Siyaram Silk Mills Ltd - National Stock Exchange of India

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Enhancing investment decisions

Q1FY12 Result Update

Siyaram Silk Mills Ltd


Explanation of CRISIL Fundamental and Valuation (CFV) matrix

The CFV Matrix (CRISIL Fundamental and Valuation Matrix) addresses the two important analysis of an investment making process –

Analysis of Fundamentals (addressed through Fundamental Grade) and Analysis of Returns (Valuation Grade) The fundamental

grade is assigned on a five-point scale from grade 5 (indicating Excellent fundamentals) to grade 1 (Poor fundamentals) The

valuation grade is assigned on a five-point scale from grade 5 (indicating strong upside from the current market price (CMP)) to

grade 1 (strong downside from the CMP).

CRISIL Fundamental Grade

Assessment CRISIL Valuation Grade

Assessment

5/5 Excellent fundamentals 5/5 Strong upside (>25% from CMP)

4/5 Superior fundamentals 4/5 Upside (10-25% from CMP)

3/5 Good fundamentals 3/5 Align (+-10% from CMP)

2/5 Moderate fundamentals 2/5 Downside (- 10-25% from CMP)

1/5 Poor fundamentals 1/5 Strong downside (<-25% from CMP)

Analyst Disclosure

Each member of the team involved in the preparation of the grading report, hereby affirms that there exists no conflict of interest

that can bias the grading recommendation of the company. Additional Disclosure

This report has been sponsored by NSE - Investor Protection Fund Trust (NSEIPFT). Disclaimer:

This Exchange-commissioned Report (Report) is based on data publicly available or from sources considered reliable by CRISIL

(Data). However, CRISIL does not guarantee the accuracy, adequacy or completeness of the Data / Report and is not responsible for

any errors or omissions or for the results obtained from the use of Data / Report. The Data / Report are subject to change without

any prior notice. Opinions expressed herein are our current opinions as on the date of this Report. Nothing in this Report constitutes

investment, legal, accounting or tax advice or any solicitation, whatsoever. The Report is not a recommendation to buy / sell or hold

any securities of the Company. CRISIL especially states that it has no financial liability, whatsoever, to the subscribers / users of this

Report. This Report is for the personal information only of the authorized recipient in India only. This Report should not be

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© CRISIL Limited. All Rights Reserved. CRISIL RESEARCH | 1

Siyaram Silk Mills Ltd Realisation drives sales growth

Fundamental Grade 4/5 (Superior fundamentals)

Valuation Grade 3/5 (CMP is aligned)

Industry Textile, Apparel & Luxury Goods

Fair Value Rs 374 CMP Rs 328

August 18, 2011

Siyaram Silk Mills Ltd’s (SSML’s) Q1FY12 revenues and earnings were in line with CRISIL Research’s expectations. Although there was some pressure on volume growth, it was offset by the hike in realisation. Despite operating in a highly fragmented market, SSML has been able to differentiate itself from unorganised and organised competitors. Sustained brand-building efforts have helped the company emerge as a strong brand in its fabric and garment segments. We remain positive on the company’s growth prospects and its ability to withstand growing competition in the fabric space. We maintain our fundamental grade of 4/5 for SSML. Q1FY12 result analysis

• Q1FY12 revenues grew marginally by ~7% y-o-y to Rs 1,812 mn, driven by

demand for branded fabrics. Although the fabric and yarn segments

reported a decline in volume, the company was able to hike realisation

across brands and products.

o The fabric segment registered a 7% decline in volumes; however,

sales increased 3% y-o-y largely driven by improvement in realisation

o A similar trend was observed in the yarn segment where volumes

declined by 25% y-o-y, but realisation improved to around 18%.

o The garment division recorded 36% y-o-y sales growth driven mainly

by a 31% hike in average realisations.

• EBITDA margin improved by ~50 bps to 12.0% y-o-y due to lower raw

material cost as a proportion of revenues (46.7% in Q1FY12 vs. 47.7% in

Q1FY11).

• PAT margin remained flat at 5.3% y-o-y. The marginal improvement in

EBITDA margin was offset by higher interest. EPS stands at Rs 10.2 (Rs

9.1 as on Q1FY11). Revised capacity expansion on schedule

In Q3FY11, the management had announced a revised capacity expansion plan for FY12-13. The plan entailed a revision of timelines for the fabric capacity (286 looms) owing to uncertainty surrounding the Technology Upgradation Fund Scheme. The government has restructured and extended the scheme till FY12; accordingly SSML’s revised plan is also on schedule. Valuations: Current market price is aligned

We maintain our earnings and revenue estimates for FY12 and FY13. We continue to value SSML based on the discounted cash flow method and retain our fair value of Rs 374. At the current market price, the stock merits a valuation grade of 3/5.

KEY FORECAST

(Rs mn) FY09 FY10 FY11# FY12E FY13E

Operating income 6,525 8,005 10,303 10,994 14,159

EBITDA 497 746 1,089 1,196 1,707

Adj PAT 103 319 576 581 890

Adj EPS-Rs 10.9 34.0 61.4 62.0 95.0

EPS growth (%) 24.5 194.8 70.8 0.8 53.3

Dividend yield (%) 11.4 4.3 2.1 2.1 2.1

RoCE (%) 8.2 15.7 21.3 18.1 22.8

RoE (%) 7.4 20.4 29.6 23.7 28.6

PE (x) 4.7 4.8 5.3 5.3 3.5

P/BV (x) 0.3 0.9 1.4 1.1 0.9

EV/EBITDA (x) 5.2 4.1 5.1 4.8 3.5

#FY11 numbers are based on abridged financials

NM: Not meaningful; CMP: Current market price

Source: Company, CRISIL Research estimate

CFV MATRIX

KEY STOCK STATISTICS NIFTY 4945

NSE SIYSIL

Face value (Rs per share) 10

Shares outstanding (mn) 9.4

Market cap (Rs mn)/(US$ mn) 3,083/68

Enterprise value (Rs mn) /(US$ mn) 5,707/125

52-week range (Rs) (H/L) 464/262

Beta 0.8

Free float (%) 32.9%

Avg daily volumes (30-days) 20,044

Avg daily value (30-days) (Rs mn) 7.2

SHAREHOLDING PATTERN

PERFORMANCE VIS-À-VIS MARKET

Returns

1-m 3-m 6-m 12-m

Siyaram -14% -12% 9% -10%

NIFTY -11% -9% -9% -10%

ANALYTICAL CONTACT Sudhir Nair (Head) [email protected]

Arun Vasu [email protected]

Vinay Chhawchharia [email protected]

Client servicing desk

+91 22 3342 3561 [email protected]

1 2 3 4 5

1

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3

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5

Valuation Grade

Fu

nd

am

en

tal G

rad

e

Poor Fundamentals

ExcellentFundamentals

Str

on

gD

ow

nsid

e

Str

on

gU

psid

e67.1% 67.1% 67.1% 67.1%

3.9% 3.6% 3.6% 3.8%

29.0% 29.4% 29.3% 29.1%

0%

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Sep-10 Dec-10 Mar-11 Jun-11

Promoter DII Others



Q1FY12 Result Summary (Rs mn) Q1FY12 Q4FY11 Q1FY11 q-o-q (%) y-o-y (%)

Net sales 1,812 2,455 1,697 (26.2) 6.8

Raw materials cost 846 1,232 809 (31.3) 4.6

Raw materials cost (% of net sales) 46.7% 50.2% 47.7% -351bps -98bps

Employees cost 136 127 101 7.7 35.0

Other expenses 612 777 592 (21.3) 3.3

EBITDA 218 320 195 (31.7) 11.7

EBITDA margin 12.0% 13.0% 11.5% -97bps 53bps

Depreciation 51 52 52 (3.2) (2.0)

EBIT 167.6 267.1 143.6 (37.3) 16.7

Interest and finance charges 45 51 28 (10.9) 60.3

Operating PBT 123 217 116 (43.4) 6.0

Other Income 16 44 10 (63.9) 54.6

PBT 138 260 126 (46.9) 10.0

Tax 43 74 41 (42.2) 5.7

PAT 95 186 85 (48.7) 12.1

Adj PAT 95 186 85 (48.7) 12.1

Adj PAT margin 5.3% 7.6% 5.0% -231bps 25bps

No of equity shares (Mn) 9.4 9.4 9.4 - -

Adj EPS (Rs) 10.2 19.8 9.1 (48.7) 12.1

Source: Company, CRISIL Research

EBITDA margin stable y-o-y PAT and PAT margin improve y-o-y

Source: Company, CRISIL Research Source: Company, CRISIL Research

Share price movement Fair value movement since initiation

-indexed to 100

Source: NSE, CRISIL Research Source: NSE, CRISIL Research

1350

1743

1647

1886

1697

2155

2280

2455

1812

8.6%

10.3% 10.5%

14.0%

11.5%12.7% 13.1% 13.0%

12.0%

0%

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Q2FY

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Q3FY

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Q4FY

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Q1FY

12

(Rs mn)

Quarterly Sales EBITDA Margin (RHS)

38

81

66

153

85

145

159

186

95

2.8%

4.6%4.0%

8.1%

5.0%

6.7% 7.0%7.6%

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Q1FY

12

(Rs mn)

Quarterly PAT PAT Margin (RHS)

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Siyaram NIFTY

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20-J

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10-

Aug-1

1

('000)(Rs)

Total Traded Quantity (RHS) CRISIL Fair Value Siyaram

Branded fabric segment

boosts the top line

Lower raw material costs

marginally improve

EBITDA



VALUATION

We continue to value SSML based on the DCF method and retain our fair value

of Rs 374. Our current forecast period is from FY12 to FY21 to factor in the

capex plan. At the current market price, the stock merits a valuation grade of

3/5.

One-year forward P/E band One-year forward EV/EBITDA band


P/E-premium/discount to NIFTY P/E movement


CRISIL IER reports released on Siyaram Silk Mills Ltd

Date Nature of report

Fundamental

grade Fair value

Valuation

grade

CMP

(on the date of report)

8-Sep-10 Initiating coverage* 4/5 Rs 340 3/5 Rs 369

9-Nov-10 Q2FY11 result update 4/5 Rs 374 2/5 Rs 415

14-Feb-11 Q3FY11 result update 4/5 Rs 374 4/5 Rs 304

25-May-11 Q4FY11 result update 4/5 Rs 374 3/5 Rs 379

18-Aug-11 Q1FY12 result update 4/5 Rs 374 3/5 Rs 328

* For detailed initiating coverage report please visit: www.ier.co.in

CRISIL Independent Equity Research reports are also available on Bloomberg (CRI <go>) and Thomson Reuters.

0

100

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Jan-0

8

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-09

Dec-

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Mar

-10

Jun-

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Jan-1

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(Rs)

Siyaram 1x 1x 4x 7x 10x

0

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1

Apr-

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Aug

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(Rs mn)

EV 3x 4x 5x 6x

-100%

-90%

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-70%

-60%

-50%

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-30%

-20%

-10%

0%

Jan-

08

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Premium/Discount to NIFTY Median premium/discount to NIFTY

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(Times)

1yr Fwd PE (x) Median PE

+1 std dev

-1 std dev



FINANCIALS

Note: All ratios are computed on Adj PAT

#FY11 numbers are based on abridged financials

Source: Company, CRISIL Research estimate

Income statement Balance Sheet

(Rs mn) FY09 FY10 FY11# FY12E FY13E (Rs mn) FY09 FY10 FY11# FY12E FY13E

Operating income 6,525 8,005 10,303 10,994 14,159 Liabilities

EBITDA 497 746 1,089 1,196 1,707 Equity share capital 94 94 94 94 94

EBITDA margin 7.6% 9.3% 10.6% 10.9% 12.1% Reserves 1,329 1,605 2,104 2,607 3,421

Depreciation 192 202 209 258 336 Minorities - - - - -

EBIT 305 544 879 939 1,371 Net worth 1,423 1,699 2,198 2,701 3,515

Interest 190 120 147 190 202 Convertible debt - - - - -

Operating PBT 115 424 732 748 1,169 Other debt 2,135 1,686 2,686 2,786 3,016

Other income 20 48 98 88 113 Total debt 2,135 1,686 2,686 2,786 3,016

Exceptional inc/(exp) 12 18 - - - Deferred tax liability (net) 180 183 170 170 170

PBT 146 491 830 836 1,283 Total liabilities 3,738 3,568 5,054 5,658 6,701

Tax provision 32 153 254 256 392 Assets

Minority interest - - - - - Net fixed assets 2,019 1,980 1,873 2,515 3,479

PAT (Reported) 114 337 576 581 890 Capital WIP 18 5 605 705 55

Less: Exceptionals 12 18 - - - Total fixed assets 2,037 1,984 2,477 3,219 3,534

Adjusted PAT 103 319 576 581 890 Investments 0 197 177 157 137

Current assets

Ratios Inventory 972 893 1,496 1,566 2,095

FY09 FY10 FY11# FY12E FY13E Sundry debtors 1,138 1,168 1,835 1,747 2,347

Growth Loans and advances 260 157 157 157 157

Operating income (%) 10.0 22.7 28.7 6.7 28.8 Cash & bank balance 21 29 62 51 59

EBITDA (%) 40.4 50.1 45.9 9.9 42.7 Marketable securities - 131 121 111 101

Adj PAT (%) 9.2 210.9 80.6 0.8 53.3 Total current assets 2,391 2,378 3,671 3,632 4,758

Adj EPS (%) 9.2 210.9 80.6 0.8 53.3 Total current liabilities 721 1,013 1,293 1,373 1,750

Net current assets 1,670 1,365 2,378 2,259 3,008

Profitability Intangibles/Misc. expenditure 31 22 22 22 22

EBITDA margin (%) 7.6 9.3 10.6 10.9 12.1 Total assets 3,738 3,568 5,054 5,658 6,701

Adj PAT Margin (%) 1.6 4.0 5.6 5.3 6.3

RoE (%) 7.4 20.4 29.6 23.7 28.6 Cash flow

RoCE (%) 8.2 15.7 21.3 18.1 22.8 (Rs mn) FY09 FY10 FY11# FY12E FY13E

RoIC (%) 8.4 14.5 21.0 17.3 20.8 Pre-tax profit 135 472 830 836 1,283

Total tax paid (27) (150) (267) (256) (392)

Valuations Depreciation 192 202 209 258 336

Price-earnings (x) 4.7 4.8 5.3 5.3 3.5 Working capital changes 347 444 (990) 98 (751)

Price-book (x) 0.3 0.9 1.4 1.1 0.9 Net cash from operations 646 968 (218) 936 475

EV/EBITDA (x) 5.2 4.1 5.1 4.8 3.5 Cash from investments

EV/Sales (x) 0.4 0.4 0.5 0.5 0.4 Capital expenditure (197) (140) (702) (1,000) (650)

Dividend payout ratio (%) 47.9 19.5 11.4 11.3 7.4 Investments and others 2 (328) 30 30 30

Dividend yield (%) 11.4 4.3 2.1 2.1 2.1 Net cash from investments (195) (468) (672) (970) (620)

Cash from financing

B/S ratios Equity raised/(repaid) - - - - -

Inventory days 80 60 73 78 83 Debt raised/(repaid) (399) (449) 1,000 100 230

Creditors days 39 46 47 47 47 Dividend (incl. tax) (55) (66) (77) (77) (77)

Debtor days 64 54 65 59 61 Others (incl extraordinaries) 12 22 - (0) (0)

Working capital days 102 65 60 71 64 Net cash from financing (442) (492) 923 23 153

Gross asset turnover (x) 2.1 2.5 3.1 2.9 2.9 Change in cash position 10 8 33 (11) 8

Net asset turnover (x) 3.3 4.0 5.3 5.0 4.7 C losing cash 21 29 62 51 59

Sales/operating assets (x) 3.2 4.0 4.6 3.9 4.2

Current ratio (x) 3.3 2.3 2.8 2.6 2.7 Quarterly financials

Debt-equity (x) 1.5 1.0 1.2 1.0 0.9 (Rs mn) Q1FY11 Q2FY11 Q3FY11 Q4FY11 Q1FY12

Net debt/equity (x) 1.5 0.9 1.1 1.0 0.8 Net Sales 1,697 2,155 2,280 2,455 1,812

Interest coverage 1.6 4.5 6.0 4.9 6.8 Change (q-o-q) -10% 27% 6% 8% -26%

EBITDA 195 274 298 320 218

Per share Change (q-o-q) -26% 40% 9% 7% -32%

FY09 FY10 FY11# FY12E FY13E EBITDA margin 11.5% 12.7% 13.1% 13.0% 12.0%

Adj EPS (Rs) 10.9 34.0 61.4 62.0 95.0 PAT 85 145 159 186 95

CEPS 31.4 55.6 83.8 89.4 130.8 Adj PAT 85 145 159 186 95

Book value 151.9 181.2 234.5 288.2 375.0 Change (q-o-q) -48% 71% 9% 17% -49%

Dividend (Rs) 5.8 7.0 7.0 7.0 7.0 Adj PAT margin 5.0% 6.7% 7.0% 7.6% 5.3%

Actual o/s shares (mn) 9.4 9.4 9.4 9.4 9.4 Adj EPS 9.1 15.5 17.0 19.8 10.2


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