Siyaram Silk Mills (SSML)’ results for 4QFY2016 have come in below our estimates. The company has reported a lower top-line growth and a flattish bottom-line. During the quarter, the company acquired Balkrishna Synthetics Ltd, which is involved in the business of processing synthetic fabrics, for a consideration of ~Rs45cr. This acquisition will help SSML enhance its product portfolio.
Tepid top-line growth: The top-line for the quarter grew by 5% yoy to Rs505cr. The top-line growth was soft owing to lower volume growth.
Underperformance at the EBITDA level: The EBITDA for the quarter grew by
~Rs3cr yoy to Rs60cr and the EBITDA margin contracted by 23bp yoy to 11.9% due to higher employee cost and other expenditure.
Strong PAT growth: During the quarter, the net profit came in flat yoy at Rs32cr
due to lower sales growth and poor operating margin.
Outlook and Valuation: Going forward, we expect SSML to report a net sales CAGR of ~12% to ~Rs2,040cr and profit CAGR of ~14% to Rs115cr 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 8.6x its FY2018E earnings). We have a Buy rating on the stock and target price of Rs1,354.

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