Siyaram Silk Mills (SSML)’ results for 3QFY2016 have come in above our
estimates. The company has reported a healthy top-line and bottom-line growth.
Healthy top-line growth: The top-line for the quarter grew by 26% yoy to Rs416cr.
Underperformance at the EBITDA level: The EBITDA for the quarter grew by
~35% yoy to RS47cr and the EBITDA margin expanded by 76bp yoy to 11.3%. The
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.
Strong PAT growth: During the quarter, the net profit grew 60% yoy to Rs21cr
on the back of healthy sales growth and operating margin improvement.
Outlook and Valuation: Going forward, we expect SSML to report a net sales
CAGR of ~10% to ~Rs1,815cr and profit CAGR of ~12% to Rs98cr over
FY2015-17E. The same would be on the back of market leadership in blended
fabrics, strong branding, a 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
10.9x its FY2017E earnings). We have a Buy rating on the stock and target price
of Rs1,354.

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