Stock market Result Update on Siyaram Silk Mills for 1QFY2012

Stock market Result Update on Siyaram Silk Mills for 1QFY2012 with a Buy recommendation and a Target Price of `422 (12 months).

For 1QFY2011, Siyaram Silk Mills (SSM) posted a modest performance. The company’s net sales grew by 6.8% yoy to `181cr. OPM expanded by 54bp yoy to 12.0%. Net profit witnessed 12.1% yoy growth to `10cr. We continue to maintain our Buy view on the stock.

Modest top-line growth, margin expands: SSM’s top line grew by 6.8% yoy to `181cr, led by higher realisation and volumes. EBITDA increased by 11.7% yoy in 1QFY2011 to `22cr on the back of higher revenue and margin expansion during the quarter. EBITDA margin expanded by 54bp yoy to 12.0% due to lower raw-material cost, which declined by 476bp yoy to 42.4% (47.2%) of sales. The decline in raw-material cost was partially offset by a 157bp yoy increase in employee cost to 7.5% (5.9%). For 1QFY2012, the company witnessed a 12.1% increase in PAT to `10cr on the back of higher revenue and margin expansion during the quarter.

Outlook and valuation: SSM is in a strong expansion mode. The company plans to add 286 looms (479 current looms) in a phased manner over FY2011–13 in the fabric segment and will be adding 400 machines in its readymade garment (RMG) segment by September 2011. Moreover, timely capacity expansion will help the company to take full advantage of the growing demand in India, which will drive its revenue at a 16% CAGR over FY2011–13E. The stock is currently trading at reasonable valuation of 4.9x FY2013E earnings (as against its historical median of 6x one-year forward EPS). We continue to maintain our Buy rating on the stock with a revised target price of `422, valuing the stock at 6x FY2013E earnings.