Siyaram Silk Mills 4Q FY 2013

7/28/2019 Siyaram Silk Mills 4Q FY 2013

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Please refer to important disclosures at the end of this report 1

Y/E March (` cr) 4QFY13 4QFY12 % chg. (yoy) 3QFY13 % chg. (qoq)Net Sales 290 267 8.3 279 3.9Operating profit 30 32 (7.6) 31 (4.6)

OPM (%) 10.3 12.0 (177)bp 11.2 (91)bp

Adj. PAT 13 17 (23.8) 14 (6.1)Source: Company, Angel Research

Siyaram Silk Mills (SSM) reported a mixed set of numbers for 4QFY2013, which

were in-line with our estimates on the revenue and profitability fronts. The

company's top-line came in at `290cr, higher by 8.3% yoy, in spite of subdued

consumer sentiments. The company however disappointed on the operating

margin front as its OPM dipped by 177bp yoy to 10.3% for the quarter, which

was mainly because of higher employee costs and other expenses. Moreover, the

depreciation and tax outgo for the quarter was also higher yoy, which resulted in

a decline in profit by 23.8% yoy to `13cr, in line with our expectation.

Increasing demand for blended fabric and strong branding strategy to drivegrowth: Due to improving standard of living and brand consciousness amongconsumers, the demand for blended fabric (polyester viscous fabric) in India is

increasing. SSM is the largest manufacturer of blended fabric in India and enjoys

4% market share in the organized market in this segment. With a portfolio of

strong and value-for-money brands like Siyarams,J Hampstead andMistair in its

fabric segment, SSM is well placed to cater to the increasing demand for polyesterviscose fabrics. The company is aggressive marketing its brands with it having

signed up celebrities like M S Dhoni, Neil Nitin Mukesh and Hrithik Roshan as

brand ambassadors for its products. Moreover, the company has one of the

largest distribution networks in the country. These factors together are expected to

drive the sales at a 12.7% CAGR over FY2013-15E.

Outlook and valuation: With market leadership in the blended fabrics segment,strong brand building, wide distribution channel, strong presence in tier II and tier

III cities and emphasis on latest designs and affordable pricing points, we expect

SSM to post a revenue CAGR of 12.7% over FY2013-15E to `1,322cr with an

EBITDA margin of 11.9%. The stock is currently trading at an attractive valuation

of 3.1x FY2015E earnings. We continue to maintain our Buy rating on the stockwith a revised target price of `343, valuing the stock at 4.0x FY2015E earnings.Key financialsY/E March (` cr) FY2011 FY2012 FY2013 FY2014E FY2015E

Net Sales 860 916 1,041 1,158 1,322% chg 30.3 6.5 13.7 11.2 14.2

Adj. Net Profit 58 57 55 68 80% chg 70.6 (1.4) (3.0) 24.1 17.6

OPM (%) 12.8 12.7 10.6 11.9 11.9EPS (`) 61.4 60.5 58.7 72.9 85.7

P/E (x) 4.3 4.4 4.5 3.6 3.1

P/BV (x) 1.1 0.9 0.8 0.7 0.6

RoE (%) 29.5 23.3 18.9 19.8 19.6

RoCE (%) 18.3 18.5 15.2 16.9 17.6

EV/Sales (x) 0.5 0.5 0.5 0.4 0.4

EV/EBITDA (x) 4.3 3.9 4.4 3.7 3.2

Source: Company, Angel Research

BUYCMP `265

Target Price `343

Investment Period 12 Months

Stock Info

Sector

Net debt (`cr) 238

Bloomberg Code

Shareholding Pattern (%)

Promoters 67.1

MF / Banks / Indian Fls 11.1

FII / NRIs / OCBs 0.1

Indian Public / Others 21.8

Abs.(%) 3m 1yr 3yr

Sensex 3.9 22.7 15.2

SSM 0.8 2.8 40.1

SIYA IN

Avg. Daily Volume 1,620

Face Value (`) 10

BSE Sensex 19,610Nifty 5,939

Reuters Code SIYR.BO

52 Week High / Low 339 / 228

Textile

Market Cap (`cr) 249

Beta 0.4

Tejashwini Kumari022-39357800 Ext: 6856

[email protected]

Siyaram Silk MillsResult in-line, Maintain Buy

4QFY2013 Result Update | Textile

June 3, 2013


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Siyaram Silk Mills | 4QFY2013 Result Update

June 3, 2012 2

Exhibit 1:4QFY2013 performanceY/E March (` cr) 4QFY13 4QFY12 % chg. (yoy) 3QFY13 % chg. (qoq) FY2013 FY2012 % chgNet Sales 290 267 8.3 279 3.9 1,041 916 13.7Net raw material 151 157 (4.2) 142 5.9 532 460 15.7(% of Sales) 52.0 58.8 (678) 51.1 98 51.1 50.2

Employee Cost 23 17 37.5 25 (5.8) 89 63 41.8

(% of Sales) 8.0 6.3 170 8.8 (82) 8.6 6.9

Other Expenses 86 61 40.8 81 6.6 310 276 12.1

(% of Sales) 29.7 22.8 684 28.9 75 29.7 30.2

Total Expenditure 260 235 10.5 248 4.9 931 799 16.5Operating Profit 30 32 (7.6) 31 (4.6) 110 117 (5)OPM (%) 10.3 12.0 (177)bp 11.2 (91)bp 10.6 12.7 (214)bp

Interest 5 7 (22.1) 8 (35.9) 25 24 4.7

Depreciation 6 6 5.4 6 9.3 22 22 (2.2)

Other Income 3 3 (16.9) 3 (16.9) 19 11 68.1

PBT 21 23 (8.1) 21 1.5 82 81 0.7(% of Sales) 7.4 8.7 7.5 7.9 8.9

Tax 8 6 35.2 7 16.1 27 24 9.4

(% of PBT) 39.2 26.7 34.3 32.7 30.1

Reported PAT 13 17 (23.8) 14 (6.1) 55 57 (3.0)Extraordinary Expense/(Inc.) - - - - -

Adjusted PAT 13 17 (23.8) 14 (6.1) 55 57 (3.0)PATM (%) 4.5 6.4 5.0 5.3 6.2


Exhibit 2:Actual vs estimates (4QFY2013)Y/E March (` cr) 4QFY13 Angel est. % diffNet sales 290 296 (2.2)EBITDA 30 38 (22.5)

EBITDA margin (%) 10.3 13.0 (269)bp

Interest 5 10 (49.2)

Depreciation 6 11 (44.0)

Tax 8 7 21.4

Reported PAT 13 13 (0.2)Source: Company, Angel Research

Revenue and profit in-line, margin continues to disappointed

SSM reported a mixed set of numbers for 4QFY2013. It reported revenue of

`290cr, 8.3% higher yoy and in-line with our estimate of `296cr.

The revenue from fabric segment grew by 8% yoy to `235cr followed by garment

segment which grew by 16.3% to `39cr. The revenue from yarn segment stood at

`10cr (4.1% yoy growth) and revenue from furnishing segment stood at `5cr (5.1%

yoy growth).


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June 3, 2012 3

Exhibit 3:Sales break-up (4QFY2013)


Exhibit 4:Fabric segment break-up (4QFY0213)


However, the company disappointed on the operating front as the OPM came in at10.3% against our estimate of 13.0%, mainly due to higher-than-expected raw

material cost as a percentage of net sales. On a yoy basis, the operating margin

dipped by 177bp yoy mainly because of higher employee cost and other expense.

Exhibit 5:Revenue in-line amidst slowdown


Exhibit 6:...however, margin witnessed pressure yoy


The interest outgo for the quarter was `5cr, against our estimate of `10cr and

depreciation cost for the quarter stood at `6cr, against our estimate of `11cr.

Additionally, the tax outgo for the quarter was higher at `8cr, 39.2% of PBT.

Consequently, the company reported a bottom-line of `13cr, lower by 23.8% yoy,and in line with our expectation.

The company introduced some value added products during the quarter like 100%

linen and few products under the brands Siyarams andMistair in order to improve

the average realization.

Fabric81%

Yarn3%

Furnishing

2%

Garment14%

Suiting52%

Shirting15%

J.Hampstead

11%

Mistair13%

Cotton Brands9%

245

181

244

222

267

206

267

279

290

30.2

6.8

13.5

(2.6)

8.9

13.59.3

25.6

8.3

(10)

0

10

20

30

40

0

50

100

150

200

250

300

350

4QFY11

1QFY12

2QFY12

3QFY12

4QFY12

1QFY13

2QFY13

3QFY13

4QFY13

(%)

(`

cr)

Revenue (LHS) yoy growth (RHS)

32

22

33

29

32

23

26

31

30

13.0

12.0

13.4 13.2

12.0

11.2

9.6

11.2

10.3

8

9

10

11

12

13

14

0

10

20

30

40

4QFY11

1QFY12

2QFY12

3QFY12

4QFY12

1QFY13

2QFY13

3QFY13

4QFY13

(%)

(`c

r)

EBITDA (LHS) EBITDA Margin (RHS)


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June 3, 2012 4

Investment arguments

Increasing demand for blended fabric (poly viscous) to drive

growth

Being the largest manufacturer of blended fabric in India, SSM enjoys 4% market

share in the organized market in this segment. Increasing demand for polyester

viscous fabric, shift from unbranded fabric to branded blended fabrics on the back

of improved standard of living and rising disposable income in tier II and tier III

cities, and a portfolio of strong and value-for-money brands like Siyarams, J

Hampstead and Mistair in the fabric segment, place SSM in a sweet spot. On

account of increasing demand and companys capacity to cater to it, we expect the

company to post a revenue CAGR of 12.7% over FY2013-15E to `1,1322cr.

Apt brand positioning and rigorous advertisement to push

demand

SSM has built a strong brand presence in the country through continuous

advertisement and brand-building efforts. SSMs emphasis on latest fabrics,

innovative and latest designs and affordable pricing points give it an edge in the

market and the segment it caters to. Every brand holds a distinct position in the

consumers minds which has helped the company in creating a niche for itself in a

highly competitive industry.

Additionally, the company has been spending rigorously on advertising for the

recognition of its brands. In FY2013, the company spent `30cr on advertisement

(including conferences, publicity and business promotion activities). We expect the

companys advertising spend to be at the same level going ahead and stand at

`38cr for FY2015E.

Exhibit 7:Aggressive ad spends to continue to strengthen brand image


17 20 24 23 30 33 38

3.33.1

2.8

2.5

2.92.9

2.9

0

1

2

3

4

0

10

20

30

40

FY2009

FY2010

FY2011

FY2012

FY2013

FY2014E

FY2015E

(%)

(`

cr)

Advertisement (LHS) % of Net Sales


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June 3, 2012 5

Aggressive retail expansion to strengthen brand image and

visibility

SSM has one of the largest distribution networks in the country. The company has

a strong network of over 1,600 dealers and 500 agents supplying to more than

40,000 outlets across India. This enables the company to launch new products

with a high success ratio and low marketing cost, giving it an edge over

competitors. In order to expand its retail footprint, the company has added another

27 stores through franchise (franchisees invest ~`25lakh on average for interior

works and inventory with the minimum space requirement being 800 square feet)

in the first two months of FY2014 to reach the total store to ~167 and aims to sign

total of 90 stores in FY2014E. It plans to increase the number of stores to 500

through franchisees by FY2017E.


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June 3, 2012 6

Financials

Exhibit 8:AssumptionsFY2010 FY2011 FY2012 FY2013E FY2014E FY2015E CAGR*

Rural GDP (at factor cost) growth (%) 16.0 17.9 16.4 13.2 13.3 15.4 14.3

Sales growth for SSM (%) 24.4 30.3 6.5 13.7 11.2 14.2 12.7Finish Cloth 24.3 31.0 4.4 13.7 12.8 14.2 13.5

Readymade Garments 30.4 24.4 29.8 16.1 2.6 14.2 8.3

Yarn 21.7 16.9 (11.7) 8.9 11.2 14.2 12.7

Others 7.8 67.0 8.7 7.5 0.2 14.2 7.0

Source: Company, Angel Research; *(2013-15E)

Leadership in blended fabrics, strong branding to drive revenue

The revenue for FY2013 grew at 13.7% to`

1,041cr, in-line with our estimate of`1,048cr. The fabric segment contributed 80% to the sales, followed by garment

(14%), yarn (4%) and furnishing (2%) segments. In the fabric segment, suitings

continue to lead with a 55% contribution. Cotton brands Zenesis andMorettis

contribution to revenue rose by 2% to 4.1% (2.1% in FY2012).

Exhibit 9:Sales break-up for FY2013


Exhibit 10:Fabric segment break-up (FY2013)


The companys average realization across segments has increased (fabric by 6.6%,

yarn by 10.5% and garment by 11.9%), except for furnishing (average realization

dipped by 10.3%), during the year. We believe factors like 1) increasing demand

for polyester viscose fabric and 2) shift in demand from unbranded fabrics to

branded ones in tier II and tier III cities, will continue to drive revenue growth for

the company. On back of the driving factors, we expect the revenue to grow at a

CAGR of 12.7% to `1,322cr over FY2012-15E.

The raw material price for FY2013 remained elevated and led to a lower operating

margin of 10.6% for the year, against our estimate of 11.3%. Also, the employee

cost as a percentage of sales increased from 6.9% in FY2012 to 8.6% in FY2013

on account of the expansion plan and wage hike given. Hence the operating

margin for FY2013 contracted by 214bp and came at 10.6%. Going ahead, we

expect raw material prices to stabilize as inflation slows down. We expect the

operating margin to expand by 127bp and stand at 11.9% for FY2015E.

Consequently we expect the profit to grow at a CAGR of 20.8% over FY2013-15E

to `80cr.

Fabric80%

Yarn4%

Furnishing2%

Garment14%

Suiting55%

Shirting16%

J.Hampstead10%

Mistair14% Cotton Brands

5%


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June 3, 2012 7

Exhibit 11:Volume to be the main driver for revenue growth


Exhibit 12:Margin to improve going forward


Exhibit 13:Relative valuationCompany Year end Mcap Sales OPM PAT EPS RoE P/E P/BV EV/Sales EV/(` cr) (` cr) (%) (` cr) (`) (%) (x) (x) (x) EBITDA (x)SSM FY2014E 249 1,158 11.9 68 72.9 19.8 3.6 0.7 0.4 3.7

FY2015E 249 1,322 11.9 80 85.7 19.6 3.1 0.6 0.4 3.2

Alok Industries* FY2014E 1093 13,575 23.8 766 5.6 19.1 1.4 0.2 1.2 5.1

FY2015E 1093 14,290 22.7 1008 7.3 20.4 1.1 0.2 1.2 5.1

Arvind Ltd.* FY2014E 2126 6,038 13.1 310 12.0 13.2 6.8 0.9 0.7 5.3

FY2015E 2126 6,970 13.5 341 13.2 13.4 6.2 0.8 0.6 4.5

Raymond* FY2014E 1703 4,561 11.0 131 21.3 9.1 13.1 1.1 0.6 5.4

FY2015E 1703 5,108 11.6 189 30.7 11.9 9.1 1.1 0.5 4.5

Source: Company, Angel Research; * Bloomberg estimates

660

860

916

1041

1158

1322

24.4

30.3

6.5

13.711.2

14.2

0

5

10

15

20

25

30

35

0

200

400

600

800

1,000

1,200

1,400

FY2010 FY2011 FY2012 FY2013 FY2014E FY2015E

(%)

(`c

r)

Revenue (LHS) Revenue growth (RHS)

70

110

117

110

138

157

10.6

12.8 12.7

10.6

11.9

11.9

5.0

7.0

9.0

11.0

13.0

15.0

0

20

40

60

80

100

120

140

160

180

FY2010 FY2011 FY2012 FY2013 FY2014E FY2015E

(%)

(`cr)

EBITDA (LHS) EBITDA Margin (RHS)


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June 3, 2012 8

Outlook and valuation: With moderation in inflation, we expect economic outlookto improve and demand for the companys products to pick-up. With market

leadership in blended fabrics, strong brand building, wide distribution channel,

strong presence in tier II and tier III cities and emphasis on latest designs andaffordable pricing points, we expect SSM to post a revenue CAGR of 12.7% over

FY2013-15E to `1,322cr with an EBITDA margin of 11.9%. We expect the profit to

grow at a CAGR of 20.8% over FY2013-15E to `80cr. The stock is currently

trading at an attractive valuation of 3.1x FY2015E earnings. We continue tomaintain our Buy rating on the stock with a revised target price of `343, valuingthe stock at 4.0x FY2015E earnings.Exhibit 14:One-year forward P/E band


Concerns

Competition from the unorganized sector: SSM, being in a sector thats

highly unorganized, faces intense competition from unorganized players as they

usually sell their products at a much cheaper rate compared to SSM. However, due

to strong branding efforts, huge distribution network and affordable price points,

the company is easily able to differentiate its products from those of competitors.

Fluctuations in raw-material prices: SSM operates in a highly price-sensitive

market. Any fluctuation in raw-material prices can lead to margin compression, as

the company may not be able to pass on the entire increase to the end-user. Also,

Polyviscose is a crude derivative, so any wide fluctuation in crude prices may

further affect the operating margin of the company.

0

100

200

300

400

500

600

700

May-0

8

Aug-0

8

Nov-0

8

Fe

b-0

9

May-0

9

Aug-0

9

Nov-0

9

Fe

b-1

0

May-1

0

Aug-1

0

Nov-1

0

Fe

b-1

1

May-1

1

Aug-1

1

Nov-1

1

Fe

b-1

2

May-1

2

Aug-1

2

Nov-1

2

Fe

b-1

3

May-1

3

(`)

Price (`) 2x 4x 6x 8x


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June 3, 2012 9

Company background

SSM is the largest manufacturer of blended fabrics in India. The company enjoys a

strong brand presence across the country, with brands such as Siyarams,Mistair,

MSD, J. Hampstead and Oxemberg in its kitty. The company recently launched

three brands - Royal Linen (linen fabrics for men and women), Moretti (cotton

shirting) andZenesis (cotton suitings). SSM has built a strong brand presence in the

country through continuous advertisement and brand-building efforts over the past

30 years. The company has created a niche for itself in a highly competitive

industry.

It has a wide distribution network comprising 1,600 dealers and 500 agents

supplying to more than 40,000 outlets across India and has ~140 franchise stores

with plans to increase the network to 500 stores by FY2017. 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.


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June 3, 2012 10

Profit and loss statement

Y/E Mar. (` cr) FY2011 FY2012 FY2013 FY2014E FY2015ENet Sales 860 916 1,041 1,158 1,322

Other operating income - - - - -Total operating income 860 916 1,041 1,158 1,322% chg 30.3 6.5 13.7 11.2 14.2

Net Raw Materials 435 460 532 575 655

% chg 28.6 5.7 15.7 8.0 13.9

Power and Fuel 14 16 20 22 25

% chg 16.9 18.4 23.3 11.2 14.2

Personnel 47 63 89 99 115

% chg 21.2 34.5 41.8 11.2 16.1

Other 254 260 290 324 370

% chg 26.4 2.3 11.5 11.8 14.2

Total Expenditure 750 799 931 1,020 1,165

EBITDA 110 117 110 138 157% chg 56.5 6.0 (5.4) 24.9 13.9

(% of Net Sales) 12.8 12.7 10.6 11.9 11.9

Depreciation 21 22 22 25 26

EBIT 89 94 88 113 131% chg 77.9 5.9 (6.2) 27.8 15.6

(% of Net Sales) 10.4 10.3 8.5 9.8 9.9

Interest & other Charges 15 24 25 28 27Other Income 9 11 19 16 16

(% of Net Sales) 1.0 1.2 1.8 1.4 1.2

Recurring PBT 74 70 63 85 104% chg 94.2 (5.1) (9.9) 34.8 21.3

PBT (reported) 83 81 82 102 119Tax 25 24 27 33 39

(% of PBT) 30.6 30.1 32.7 32.7 32.7

PAT (reported) 58 57 55 68 80Extraordinary Expense/(Inc.) 0 - - - -

ADJ. PAT 58 57 55 68 80% chg 70.6 (1.4) (3.0) 24.1 17.6

(% of Net Sales) 6.7 6.2 5.3 5.9 6.1Basic EPS (`) 61.4 60.5 58.7 72.9 85.7Fully Diluted EPS (`) 61.4 60.5 58.7 72.9 85.7% chg 70.6 (1.4) (3.0) 24.1 17.6


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June 3, 2012 11

Balance sheet

Y/E Mar. (` cr) FY2011 FY2012 FY2013 FY2014E FY2015ESOURCES OF FUNDSEquity Share Capital 9 9 9 9 9Reserves& Surplus 211 258 305 365 437

Shareholders Funds 220 267 314 374 446Total Loans 244 215 241 265 265

Other Long Term Liabilities 19 23 23 23 23

Long Term Provisions 3 3 5 5 6

Deferred Tax (Net) 17 16 19 19 19

Total liabilities 503 525 602 687 759APPLICATION OF FUNDSGross Block 387 403 500 550 583

Less: Acc. Depreciation 157 173 195 219 246

Net Block 231 230 305 330 337Capital Work-in-Progress 1 15 16 16 16

Goodwill - - - - -

Investments 18 3 0 0 0

Long Term Loans and adv. 21 20 8 14 20

Other Non-current asset - - - - -

Current Assets 397 458 508 565 654

Cash 3 2 3 8 11

Loans & Advances 50 78 82 90 106

Inventory 149 188 222 239 276

Debtors 195 190 200 228 261

Other current assets - - 0 0 0

Current liabilities 165 201 235 239 268

Net Current Assets 232 257 273 326 386Misc. Exp. not written off - - - - -

Total Assets 503 525 602 687 759


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June 3, 2012 13

Key ratios

Y/E Mar. FY2011 FY2012 FY2013 FY2014E FY2015EValuation Ratio (x)P/E (on FDEPS) 4.3 4.4 4.5 3.6 3.1P/CEPS 3.2 3.1 3.2 2.7 2.3

P/BV 1.1 0.9 0.8 0.7 0.6

EV/Net sales 0.5 0.5 0.5 0.4 0.4

EV/EBITDA 4.3 3.9 4.4 3.7 3.2

EV / Total Assets 1.0 0.9 0.8 0.8 0.7

Per Share Data (`)EPS (Basic) 61.4 60.5 58.7 72.9 85.7

EPS (fully diluted) 61.4 60.5 58.7 72.9 85.7

Cash EPS 83.7 84.3 82.0 99.3 113.7

DPS 7.0 7.5 7.5 7.5 7.5

Book Value 234.6 285.0 335.1 399.2 476.1

DuPont AnalysisEBIT margin 10.4 10.3 8.5 9.8 9.9

Tax retention ratio 0.7 0.7 0.7 0.7 0.7

Asset turnover (x) 1.9 1.9 1.8 1.8 1.9

ROIC (Post-tax) 13.3 13.5 10.6 11.8 12.3

Cost of Debt (Post Tax) 4.8 7.3 7.4 7.3 6.9

Leverage (x) 1.0 0.8 0.8 0.7 0.6

Operating ROE 22.0 18.3 12.9 14.9 15.4

Returns (%)ROCE (Pre-tax) 18.3 18.5 15.2 16.9 17.6

Angel ROIC (Pre-tax) 19.2 19.3 15.7 17.6 18.3

ROE 29.5 23.3 18.9 19.8 19.6

Turnover ratios (x)Asset TO (Gross Block) 2.4 2.3 2.3 2.2 2.3

Inventory / Net sales (days) 51 67 72 73 71

Receivables (days) 66 77 68 72 72

Payables (days) 65 84 86 86 84

WC cycle (ex-cash) (days) 97 102 94 100 104

Solvency ratios (x)Net debt to equity 1.0 0.8 0.8 0.7 0.6Net debt to EBITDA 2.0 1.8 2.2 1.9 1.6

Int. Coverage (EBIT/ Int.) 5.9 3.9 3.5 4.1 4.8


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Research Team Tel: 022 - 39357800 E-mail: [email protected] Website: www.angelbroking.com

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Disclosure of Interest Statement Siyaram Silk Mills

1. Analyst ownership of the stock No

2. Angel and its Group companies ownership of the stock Yes

3. Angel and its Group companies' Directors ownership of the stock No

4. Broking relationship with company covered No

Ratings (Returns): Buy (> 15%) Accumulate (5% to 15%) Neutral (-5 to 5%)Reduce (-5% to -15%) Sell (< -15%)

Note: We have not considered any Exposure below`

1 lakh for Angel, its Group companies and Directors

Documents

Siyaram Silk Mills 4Q FY 2013