3QFY2016 Result Update | Textile

January 28, 2016

Siyaram Silk Mills

BUY

CMP

`1,104

Performance Highlights

Target Price

`1,354

Y/E March (` cr)

3QFY16

3QFY15

% chg. (yoy) 2QFY16

% chg. (qoq)

Investment Period

12 Months

Net Sales

416

330

25.9

398

4.4

Operating profit

34.9

(6.1)

Stock Info

Sector

Textile

OPM (%)

11.3

10.5

76bp

12.5

(126bp)

Market Cap (` cr)

1,069

Adj. PAT

60.0

(9.7)

Net debt (` cr)

276

Source: Company, Angel Research

Beta

1.0

52 Week High / Low

1400 / 857

Siyaram Silk Mills (SSML)’ results for 3QFY2016 have come in above our

Avg. Daily Volume

1,164

estimates. The company has reported a healthy top-line and bottom-line growth.

Face Value (`)

Healthy top-line growth: The top-line for the quarter grew by 26% yoy to `416cr.

BSE Sensex

24,492

Nifty

7,438

Underperformance at the EBITDA level: The EBITDA for the quarter grew by

Reuters Code

SIYR.BO

~35% yoy to `47cr and the EBITDA margin expanded by 76bp yoy to 11.3%. The

Bloomberg Code

SIYA IN

employee cost as a percentage of sales declined by 125bp yoy to 8.1% but the

raw material cost as a percentage of sales increased by 56bp yoy.

Shareholding Pattern (%)

Strong PAT growth: During the quarter, the net profit grew 60% yoy to `21cr

Promoters

67.1

MF / Banks / Indian Fls

6.3

on the back of healthy sales growth and operating margin improvement.

FII / NRIs / OCBs

0.8

Outlook and Valuation: Going forward, we expect SSML to report a net sales

Indian Public / Others

25.9

CAGR of ~10% to ~`1,815cr and adj.net profit CAGR of ~12% to `98cr over

FY2015-17E. The same would be on the back of market leadership in blended

Abs.(%)

3m 1yr

3yr

fabrics, strong branding, a wide distribution channel, strong presence in tier II

Sensex

(10.1)

(17.2)

21.8

and tier III cities and emphasis on latest designs at affordable pricing points. At

SSML

15.9

282.0

the current market price, SSML trades at an inexpensive valuation (at a P/E of

10.9x its FY2017E earnings). We have a Buy rating on the stock and target price

3-Year Daily price chart

of `1,354.

1600

Key financials

1400

1200

Y/E March (` cr)

FY2013

FY2014

FY2015

FY2016E

FY2017E

1000

Net Sales

1,041

1,303

1,510

1,636

1,815

800

600

% chg

13.7

25.2

15.9

8.3

10.9

400

Adj. Net Profit

200

% chg

(3.1)

15.6

23.9

7.0

15.8

OPM (%)

10.6

10.7

11.5

EPS (`)

58.8

68.6

84.1

89.9

104.1

Source: Company, Angel Research

P/E (x)

19.4

16.8

13.6

12.7

10.9

P/BV (x)

3.4

2.9

2.5

2.1

1.8

RoE (%)

18.9

18.6

19.6

17.9

17.8

RoCE (%)

15.2

16.4

17.7

16.9

17.4

Amarjeet S Maurya

EV/Sales (x)

1.3

1.0

0.9

0.8

0.7

022-39357800 Ext: 6868

EV/EBITDA (x)

11.9

9.6

7.7

7.0

6.3

[email protected]

Source: Company, Angel Research; Note: CMP as of January 27, 2015

Please refer to important disclosures at the end of this report

Siyaram Silk Mills | 3QFY2016 Result Update

Exhibit 1: Quarterly performance

Y/E March (` cr)

3QFY16

3QFY15

% chg. (yoy)

2QFY16

% chg. (qoq)

9MFY16

9MFY15

% chg

Net Sales

416

330

25.9

398

4.4

1,114

1,030

8.2

Net raw material

212

167

27.2

193

9.8

543

516

5.2

(% of Sales)

51.1

50.5

48.6

251

48.7

50.1

Employee Cost

9.1

(2.6)

101

11.8

(% of Sales)

8.1

9.4

(125)

8.7

(59)

9.1

8.8

Other Expenses

123

25.6

120

2.2

343

308

11.3

(% of Sales)

29.6

(7)

30.2

(66)

30.8

29.9

Total Expenditure

369

296

24.8

348

5.9

987

915

7.9

Operating Profit

34.9

(6.1)

127

116

OPM (%)

11.3

10.5

12.5

(126)

11.4

11.2

Interest

(0.6)

12.2

(7.1)

Depreciation

5.9

(3.1)

0.3

Other Income

(8.9)

24.4

3.4

PBT

51.1

(7.5)

18.6

(% of Sales)

7.9

6.6

8.9

7.8

7.1

Tax

37.8

(3.5)

17.8

(% of PBT)

36.6

40.1

35.1

36.3

36.6

Reported PAT

60.0

(9.7)

19.0

PATM (%)

5.0

3.9

5.8

5.0

4.5

Source: Company, Angel Research

January 28, 2016

Siyaram Silk Mills | 3QFY2016 Result Update

Investment arguments

Leadership in blended fabric to support growth

Revenue to grow at a CAGR of 9.6%

SSML is the largest manufacturer of blended high fashion suitings, shirtings and

over FY2015-17E to `1,815cr

apparels in the country. A portfolio of strong and value-for-money brands like

Siyaram’s, J Hampstead and Mistair in the fabric segment place SSML in a sweet

spot. The company has launched two new premium cotton brands - Zenesis and

Moretti, and has penetrated further into new growth areas like cotton shirting,

linen fabrics etc.

SSML has been able to differentiate itself from unorganized and organized

competitors in a highly fragmented market. The offerings of the company are

available at various price points in the low and mid-range which enable it to

compete with brands like Raymond, Reid & Taylor, Grasim, Digjam, and Gwalior,

which offer similar products. Shifting preference of consumers from unbranded

fabrics to branded blended fabrics would likely aid the company’s growth

prospects. With a strong market position, pan-India presence and high brand

recognition, along with increasing diversification in revenue profile, we expect the

company’s revenue to grow at a CAGR of 9.6% over FY2015-17E to `1,815cr.

Rigorous advertisement and retail expansion to push demand

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

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

and latest designs and affordable pricing points give it an edge over competition.

Every brand of the company 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. The company has signed up celebrities like M S Dhoni

(Siyaram’s, MSD), Saif Ali Khan (Oxemberg) and Hrithik Roshan (J. Hampstead) as

brand ambassadors for its products. In FY2014, the company spent ~`36cr on

advertising.

Moreover, SSML has one of the largest distribution networks in the country with

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 competition. In order to expand its

retail footprint, the company continues to add stores through the franchise model

(franchisees invest ~`25lakh on an average for interior works and inventory with

minimum space requirement being 800 sq ft). The company plans to increase the

number of stores through franchisees to 500 by FY2017E.

Venturing into women’s segment - a long term growth driver

Company has roped in celebrities like

The company has ventured into the salwar kameez and ethnic women’s wear

Parineeti Chopra and Karishma Kapoor

segment with its brand - Siya. The Siya brand comprises of semi-stitched cotton,

to endorse Siya

polyester and embroidered designer fabrics, with prices ranging from `700 to

`7,000. For FY2015, the company generated a revenue of ~`38cr from the

segment and it plans to grow it to `500cr in the coming four to five years as there

are hardly any national-level mass brands in the category. SSML has roped in

January 28, 2016

Siyaram Silk Mills | 3QFY2016 Result Update

celebrities Parineeti Chopra and Karishma Kapoor to endorse the brand. As per

industry reports (Technopak study in 2011), salwar kameez and ethnic women’s

wear is a `20,690cr category, growing at a CAGR of 10%, which gives immense

opportunity to the company.

Outlook and valuation

Going forward, we expect SSML to report a net sales CAGR of ~10% to

~`1,815cr and adj.net profit CAGR of ~12% to `98cr over FY2015-17E on back

of market leadership in blended fabrics, strong branding, wide distribution

channel, strong presence in tier II and tier III cities and emphasis on latest designs

and affordable pricing points. At the current market price, SSML trades at an

inexpensive valuation (at a P/E of 10.9x its FY2017E earnings). We have a Buy

rating on the stock and target price of `1,354.

Concerns

Decline in rural spending: Unseasonal rains and deficient rainfall in the rural

areas may result in lower agriculture output. This in turn could result in lower

discretionary spending among rural consumers which could impact the company’s

overall sales.

Competition from the unorganized sector: SSML, being in a sector that’s highly

unorganized, faces intense competition from unorganized players as they usually

sell their products at a much cheaper rate compared to it. 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.

Fluctuation in raw material prices: SSML 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.

January 28, 2016

Siyaram Silk Mills | 3QFY2016 Result Update

Company background

SSML 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 in its kitty. The company has also

launched three premium brands - Royal Linen (linen fabrics for men and women),

Moretti (cotton shirting) and Zenesis (cotton suitings). SSML 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 ~160 franchise

stores. 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.

January 28, 2016

Siyaram Silk Mills | 3QFY2016 Result Update

Profit and loss statement

Y/E Mar. (` cr)

FY2013

FY2014

FY2015

FY2016E

FY2017E

Net Sales

1,041

1,303

1,510

1,636

1,815

Other operating income

Total operating income

1,041

1,303

1,510

1,636

1,815

% chg

13.7

25.2

15.9

8.3

10.9

Net Raw Materials

532

671

794

860

955

% chg

15.7

26.2

18.3

8.3

10.9

Power and Fuel

% chg

21.5

37.9

18.0

8.3

10.9

Personnel

108

123

134

149

% chg

41.8

21.0

14.3

8.8

10.9

Other

290

357

387

419

465

% chg

11.6

23.0

8.3

8.2

10.9

Total Expenditure

931

1,163

1,336

1,448

1,606

EBITDA

110

140

174

188

209

% chg

(5.4)

27.1

24.3

8.0

10.9

(% of Net Sales)

10.6

10.7

11.5

Depreciation

EBIT

111

133

141

160

% chg

(6.2)

25.5

20.1

5.7

13.7

(% of Net Sales)

8.5

8.8

8.6

8.8

Interest & other Charges

Other Income

(% of Net Sales)

1.8

1.2

1.1

1.0

Recurring PBT

103

109

127

% chg

(9.9)

30.0

24.9

6.2

16.9

PBT (reported)

119

126

146

Tax

(% of PBT)

32.8

35.1

33.8

33.0

PAT (reported)

Extraordinary Expense/(Inc.)

ADJ. PAT

% chg

(3.1)

15.6

23.9

7.0

15.8

(% of Net Sales)

5.3

4.9

5.2

5.4

Basic EPS (`)

58.8

68.6

84.1

89.9

104.1

Fully Diluted EPS (`)

58.8

68.6

84.1

89.9

104.1

% chg

(0.5)

16.6

22.5

7.0

15.8

January 28, 2016

Siyaram Silk Mills | 3QFY2016 Result Update

Balance sheet

Y/E Mar. (` cr)

FY2013

FY2014

FY2015

FY2016E

FY2017E

SOURCES OF FUNDS

Equity Share Capital

Reserves& Surplus

305

360

426

499

581

Shareholders’ Funds

314

370

435

509

590

Total Loans

241

275

280

286

292

Other Long Term Liabilities

Long Term Provisions

Deferred Tax (Net)

Total liabilities

602

698

772

849

936

APPLICATION OF FUNDS

Gross Block

499

570

596

685

747

Less: Acc. Depreciation

194

220

261

308

357

Net Block

305

349

335

377

390

Capital Work-in-Progress

Goodwill

Investments

Long Term Loans and adv.

Other Non-current asset

Current Assets

458

530

623

672

769

Cash

Loans & Advances

Inventory

222

225

238

265

298

Debtors

200

260

335

327

363

Other current assets

Current liabilities

186

198

205

223

249

Net Current Assets

273

333

418

450

520

Misc. Exp. not written off

Total Assets

602

698

772

849

936

January 28, 2016

Siyaram Silk Mills | 3QFY2016 Result Update

Cash flow statement

Y/E Mar. (` cr)

FY2013 FY2014

FY2015 FY2016E FY2017E

Profit before tax

119

126

146

Depreciation

Change in Working Capital

(15)

(57)

(86)

(5)

(48)

Direct taxes paid

(27)

(34)

(40)

(42)

(48)

Others

(16)

(17)

(18)

Cash Flow from Operations

110

(Inc.)/Dec. in Fixed Assets

(97)

(58)

(27)

(91)

(63)

(Inc.)/Dec. in Investments

(Incr)/Decr In LT loans & adv.

(5)

(2)

(1)

(2)

Others

Cash Flow from Investing

(73)

(61)

(13)

(76)

(47)

Issue of Equity

Inc./(Dec.) in loans

Dividend Paid (Incl. Tax)

(8)

(9)

(11)

(13)

(16)

Others

(12)

(28)

Cash Flow from Financing

(3)

(5)

(8)

(11)

Inc./(Dec.) in Cash

(1)

Opening Cash balances

Closing Cash balances

January 28, 2016

Siyaram Silk Mills | 3QFY2016 Result Update

Key ratios

Y/E Mar.

FY2013

FY2014

FY2015

FY2016E

FY2017E

Valuation Ratio (x)

P/E (on FDEPS)

19.4

16.8

13.6

12.7

10.9

P/CEPS

13.9

11.5

8.9

8.1

7.3

P/BV

3.4

2.9

2.5

2.1

1.8

EV/Net sales

1.3

1.0

0.9

0.8

0.7

EV/EBITDA

11.9

9.6

7.7

7.0

6.3

EV / Total Assets

2.2

2.0

1.8

1.6

1.4

Per Share Data (`)

EPS (Basic)

58.7

67.8

84.1

89.9

104.1

EPS (fully diluted)

58.7

67.8

84.1

89.9

104.1

Cash EPS

81.9

98.9

127.7

140.3

155.9

DPS

7.5

8.0

10.0

12.0

15.0

Book Value

335

394

464

543

629

DuPont Analysis

EBIT margin

8.5

8.8

8.6

8.8

Tax retention ratio

0.7

0.6

0.7

Asset turnover (x)

1.8

2.0

2.1

ROIC (Post-tax)

10.6

10.8

11.9

12.5

Cost of Debt (Post Tax)

7.4

7.2

7.3

7.5

7.6

Leverage (x)

0.8

0.7

0.6

0.5

0.4

Operating ROE

12.9

13.4

14.8

14.0

14.5

Returns (%)

ROCE (Pre-tax)

15.2

16.4

17.7

16.9

17.4

Angel ROIC (Pre-tax)

15.7

16.6

17.9

17.7

18.7

ROE

18.9

18.6

19.6

17.9

17.8

Turnover ratios (x)

Asset TO (Gross Block)

2.3

2.4

2.6

2.5

Inventory / Net sales (days)

Receivables (days)

Payables (days)

WC cycle (ex-cash) (days)

100

Solvency ratios (x)

Net debt to equity

0.8

0.7

0.6

0.5

0.4

Net debt to EBITDA

2.2

1.9

1.6

1.4

1.1

Int. Coverage (EBIT/ Int.)

3.5

3.9

4.4

4.9

January 28, 2016

Siyaram Silk Mills | 3QFY2016 Result Update

Research Team Tel: 022 - 39357800

E-mail: [email protected]

Website: www.angelbroking.com

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compensation / managed or co-managed public offering of securities of the company covered by Analyst during the past twelve

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Disclosure of Interest Statement

Siyaram Silk Mills

1. Analyst ownership of the stock

2. Angel and its Group companies ownership of the stock

3. Angel and its Group companies' Directors ownership of the stock

4. Broking relationship with company covered

Note: We have not considered any Exposure below ` 1 lakh for Angel, its Group companies and Directors

Ratings (Based on expected returns

Buy (> 15%)

Accumulate (5% to 15%)

Neutral (-5 to 5%)

over 12 months investment period):

Reduce (-5% to -15%)

Sell (< -15%)

January 28, 2016