Buy Siyaram Silk Mills; target of Rs 460: ICICI Direct

ICICI Direct's research report on Siyaram Silk Mills

Revenues for the quarter grew at a moderate pace of 8.5% YoY to Rs 458.7 crore. Fabric and garmenting division grew 5% each YoY to Rs 298 crore and Rs 132 crore, respectively. Revenues from the yarn segment grew 4x to Rs 18 crore mainly owing to commencement of its commercial production of its dyed yarn (indigo) facility at Amravati EBITDA margins fell 71 bps YoY to 14.5% on account of increase in other expenses by 22% YoY to Rs 103.4 crore (higher advertisement spends and expenses pertaining towards the new facility) The company incurred exceptional expense of Rs 4.72 crore pertaining to reversal of GST credit due to changes in law for claiming refund due to inverted duty structure. Also, a substantial increase in interest cost (up 81% YoY to Rs 12.0 crore), further impacted PAT growth. Ensuing PAT fell 20.5% YoY to Rs 24.4 crore.

Outlook

Factoring in the subdued performance of H1FY19, we revise our earnings estimate downwards for FY19, FY20E. On the balance sheet front, working capital days are expected to remain elongated, keeping debt levels high in FY19E. Going forward, with stabilisation of trade channels, we expect working capital to ease out in FY20E and generate healthy cash flow from operations. We expect overall revenues to increase at 9% CAGR and PAT to grow at 14% CAGR in FY18-20E. We believe the recent price correction factors in most negatives. Hence, we maintain our BUY rating with revised our target price of Rs 460 (15x FY20E EPS).