Revenues from the yarn segment grew 3.4x to Rs 16 crore mainly due to commencement of production of its dyed yarn (indigo) facility Gross margins for the quarter contracted significantly by 265 bps YoY to 55.9%, mainly on account of increased proportion of products having lower margin profile (Indigo dyed yarn and higher discounted garmenting brand, ‘Mozo’). However, with positive operating leverage kicking in, EBITDA margins declined 98 bps YoY to 11.8% Substantial increase in interest cost (up 50% YoY to Rs 13.7 crore) further impacted PAT growth. Ensuing PAT declined 10.5% YoY to Rs 20.1 crore.

Outlook

We expect overall revenues to increase at 9% CAGR and PAT to grow at 11% CAGR in FY18-20E. SSML’s stock price has witnessed a significant correction of ~48% in the last 12 months, making it available at valuation of 11.6x FY20E earnings. Hence, we have a BUY recommendation with a revised target price of Rs 410 (14x FY20E EPS).