Buy Siyaram Silk; target of Rs 947: Angel Broking

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Angel Broking`s research report on Siyaram Silk Mills“Siyaram Silk Mills (SSML) is a major player in the branded textile business with portfolio of strong and value-for-money brands like Siyaram’s, J Hampstead, Oxemberg and Mistair. With the enhanced capacity and increasing diversification in the revenue profile, the company would be able to sustain its growth momentum and improve its EBIDTA margin. Further, rise in outsourced manufacturing and repayment of debt will enable the company to post higher profits, going forward. Improvement in market conditions coupled with introduction of new brands and segments will help SSML to maintain its high growth trajectory. SSML has launched two new premium cotton brands – Zenesis and Moretti, and has penetrated further into new growth areas like cotton shirting, linen fabrics etc. The company has recently forayed into ladies wear (SKD) and ethnic women’s wear under the brand Siya which is a long term growth driver. This will enable the company to post a revenue CAGR of 17.8% over FY2014-16E to Rs 1,810cr.” “SSML is aiming to increase the share of readymade garments segment in its product mix, which has higher margins, thus leading to an overall improvement in the EBITDA margins. The revenue share of readymade garments is expected to increase to 20% in FY2016E from 16.3% in FY2014 which will lead to higher EBIDTA margins of 11.4% in FY2016E. The asset turnover (gross block) is expected to improve from 2.4x in FY2014 to 3.1x in FY2016E as the company has already incurred the required capex. We believe there would be minimum capex requirement going forward as the company would be outsourcing manufacturing, which will prove to be more profitable. In addition, with the cash flow coming in, the company will be able to reduce its debt, thereby easing interest expenses and improving profitability. Hence, we expect the profit to grow at a CAGR of 32.1% over FY2014-16E to Rs 111cr.” “SSML is trading at a PE of 6.1x on FY2016E earnings, which is attractive. We reiterate our Buy rating on the stock with an upgraded target price of Rs 947, valuing the stock at a revised target PE of 8x FY2016E earnings,” says Angel Broking research report.

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