For 2QFY2016, Siyaram Silk Mills (SSML) results have come in slightly below our
estimates. The company has reported a flattish top-line and bottom-line growth.
Flattish top-line growth: The top-line for the quarter came in flat; ie it declined
marginally by 0.02% yoy to Rs398cr.
Underperformance at the EBITDA level: The EBITDA for the quarter grew by
~2% yoy to Rs50cr and the EBITDA margin expanded by 20bp yoy to 12.5%. The
raw material cost as a percentage of sales declined by 226bp yoy to 48.6% but
there was a 99bp yoy and 107bp yoy increase in employee and other expense,
respectively, resulting in an almost flat EBITDA margin for the quarter.
Flattish PAT growth: During the quarter, the net profit came in flat at Rs23cr
(as against Rs22cr in 2QFY2015) due to lower sales growth.
Outlook and Valuation: Going forward, we expect SSML to report a net sales
CAGR of ~10% to ~Rs1,815cr and adj.net profit CAGR of ~12% to Rs98cr 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 9.0x its FY2017E earnings). We
have a Buy rating on the stock and target price of Rs1,145 (11x FY2017E EPS).
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