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Siyaram Silk Mills – Multibagger Stock For the Month of January 2019

Price – Rs. 356.50

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About the Company

Siyaram Silk Mills Limited (“Siyaram Silk” or the “Company”) is the largest manufacturer of blended fabrics in India. The Company enjoys a strong brand presence across the country, with brands such as Siyaram’s, Mistair, MSD, J. Hampstead and Oxemberg.

The Company has also launched three premium brands – Royal Linen (linen fabrics for men and women), Moretti (cotton shirting) and Zenesis (cotton suitings).

Siyaram Silk has a wide distribution network comprising 1,600 dealers and over 300,000 multi brand outlets (MBO).  The Company has expanded its retail presence through the franchisee route taking the total store count to 200+.

Manufacturing Facilities – The Company operates four plants – one at Tarapur near Mumbai for weaving and yarn dyeing, two at Daman for garments and one at Silvassa for weaving.

Financial Position

Particulars

FY14

FY15

FY16

FY17

FY18

Revenue (In Rs. Cr.)

1,303.43

1,510.30

1,619.36

1,568.33

1,731.65

Growth

15.87%

7.22%

-3.15%

10.41%

EBITDA (In Rs. Cr.)

140.11

174.19

187.69

196.73

245.72

EBITDA Margin

10.75%

11.53%

11.59%

12.54%

14.19%

EBIT (In Rs. Cr.)

110.96

133.29

146.12

142.18

185.17

EBIT Margin

8.51%

8.83%

9.02%

9.07%

10.69%

PBT (In Rs. Cr.)

98.02

118.95

132.77

135.99

177.29

PAT (In Rs. Cr.)

63.57

78.79

87.57

91.01

111.59

PAT Margin

4.88%

5.22%

5.41%

5.80%

6.44%

EPS (In Rs.)

13.56

16.81

18.68

19.42

23.81

EPS Growth Rate

24%

11%

4%

22.6%

Historic P/E (Closing Price of 31st March)

4.16

10.46

10.47

17.46

25.33

CURRENT P/E (based on price of 31st December – Rs. 351.05)

15.69

Shareholder funds (In Rs. Cr.)

369.62

434.95

510.70

596.61

678.62

Minority Interest (In Rs. Cr.)

0.00

0.00

0.00

0.00

0.00

Debt (In Rs. Cr.)

275.34

280.47

355.82

267.39

548.77

Cash (In Rs. Cr.)

5.63

4.57

5.86

4.63

22.83

D/E

0.74

0.64

0.70

0.45

0.81

Interest Coverage

4.88

5.70

6.16

6.21

7.18

ROCE

17.20%

18.63%

16.86%

16.46%

15.09%

ROE

26.52%

27.35%

26.00%

22.79%

26.13%

*Siyaram Silk split its equity in the ratio of 10:2 on 25 October 2017. EPS and P/E numbers are adjusted to reflect the effect of split.

Quarterly Results

Q2 FY 2018

Q3 FY 2018

Q4 FY 2018

Q1 FY 2019

Q2 FY 2019

Q-o-Q %

Y-o-Y %

Revenue

422.62

393.60

595.91

322.10

458.66

42.40%

8.53%

EBITDA

64.32

50.37

97.97

33.97

66.57

95.97%

3.50%

EBITDA Margin

15.22%

12.80%

16.44%

10.55%

14.51%

PAT

30.73

22.43

48.08

9.91

24.44

146.62%

-20.47%

PAT Margin

7.27%

5.70%

8.07%

3.08%

5.33%

EPS

6.56

4.79

10.26

2.11

5.21

146.62%

-20.47%

Q2 FY 2019 Highlights

  • Revenues for the quarter grew at a moderate pace of 8.5% Y-o-Y to Rs. 458.66 Cr. Fabric and garmenting division grew 5% each Y-o-Y to Rs. 298 Cr. and Rs. 132 Cr., respectively.
  • EBITDA margins fell 71 bps Y-o-Y to 14.51% on account of increase in other expenses by 22% Y-o-Y to Rs. 103.4 Cr. (higher advertisement spends and expenses pertaining towards the new facility).
  • The Company incurred exceptional expense of Rs. 4.72 Cr. 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% Y-o-Y to Rs. 12.0 Cr.), further impacted PAT growth. PAT fell 20.5% Y-o-Y to Rs. 24.44 Cr.

Peer Comparison

Siyaram Silks Peers

INVESTMENT RATIONALE

Diversified Brand Portfolio

The Company has a diverse fabric range consisting of all blends such as polyester viscose, polyester wool, 100% cotton, cotton blends, and linen. In the fabrics division, its main brands are Siyaram’s, Mistair, Featherz, and J. Hampstead. Siyaram Silk has also launched new brands in cotton fabrics such as Moretti and Zenesis. Its ready-to-wear garments division has brands such as Oxemberg, MSD (My Style Destination), J. Hampstead, Cadini and Siya. In furnishing fabrics, it has the Casa Moda brand.

Asset-light Model of operations, with a balanced mix of own manufacturing and outsourcing. The Company has been on an expansion spree by primarily focusing on widening its presence through franchise stores.

Consistent Financial Performance

The Company has shown consistent growth over the last five years. It’s net revenue from operations and net profit over this period grew at an impressive CAGR of 10.91 % and 15.67%, respectively.

Change in Brand Positioning

The Company is strategically transforming itself from a textile manufacturer with a wide portfolio of brands such as Siyaram’s, Oxemberg, J. Hampstead, Siya, Cadini, Casamoda and Mistair.  The Company’s extensive promotional campaign “Come Home to Siyaram’s” has helped in enhancing its brand recall. Siyaram has signed up celebrities like MS Dhoni, Saif Ali Khan and Hrithik Roshan as brand ambassadors for its men’s brands, and Parineeti Chopra and Karishma Kapoor to promote its women’s brands. Recently, the Company has signed Ranveer Singh to increase its brand presence among young consumers.

INVESTMENT CONCERNS

Intense Competition

Siyaram Silk operates in a highly fragmented industry, with competition from both the organised and unorganised players. The Company’s market share is estimated at less than 5%. To withstand competition in the branded fabrics and garments business, Siyaram Silk needs to continuously invest in marketing and come up with new brands to maintain its market position.

Financial Risk – high level of debt at 0.81x equity.

Total debt for the Company increased 105% Y-o-Y to Rs. 549 Cr. in FY 2018 (Rs. 267 Cr. in FY 2017). High debt on the books was mainly on account of capex undertaken by the company (~ Rs. 140 Cr. towards increase its processing fabric capacity and installing indigo dyed yarn facility) and disruption in working capital cycle owing to GST related issues (longer credit period given to the dealers).

Volatile Raw Material Prices

Revenue and profitability are exposed to economic down turns and government policies regarding cotton.

About the Author

Rajat Sharma pictureRajat Sharma is a well known stock market analyst and commentator. He has covered Indian markets for over a decade and is regarded for consistently identifying early stage investment opportunities. Attorney by qualification, Rajat has done extensive work for improving corporate governance and disclosure standards.