3QFY2017 Result Update | Textile
January 30, 2017
Siyaram Silk Mills
ACCUMULATE
CMP
`1,438
Performance Highlights
Target Price
`1,605
Y/E March (` cr)
3QFY17
3QFY16
% chg. (yoy) 2QFY17
% chg. (qoq)
Investment Period
12 Months
Net Sales
339
413
(18.0)
421
(19.4)
Stock Info
Operating profit
42
47
(11.4)
53
(20.8)
Sector
Textile
OPM (%)
12.4
11.4
91bp
12.6
(22bp)
Market Cap (` cr)
1,332
Adj. PAT
14
21
(33.6)
25.4
(46.2)
Net debt (` cr)
334
Source: Company, Angel Research
Beta
1.0
Siyaram Silk Mills (SSML)’ results for 3QFY2017 have come in below our
52 Week High / Low
1,690 / 925
estimates, both on top-line and bottom-line front, on back of lower volume
Avg. Daily Volume
206,664
Face Value (`)
10
growth due to weak consumer buying sentiments.
BSE Sensex
27,903
Top-line grew modest: The top-line for the quarter de-grew by ~18% yoy to
Nifty
8,651
`339cr, which can be mainly attributed to lower volume growth.
Reuters Code
SIYR.BO
Bloomberg Code
SIYA IN
Operating profit declines ~11%: The EBITDA for the quarter de-grew by ~11%
yoy to `42cr. However, the EBITDA margin has improved by 91bp yoy.
Shareholding Pattern (%)
PAT de-grew by ~34%: During the quarter, the net profit de-grew by ~34% yoy
Promoters
67.1
to `14cr due to lower sales growth, higher depreciation cost and taxes.
MF / Banks / Indian Fls
6.3
Outlook and Valuation: Going forward, we expect SSML to report net sales CAGR
FII / NRIs / OCBs
0.6
of ~7% to ~`1,857cr and adj. net profit CAGR of ~9% to `103cr over
Indian Public / Others
26.0
FY2016-18E. The same would be on the 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 at affordable pricing points. At the
Abs.(%)
3m 1yr
3yr
current market price, SSML trades at an inexpensive valuation (at a P/E of 13.1x
Sensex
(0.1)
13.8
34.6
its FY2018E earnings). We recommend an Accumulate rating on the stock with
SSML
(6.5)
30.3
432.6
the target price of `1,605.
Key financials
3-Year Daily price chart
Y/E March (` cr)
FY2015
FY2016
FY2017E
FY2018E
1800
Net Sales
1,510
1,619
1,652
1,857
1600
1400
% chg
15.9
7.2
2.0
12.4
1200
1000
Net Profit
79
88
87
103
800
% chg
78.8
87.6
86.6
103.2
600
400
OPM (%)
11.5
11.6
11.6
11.7
200
0
EPS (`)
84.1
93.5
92.4
110.1
P/E (x)
17.1
15.4
15.6
13.1
P/BV (x)
3.1
2.6
2.3
2.0
Source: Company, Angel Research
RoE (%)
18.1
17.1
14.7
15.2
RoCE (%)
17.9
16.3
14.3
15.4
EV/Sales (x)
1.1
1.0
1.0
0.9
Amarjeet S Maurya
022-39357800 Ext: 6868
EV/EBITDA (x)
9.5
9.0
8.8
7.7
[email protected]
Source: Company,Angel Research; Note: CMP as of January 27, 2017,
Please refer to important disclosures at the end of this report
1
Siyaram Silk Mills | 3QFY2017 Result Update
Exhibit 1: Quarterly performance
Y/E March (` cr)
3QFY17
3QFY16
% chg. (yoy)
2QFY17
% chg. (qoq)
9MFY17
9MFY16
% chg
Net Sales
339
281
20.5
421
(19.4)
1,041
1,106
(5.9)
Net raw material
141
122
15.2
207
(32.0)
472
550
(14.2)
(% of Sales)
41.6
43.5
(190)
49.2
(767)
45.3
49.8
Employee Cost
42
37
14.5
42
0.0
124
107
15.5
(% of Sales)
12.5
13.1
(65)
10.1
243
11.9
9.7
Other Expenses
114
92
23.2
118
(3.8)
320
316
1.5
(% of Sales)
33.6
32.8
76
28.1
546
30.8
28.5
Total Expenditure
297
252
18.0
368
(19.2)
917
974
(5.8)
Operating Profit
42
30
40.9
53
(20.8)
125
133
(6)
OPM (%)
12.4
10.6
179
12.6
(22)
11.97
12.00
(3)
Interest
9
9
(0.3)
9
3.8
26.87
22.77
18.0
Depreciation
17
11
52.7
13
24.6
42.84
38.22
12.1
Other Income
5
6
(2.5)
7
(22.3)
18
13
44.2
PBT
22
15
41.1
38
(42.7)
73
84
(13.4)
(% of Sales)
6.4
5.5
9.0
7.0
7.6
Tax
8
5
50.0
12
(35.7)
25.72
28.05
(8.3)
(% of PBT)
36.9
34.7
32.9
35.2
33.3
Reported PAT
14
10
36.3
25
(46.2)
47
56
(15.9)
PATM
4.0
3.6
6.0
4.5
5.1
Source: Company, Angel Research
January 30, 2017
2
Siyaram Silk Mills | 3QFY2017 Result Update
Investment arguments
Leadership in blended fabric to support growth
Revenue to grow at a CAGR of ~7%
SSML is the largest manufacturer of blended high fashion suitings, shirtings and
over FY2016-18E to `1,857cr
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 ~10% over FY2016-18E to `1,948.
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.
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. The
company plans to increase the number of stores through franchisees to 500 by FY2017.
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 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
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.
January 30, 2017
3
Siyaram Silk Mills | 3QFY2017 Result Update
Outlook and valuation
Going forward, we expect SSML to report net sales CAGR of ~7% to ~`1,857cr
and adj. net profit CAGR of ~9% to `103cr over FY2016-18E. The same would be
on the 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 at affordable pricing points. At the current market price, SSML trades
at an inexpensive valuation (at a P/E of 13.1x its FY2018E earnings). We
recommend an Accumulate rating on the stock with the target price of `1,605.
Concerns
Decline in rural spending: Unseasonal rains or 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
fragmented, 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 30, 2017
4
Siyaram Silk Mills | 3QFY2017 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 30, 2017
5
Siyaram Silk Mills | 3QFY2017 Result Update
Profit and loss statement
Y/E March (` cr)
FY13
FY14
FY15
FY16
FY17E
FY18E
Total operating income
1,041
1,303
1,510
1,619
1,652
1,857
% chg
13.7
25.2
15.9
7.2
2.0
12.4
Total Expenditure
931
1,163
1,336
1,432
1,460
1,639
Cost of Materials
532
671
794
810
870
980
Personnel
89
108
123
144
139
158
Others Expenses
310
384
419
478
451
500
EBITDA
110
140
174
188
192
218
% chg
(5.4)
27.1
24.3
7.8
2.1
13.8
(% of Net Sales)
10.6
10.7
11.5
11.6
11.6
11.7
Depreciation& Amortisation
22
29
41
42
50
52
EBIT
88
111
133
146
142
166
% chg
(6.1)
25.5
20.1
9.6
(3.1)
17.2
(% of Net Sales)
8.5
8.5
8.8
9.0
8.6
8.9
Interest & other Charges
25
29
31
30
35
36
Other Income
19
16
16
17
23
24
(% of PBT)
22.6
16.1
13.6
12.9
17.8
15.6
Share in profit of Associates
-
-
-
-
-
-
Recurring PBT
82
98
119
133
129
154
% chg
0.7
19.8
21.4
11.6
(2.6)
19.1
Prior Period & Extra. Exp./(Inc.)
-
-
-
-
-
-
PBT (reported)
82
98
119
133
129
154
Tax
27
34
40
45
43
51
(% of PBT)
32.7
35.1
33.8
34.0
33.0
33.0
PAT (reported)
55
64
79
88
87
103
Add: Share of earnings of asso.
-
-
-
-
-
-
ADJ. PAT
55
64
79
88
87
103
% chg
(3.0)
15.6
23.9
11.1
(1.1)
19.1
(% of Net Sales)
5.3
4.9
5.2
5.4
5.2
5.6
Basic EPS (`)
58.7
67.8
84.1
93.5
92.4
110.1
Fully Diluted EPS (`)
58.7
67.8
84.1
93.5
92.4
110.1
% chg
(3.0)
15.6
23.9
11.1
(1.1)
19.1
January 30, 2017
6
Siyaram Silk Mills | 3QFY2017 Result Update
Balance sheet
Y/E March (` cr)
FY13
FY14
FY15
FY16
FY17E
FY18E
SOURCES OF FUNDS
Equity Share Capital
9
9
9
9
9
9
Reserves& Surplus
305
360
426
503
579
670
Shareholders Funds
314
370
435
512
588
679
Minority Interest
-
-
-
-
-
-
Total Loans
278
314
309
386
400
400
Deferred Tax Liability
22
26
23
23
23
23
Total Liabilities
614
709
767
920
1,011
1,102
APPLICATION OF FUNDS
Gross Block
499
570
589
609
639
659
Less: Acc. Depreciation
194
220
258
299
349
401
Net Block
305
349
332
310
290
258
Capital Work-in-Progress
16
3
7
7
7
7
Investments
0
0
0
46
46
46
Current Assets
466
543
638
773
861
1,001
Inventories
222
225
238
326
353
407
Sundry Debtors
200
260
335
368
385
443
Cash
3
6
5
6
15
18
Loans & Advances
33
39
45
57
76
93
Other Assets
8
13
15
16
33
41
Current liabilities
176
190
214
221
202
222
Net Current Assets
290
353
424
551
659
779
Deferred Tax Asset
3
3
4
4
4
4
Mis. Exp. not written off
-
-
-
-
-
-
Total Assets
614
709
767
920
1,011
1,102
January 30, 2017
7
Siyaram Silk Mills | 3QFY2017 Result Update
Cash flow statement
Y/E March (` cr)
FY13
FY14
FY15
FY16
FY17E
FY18E
Profit before tax
82
98
119
133
129
154
Depreciation
22
29
41
42
50
52
Change in Working Capital
(28)
(87)
(120)
(127)
(99)
(116)
Interest / Dividend (Net)
17
19
21
30
35
36
Direct taxes paid
(25)
(34)
(40)
(45)
(43)
(51)
Others
1
41
38
-
-
-
Cash Flow from Operations
68
65
58
33
73
75
(Inc.)/ Dec. in Fixed Assets
(70)
(61)
(23)
(112)
(30)
(20)
(Inc.)/ Dec. in Investments
3
-
-
(46)
-
-
Cash Flow from Investing
(73)
(61)
(23)
(66)
(30)
(20)
Issue of Equity
-
0
-
-
-
-
Inc./(Dec.) in loans
-
-
-
76
14
-
Dividend Paid (Incl. Tax)
(7)
(7)
(7)
11
10
12
Interest / Dividend (Net)
14
5
(30)
(52)
(59)
(64)
Cash Flow from Financing
7
(2)
(38)
35
(34)
(51)
Inc./(Dec.) in Cash
2
3
(2)
2
9
4
Opening Cash balances
2
3
5
3
6
15
Closing Cash balances
3
5
3
6
15
18
January 30, 2017
8
Siyaram Silk Mills | 3QFY2017 Result Update
Key ratios
Y/E March
FY13
FY14
FY15
FY16
FY17E
FY18E
Valuation Ratio (x)
P/E (on FDEPS)
24.5
21.2
17.1
15.4
15.6
13.1
P/CEPS
71.1
82.2
101.9
113.2
112.0
133.5
P/BV
4.3
3.6
3.1
2.6
2.3
2.0
Dividend yield (%)
0.5
0.5
0.7
0.7
0.7
0.9
EV/Sales
1.6
1.3
1.1
1.0
1.0
0.9
EV/EBITDA
14.7
11.8
9.5
9.0
8.8
7.7
EV / Total Assets
2.1
1.8
1.7
1.5
1.4
1.3
Per Share Data (`)
EPS (Basic)
58.7
67.8
84.1
93.5
92.4
110.1
EPS (fully diluted)
58.7
67.8
84.1
93.5
92.4
110.1
Cash EPS
20.2
17.5
14.1
12.7
12.8
10.8
DPS
7.0
7.5
9.4
10.5
10.4
12.4
Book Value
335.2
394.5
464.2
546.4
627.8
724.7
Returns (%)
ROCE
14.9
16.2
17.9
16.3
14.3
15.4
Angel ROIC (Pre-tax)
15.0
16.4
18.0
17.3
15.3
16.4
ROE
17.5
17.2
18.1
17.1
14.7
15.2
Turnover ratios (x)
Asset Turnover (Gross Block)
2.1
2.3
2.6
2.7
2.6
2.8
Inventory / Sales (days)
78
63
58
74
78
80
Receivables (days)
70
73
81
83
85
87
Payables (days)
42
34
34
34
33
33
WC cycle (ex-cash) (days)
106
102
105
123
130
134
January 30, 2017
9
Siyaram Silk Mills | 3QFY2017 Result Update
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. Financial interest of research analyst or Angel or his Associate or his relative
No
2. Ownership of 1% or more of the stock by research analyst or Angel or associates or relatives
No
3. Served as an officer, director or employee of the company covered under Research
No
4. Broking relationship with company covered under Research
No
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 30, 2017
10