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Bloomberg Code: SIYA IN HOLD

Textiles & Apparel November 13, 2014

India ResearchStock Broking Siyaram Silk Mills

RESULT REVIEW

Optimal Product-Mix & Demand to drive Growth

Siyaram Silk Mills (SSML) sales, EBITDA and net income grew 18%, 23% and 19%

YoY respectively during Q2FY15. EBITDA margin increased by 58bps YoY on

account of stable raw material prices and new product launches. Going forward,

management is optimistic on maintaining its margins on stabilizing raw-material

costs, optimized product mix & higher turnover on capex.

Revenue growth fuelled by Capex: SSML carried out capacity expansion at

capital expenditure of Rs 2200 mn, by adding 200 looms and 110 machines for

ready-made garments over the last three years. This boosted its weaving and

garment capacities by 20 MMPA and 0.6 mn pieces per annum, respectively. The

companys top-line grew 18% YoY to Rs. 3,980 mn during Q2FY15 due toenhanced product (linen) mix & improvement in realizations by ~4%. However,

due to challenging consumer sentiments, we expect price hike by ~5% over the

next 4-5 quarters.

EBITDA margins improving on stabilized raw material costs: SSMLs Operating

margin was under pressure for 4-5 quarters on subdued consumer demand and

inability to pass on rise in input costs. However, during Q2FY15, margins

improved despite no price hike. Going forward, we expect the margins to grow

by a similar trend owing to stable raw material prices.

Strong growth in Garments to continue: SSMLsgarment segment grew by 37%

YoY due to higher exports. We expect the segment to register a growth of 23%CAGR during FY14-17E, led by strong brand positioning. Capacity expansion is

expected to drive top-line growth in the fabric segment in the coming quarters.

Valuation and Outlook

SSMLs revenue and net income are expected to grow at a CAGR of 23% and 33%,

respectively over FY14-17E. At CMP, the stock is valued at 7.0x and 5.4x FY16E

and FY17E earnings respectively.We remain positive on SSML and recommend

HOLD on strong financials, superior returnratios and inviting valuations with

a target price of 961 based on 6x FY17E earnings, representing an upside potential

of 12%.

Recommendation (Rs)

CMP 860

Target Price 964

Previous Target Price 745

Upside (%) 12

Stock Information

Mkt Cap (Rs.mn/US$ mn) 8122/132

52-wk H/L (Rs) 877/224.9

3M ADV (mn) 0.02

Beta (x) 1.28

Sensex/Nifty 28047/8390

O/S Shares (mn) 9.37

Shareholding Pattern (%)

Promoter 67.1

Public 26.2

Banks/MF & Others 6.6

FII 0.2

Stock Performance (%)

1M 3M 6M 12MAbsolute 19.8 64.2 273 211.6

Relative to Sensex 12.5 52.8 85.3 170.9

Performance

Source: Bloomberg

Analyst Contact

Varun Chakri

040- 4485 7891

[email protected]

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Exhibit 1: Valuation Summary (Rs. Mn)

YE Mar (Rs Million) FY13 FY14 FY15E FY16E FY17E

Net Sales 10413 13034 15876 19455 23949

EBIDTA 1102 1401 1738 2169 2694

EBIDTA % 10.6 10.7 11.0 11.2 11.3

Adj Net Profit 550 636 850 1151 1506

EPS (Rs.) 59 68 91 123 161

RoE (%) 18.9 18.6 20.9 23.2 24.3

P/E (x) 14.7 12.7 9.5 7.0 5.4

Source: Company, Karvy Research

For private circulation only. For important information about Karvys rating system and other disclosures refer to the end of this

material. Karvy Stock Broking is also available on Bloomberg, KRVY, Thomson Publishers & Reuters


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Oct 00, 2014

Company Name

Exhibit 2: Q2 FY15 Financials

YE Mar (Rs. Millions) Q2 FY15 Q1 FY15 QoQ % Q2 FY14 YoY %

Turnover 3980 3021 31.7 3385 17.6

Expenditure 3490 2699 29.3 2988 16.8

EBIDTA 490 322 52.4 397 23.4

Depreciation 102 108 (5.6) 74 38.0

Interest 78 79 (2.1) 73 6.9

Other Income 37 37 0.8 37 (0.8)

PBT 347 171 103.6 288 20.6

Tax 127 55 131.8 103 23.5

PAT 220 116 90.2 185 19.0

Minority Interest 0 0 - 0 -

Adjusted PAT 220 116 90.2 185 19.0

EBIDTA (%) 12.3 10.6 167 12 Bps 58 Bps

Net profit (%) 5.5 3.8 170 6 Bps 7 Bps


Exhibit 3: Quarterly Segmental Revenue Break-up

Q2FY14 (Sep-13) Q2FY15 (Sep-14)

Source: Company, Karvy Research Source: Company, Karvy Research

Fabric

75%

Garments

17%

Yarn

3%

Bed Linen

2%

SKD

1%

Others

2%

Fabric

72%

Garments20%

Yarn

3%

Bed Linen

1%

SKD

3%Others

1%


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November 13, 2014

Siyaram Silk Mills

Exhibit 4: Segmental Financials

Segment-wise revenues (Rs. Millions) Q2FY15 Q1FY15 QoQ % Q2FY14 YoY %

Fabric 4978 2172 129.2 4433 12.3

Readymade Garments 1367 539 153.6 1001 36.6

Yarn 216 99 118.2 188 14.9Bed Linen 101 35 188.6 96 5.2

SKD (Salwar Kameez) 231 138 67.4 80 188.8

Others 66 32 106.3 89 (25.8)

Volume (mn)

Fabric (Mtr) 361 164 119.7 362 (0.3)

Readymade Garments (Nos.) 19 9 106.2 17 9.4

Yarn (Kg) 9 4 119.8 8 11.0

Bed Linen (Mtr) 4 2 167.7 4 (7.2)

SKD (Salwar Kameez) (Nos.) 5 3 74.9 2 155.2

Others 12 6 122.2 16 (21.9)Realizations(Rs. /unit)

Fabric 138.1 132.3 4.3 122.5 12.7

Readymade Garments 739.0 600.9 23.0 591.7 24.9

Yarn 235.0 235.1 (0.1) 226.7 3.6

Bed Linen 244.3 224.1 9.0 215.0 13.6

SKD (Salwar Kameez) 466.8 488.8 (4.5) 413.0 13.0

Others - - NA - NA


Exhibit 5: Financials

Adjusted Financials (Rs. Mn) Adj. Mar'14 Mar 15E Mar 16E Mar 17E

Net Sales 13034 15876 19455 23949

EBIDTA 1401 1738 2169 2694

EBIDTA margin (%) 10.7 11.0 11.2 11.3

Adj. Net profit 636 850 1151 1506

EPS(Rs.) 68 91 123 161

YoY growth (%) 15.6 33.7 35.4 30.8Source: Company, Karvy Research


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Siyaram Silk Mills

Quarterly Performance

SSMLstop-line grew 31.7% YoY to Rs. 3,980 mn during Q2FY15 on back

of added capacities in fabric & garmenting divisions and enhanced

product mix. Fabric, Readymade garments, Yarn, Bed Linen & SKD

grew by 12%, 37%, 15%, 5% & 189% YoY on account of higher volume &

value realizations. EBITDA margin for the quarter increased by 58bps to

12.3% owing to stable input costs & new launches. Consequentially,

EBITDA grew 23% YoY to Rs. 490 mn. Net income grew 19% YoY to Rs.

220 mn.

Exhibit 6: Quarterly Performance

(Rs Mn)

Dec-12

Mar-13

Jun-13

Sep-13

Dec-13

Mar-14

Jun-14

Sep-14

QoQ (%)

YoY (%)

Revenue 2,788 2,896 2,511 3,385 3,080 4,058 3,021 3,980 31.7 17.6

Operating Costs 2,476 2,599 2,252 2,988 2,766 3,627 2,699 3,490 29.3 16.8

EBIDTA 312 298 258 397 314 431 322 490 52.4 23.4EBIDTA Margin (%) 11.2 10.3 10.3 11.7 10.2 10.6 10.6 12.3 167 58

Other Income 33 28 37 37 44 40 37 37 0.8 (0.8)

Interest 79 51 66 73 70 79 79 78 (2.1) 6.9

Depreciation 56 61 68 74 74 76 108 102 (5.6) 38.0

Profit Before Tax 210 213 162 288 214 317 171 347 103.6 20.6

Tax 72 84 54 103 73 115 55 127 131.8 23.5

Tax Rate (%) 34.3 39.2 33.6 35.7 34.0 36.2 32.1 36.6 445 86

Rep. PAT 138 130 107 185 141 202 116 220 90.2 19.0Source: Company, Karvy Research

We expect better operating environment with moderate recovery in

EBITDA margins over FY15E-FY17E period with stabilizing rawmaterial prices and expansion benefits kicking in. According to the

management, there would be a minimal capex of Rs. 100mn for the

year. It plans to spend Rs.200mn-Rs.300mn of capex for the next year.

Moreover, its retail expansion would help to connect better with

consumers on higher brand visibility. SSML is looking to expand its

retail stores under franchisee model with ~100 stores additions YoY;

aiming ~500 stores in the next 4-5 years from the existing network of

180 stores.

Exhibit 7: Quarterly revenue break-up (Rs. Mn)


0

2000

4000

6000

8000

10000

Fabric Garments Yarn

Bed Linen SKD Others

Exhibit 8: Segmental margin trend (Rs. Mn)


11.2%

10.3%

10.3%

11.7%

10.2%

10.6%

10.6%

12.3%

-1.5%

0.5%

2.5%

4.5%

6.5%

8.5%

10.5%

12.5%

-

100

200

300

400

500

EBITDA EBITDA margin (%)


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Siyaram Silk Mills

Financials

Exhibit 09: Income Statement

YE Mar (Rs. Million) FY13 FY14 FY15E FY16E FY17E

Revenues 10413 13034 15876 19455 23949

Growth (%) 13.7 25.2 21.8 22.5 23.1

Operating Expenses 9311 11633 14137 17286 21255

EBIDTA 1102 1401 1738 2169 2694

Growth (%) (5.4) 27.1 24.1 24.8 24.2

Depreciation & Amortization 218 292 322 335 351

Other Income 185 158 120 120 120

EBIT 884 1110 1417 1835 2343

Interest Expenses252 287 268 237 216

PBT 818 980 1269 1718 2248

Tax 268 345 419 567 742

Adjusted PAT 550 636 850 1151 1506

Growth (%) (3.0) 15.6 33.7 35.4 30.8


Exhibit 10: Balance Sheet

YE Mar (Rs. Million) FY13 FY14 FY15E FY16E FY17E

Cash & Inventories 33 56 40 6 107

Sundry Debtors 2004 2601 2937 3599 4431

Inventory 2220 2253 2699 3405 4311

Loans & Advances 822 393 1159 1420 1748

Investments 2 2 2 2 2

Gross Block 4989 5760 5940 6230 6530

Net Block 3049 3529 3387 3337 3279

CWIP 163 0 20 30 30

Miscellaneous2 2 0 0 0

Total Assets 5973 6673 7016 7865 9068

Current Liabilities & Provisions 2400 2291 3356 4061 4967

Debt 2641 2753 2353 2153 1953

Other Liabilities 192 223 223 223 223

Total Liabilities 5233 5268 5932 6438 7144

Shareholders' Equity 94 94 94 94 94

Reserves & Surplus 3047 3603 4346 5394 6797

Total Networth 3141 3696 4440 5488 6891

Minority Interest 0 0 0 0 0

Total Networth & Liabilities 5973 6673 7016 7865 9068



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Siyaram Silk Mills

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Disclosures Appendix

Analyst certification

The following analyst(s), who is (are) primarily responsible for this report, certify (ies) that the views expressed herein accurately reflect his (their) personal

view(s) about the subject security (ies) and issuer(s) and that no part of his (their) compensation was, is or will be directly or indirectly related to the

specific recommendation(s) or views contained in this research report.

Disclaimer

The information and views presented in this report are prepared by Karvy Stock Broking Limited. The information contained herein is based on ouranalysis and upon sources that we consider reliable. We, however, do not vouch for the accuracy or the completeness thereof. This material is for personal

information and we are not responsible for any loss incurred based upon it. The investments discussed or recommended in this report may not be suitable

for all investors. Investors must make their own investment decisions based on their specific investment objectives and financial position and using such

independent advice, as they believe necessary. While acting upon any information or analysis mentioned in this report, investors may please note that

neither Karvy nor Karvy Stock Broking nor any person connected with any associate companies of Karvy accepts any liability arising from the use of this

information and views mentioned in this document.

The author, directors and other employees of Karvy and its affiliates may hold long or short positions in the above mentioned companies from time to

time. Every employee of Karvy and its associate companies are required to disclose their individual stock holdings and details of trades, if any, that they

undertake. The team rendering corporate analysis and investment recommendations are restricted in purchasing/selling of shares or other securities till

such a time this recommendation has either been displayed or has been forwarded to clients of Karvy. All employees are further restricted to place orders

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information nor any opinion expressed herein constitutes an offer or an invitation to make an offer, to buy or sell any securities, or any options, futures nor

other derivatives related to such securities.

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