Siyaram Silk Mills (SIYSIL)

CMP: | 390 Target: | 455 (17%) Target Period: 12 months BUY

August 12, 2021

Demand normalisation to aid revenue growth…

About the stock: Siyaram Silk Mills (Siyaram), a fabric and apparel manufacturer,
has created a strong brand portfolio largely catering to Tier II & III towns.

Result Update
 Siyaram’s brand portfolio consists of reputed brands like Siyaram (flagship Particulars
brand), Oxemberg, MSD and J Hampstead
Particulars Amount
 Over the last decade, the company has gradually expanded its fabric and
garment capacities and simultaneously managed to reduce the debt/equity Market Capitalisation (| crore) 1,830.0
from 1.0x in FY12 to 0.2x in FY21 Total Debt (FY21) (| crore) 124.9
Cash (FY21) (| crore) 13.2

Q1FY22 Results: SSML reported a resilient performance in a challenging scenario. EV (| crore) 1,941.7
52 Week H / L 456 /126
 SSML reported QoQ de-growth of 54% to | 233 crore for Q1FY22 (Q1FY21 Equity Capital (| crore) 9.4
revenue of | 24 crore, Q1FY20 revenue of | 326 crore) Face Value (|) 10.0
 Though gross margins (including processing charges) improved 980 bps Shareholding pattern
QoQ to 49.4%, negative operating leverage led to EBITDA margin decline of Jun-20 Sep-20 Dec-20 Mar-21 Jun-21
310 bps QoQ to 12.7% Promoter 67.2 67.2 67.2 67.2 67.2
FII 0.5 0.3 0.3 0.7 1.7
 Lower other income further dented the profitability with PAT down 78%
DII 13.9 10.8 12.8 11.2 11.2
QoQ to | 12.9 crore (Q1FY21: Net loss of | 67 crore) Others 18.4 21.7 19.7 20.9 19.9

What should investors do? Over the last five years, the stock price has appreciated Price Chart
at a CAGR of 10%.

ICICI Securities – Retail Equity Research

700 25000
600
 We maintain BUY recommendation on the stock 500
20000

400 15000
Target Price and Valuation: We value SSML at | 455 i.e. 14x FY23E EPS. 300 10000
200
5000
100
Key triggers for future price performance: 0 0

Dec-19

Dec-20
Dec-18

Aug-19

Aug-21
Aug-18

Aug-20
Apr-19

Apr-20

Apr-21
 SSML is expected to benefit from a demand revival post reduction/removal
of restrictions on trade activities owing to its strong brand portfolio and pan- Siyaram BSE 500
India distribution network

 Enhanced capital efficiency (low leverage and controlled working capital Recent event & key risks
cycle) and better profitability would result in Siyaram reporting healthy  Price hikes taken across products
RoCE of ~17% by FY23E
 Key Risk:(i) inability to pass on
 Cost rationalisation measure adopted in FY21 led to a significant reduction higher RM costs (ii) Extended
in overheads. The management expects 25% of these cost savings to be restrictions on trade can lower
structural in nature and likely to aid EBITDA margin improvement, going sales
ahead
Research Analyst
 July 2021 sales is trending ~70% of pre-Covid levels and is expected to pick
up further pace during the festive season Bharat Chhoda
[email protected]

Alternate stock Idea: Besides SSML, in our textile coverage we also like KPR Mills. Cheragh Sidhwa
[email protected]
 KPR Mills is among select vertically integrated textile players in India that
has displayed consistent operating margins with strong return ratios
 BUY with a target price of | 2310

Key Financial Summary

5 Year CAGR 3 Year CAGR
| crore FY19 FY20 FY21A FY22E FY23E
(FY15-20) (FY20-23E)
Net Sales 1,816.2 1,699.3 1,089.3 2.4% 1,656.5 1,927.4 4.3%
EBITDA 239.6 167.4 53.8 210.3 258.9 15.6%
PAT 99.1 69.2 3.6 113.9 152.0 30.0%
P/E (x) 18.4 26.4 510.6 16.0 12.0
EV/Sales (x) 1.3 1.3 1.8 1.2 1.0
EV/EBITDA (x) 9.5 13.3 36.1 9.5 7.8
RoCE (%) 14.6 8.1 -0.8 14.0 17.5
RoE (%) 13.1 9.1 0.5 14.0 17.3
Source: Company, ICICI Direct Research
 Result Update | Siyaram Silk Mills ICICI Direct Research

Key takeaways of recent quarter

 SSML has been able to improve its gross margins from 38-39% in Q4FY21
to 49.4% in Q1FY22 owing to a) gradual price hikes taken across product
categories b) lower discounting of products and c) normalisation of raw
material prices from their peaks in earlier quarter

 In FY21, Siyaram re-engineered its cost structure with significant

rationalisation of overheads including marketing spend, travel expenses etc.
Operating overheads fell 42% YoY in FY21. The management expects 25%
of cost savings to be sustainable in nature, going forward, and expected to
aid in improving margin profile post normalisation of demand scenario

 On the product segmental performance, the fabric segment is performing

better than ready-made garment segment. The management believes
ready-made garments will take a few quarters to recover to pre-Covid levels

 July 2021 revenue recovery rate was close to 70% of pre-Covid levels and
the management expects the recovery to be sharper during the ensuing
festive season

 The shift from unorganised players to organised is a big opportunity as

many smaller unorganised players are facing liquidity and survival issues,
which can lead to significant opportunity for market share gains for larger
organised players like SSML
 The company has changed its product strategy with increased focus on fast
running stock keeping units (SKUs) with a target to maintain lower inventory
level and reduce working capital cycle

 The company is planning to incur a capex of ~ | 40 crore in FY22E and | 35

crore in FY23E

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 Result Update | Siyaram Silk Mills ICICI Direct Research

Financial Summary

Exhibit 1: Profit and loss statement | crore Exhibit 2: Cash flow statement | crore
(Year-end March) FY20 FY21A FY22E FY23E (Year-end March) FY20 FY21A FY22E FY23E
Total operating Income 1,699.3 1,089.25 1,656.5 1,927.4 PAT 69.2 3.6 113.9 152.0
Growth (%) -6.4 -35.9 52.1 16.4 Add: Depreciation 73.0 61.2 65.9 69.6
Raw Material Expenses 822.5 632.1 846.5 957.4 (Inc)/dec in Current Assets 36.8 241.3 -146.4 -122.6
Employee Expenses 195.5 123.5 142.5 163.8 Inc/(dec) in CL and Provisions -1.2 15.6 10.8 25.9
Manufacturing & Other Expenses 513.9 279.9 457.2 547.4 Others 0.0 0.0 0.0 0.0
Total Operating Expenditure 1,531.9 1,035.5 1,446.2 1,668.6 CF from operating activities 177.9 321.7 44.2 124.9
EBITDA 167.4 53.8 210.3 258.9 (Inc)/dec in Investments -4.1 -20.1 -5.4 -6.0
Growth (%) -30.1 -67.9 291.2 23.1 (Inc)/dec in Fixed Assets -42.1 -22.7 -40.0 -35.0
Depreciation 73.0 61.2 65.9 69.6 (Inc)/dec in CWIP 4.0 1.2 1.4 0.7
Interest 43.0 30.0 22.0 20.8 Others -6.8 0.0 0.0 0.0
Other Income 33.8 40.8 29.8 34.7 CF from investing activities -49.0 -41.6 -44.1 -40.3
Exceptional Item 0.0 0.0 0.0 0.0 Issue/(Buy back) of Equity 0.0 0.0 0.0 0.0
PBT 85.2 3.47 152.2 203.1 Inc/(dec) in loan funds -64.5 -270.8 95.1 -20.0
Growth (%) -45.8 -95.9 4,286.2 33.5 Others -67.6 -1.6 -68.3 -83.6
Total Tax 15.9 -0.1 38.3 51.1 CF from financing activities -132.1 -272.4 26.8 -103.6
PAT 69.2 3.58 113.9 152.0 Net Cash flow -3.1 7.7 26.9 -19.0
Growth (%) -30.1 -94.8 3,081.4 33.5 Opening Cash 8.6 5.5 13.2 40.1
EPS (|) 14.8 0.8 24.3 32.4 Closing Cash 5.5 13.2 40.1 21.1
Source: Company, ICICI Direct Research Source: Company, ICICI Direct Research

Exhibit 3: Balance Sheet | crore Exhibit 4: Key ratios

(Year-end March) FY20 FY21A FY22E FY23E (Year-end March) FY20 FY21A FY22E FY23E
Liabilities Per share data (|)
Equity Capital 9.4 9.4 9.4 9.4 EPS 14.8 0.8 24.3 32.4
Reserve and Surplus 752.7 757.6 803.1 871.5 Cash EPS 30.4 13.8 38.4 47.3
Total Shareholders funds 762.1 767.0 812.5 880.9 BV 162.6 163.6 173.4 188.0
Total Debt 395.7 124.9 220.0 200.0 DPS 10.8 0.0 14.6 17.8
Deferred Tax Liability 14.1 11.7 11.7 11.7 Cash Per Share 1.2 2.8 8.6 4.5
Minority Interest / Others 48.6 24.8 24.8 24.8 Operating Ratios
Total Liabilities 1,220.4 928.3 1,069.0 1,117.4 EBITDA Margin (%) 9.9 4.9 12.7 13.4
PBT Margin (%) 5.0 0.3 9.2 10.5
Assets PAT Margin (%) 4.1 0.3 6.9 7.9
Gross Block 751.5 774.2 814.2 849.2 Inventory days 92.3 85.4 80.0 80.0
Less: Acc Depreciation 261.3 322.5 388.5 458.1 Debtor days 69.6 87.2 72.0 70.0
Net Block 490.2 451.7 425.7 391.1 Creditor days 80.6 101.8 80.0 80.0
Capital WIP 3.9 2.7 1.4 0.7 Return Ratios (%)
Total Fixed Assets 494.1 454.4 427.1 391.8 RoE 9.1 0.5 14.0 17.3
Investments 34.1 54.2 59.6 65.6 RoCE 8.1 -0.8 14.0 17.5
Inventory 429.8 254.9 363.1 422.5 RoIC 8.5 -0.9 15.5 19.0
Debtors 324.0 260.3 326.8 369.6 Valuation Ratios (x)
Loans and Advances 155.1 152.5 124.2 144.6 P/E 26.4 510.6 16.0 12.0
Cash 5.5 13.2 40.1 21.1 EV / EBITDA 13.3 36.1 9.5 7.8
Total Current Assets 914.4 680.8 854.2 957.8 EV / Net Sales 1.3 1.8 1.2 1.0
Current Liabilities 253.4 269.9 280.1 305.3 Market Cap / Sales 1.1 1.7 1.1 0.9
Provisions 13.2 12.3 12.9 13.5 Price to Book Value 2.4 2.4 2.2 2.1
Total Current Liabilities 266.6 282.2 293.0 318.8 Solvency Ratios
Net Current Assets 647.9 398.6 561.2 638.9 Debt/EBITDA 2.4 2.3 1.0 0.8
Others Assets 44.4 21.1 21.1 21.1 Debt / Equity 0.5 0.2 0.3 0.2
Application of Funds 1,220.4 928.3 1,069.0 1,117.4 Current Ratio 3.4 2.4 2.9 3.0
Source: Company, ICICI Direct Research Quick Ratio 1.8 1.5 1.7 1.7
Source: Company, ICICI Direct Research

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 Result Update | Siyaram Silk Mills ICICI Direct Research

Exhibit 5: ICICI Direct coverage universe (Textile)

CMP M Cap EV/Sales (x) P/E (x) EV/EBITDA (x) RoCE (%) RoE (%)
Sector / Company
(|) TP(|) Rating (| Cr) FY20 FY21 FY22E FY23E FY20 FY21 FY22E FY23E FY20 FY21 FY22E FY23E FY20 FY21 FY22E FY23E FY20 FY21 FY22E FY23E
KPR Mill 1,839 2,310 Buy 12,660 4.3 4.0 3.4 2.8 36.3 26.5 25.0 18.1 23.0 16.9 15.4 11.8 19.6 24.0 21.4 26.8 20.2 21.9 19.6 23.3
Gokaldas Exports 212 280 Buy 909 0.8 0.9 0.7 0.6 29.9 34.3 19.0 11.3 16.6 10.6 8.1 5.7 7.7 9.3 12.3 16.7 13.4 9.1 14.2 19.2
Filatex India 100 125 Buy 2,197 1.0 1.2 0.9 0.7 18.1 13.3 7.4 5.8 13.0 7.9 5.3 4.1 14.0 22.3 29.1 31.7 20.4 21.7 28.5 27.2
Vardhman Textiles 1,759 2,240 Buy 10,141 1.9 2.0 1.5 1.3 18.6 26.2 9.2 8.5 13.3 15.2 6.7 6.1 7.7 5.5 16.4 15.6 9.5 6.3 15.3 14.5
Indo Count 265 350 Buy 5,206 2.7 2.2 1.8 1.5 73.0 21.4 15.4 13.9 30.2 14.9 11.4 9.3 14.6 20.2 24.4 22.5 7.4 19.4 21.2 19.1
Siyaram Silk 390 455 Buy 1,828 1.3 1.8 1.2 1.0 26.4 510.6 16.0 12.0 13.3 36.1 9.5 7.8 8.1 -0.8 14.0 17.5 9.1 0.5 14.0 17.3
Source: Company, ICICI Direct Research

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 Result Update | Siyaram Silk Mills ICICI Direct Research

RATING RATIONALE
ICICI Direct endeavors to provide objective opinions and recommendations. ICICI Direct assigns ratings to its
stocks according -to their notional target price vs. current market price and then categorizes them as Buy, Hold,
Reduce and Sell. The performance horizon is two years unless specified and the notional target price is defined
as the analysts' valuation for a stock

Buy: >15%
Hold: -5% to 15%;
Reduce: -15% to -5%;
Sell: <-15%

Pankaj Pandey Head – Research [email protected]

ICICI Direct Research Desk,

ICICI Securities Limited,
1st Floor, Akruti Trade Centre,
Road No 7, MIDC,
Andheri (East)
Mumbai – 400 093
[email protected]

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 Result Update | Siyaram Silk Mills ICICI Direct Research

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ICICI Securities | Retail Research 6