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Karvy reiterates 'buy' on Siyaram Silk Mills on attractive valuations

Karvy Stock Broking / Mumbai 26 Nov 13 | 11:28 AM

CMP: Rs253
Target Price: Rs382

Siyaram Silk Mills (SSML) added new capacities in fabric and garmenting divisions; launched new products and optimized sales mix in its favor to protect margins amid rising input costs in MMF segment. Moreover, it took a moderate price hike of ~5% during Q2FY14 (August) after waiting for over 4-5 quarters on subdued consumer sentiments. Going forward, Management is optimistic on margin recovery on stabilizing raw-material costs, optimized product mix and higher turnover on capex.

Revenue growth fuelled by Capex: SSML added 129 Looms & 101 stitching machines out of planned 286 Looms & 400 stitching machines. Therefore, on total capex plan of 20 MMPA fabrics and 7.2 lac pcs per annum of readymade garments, ~10MMPA and ~1.8 lac pcs capacity have been installed during FY13 while balance expansion is spread over FY13-FY15E.

EBITDA margins improving on stabilized raw material costs: SSML’s Operating margin was under pressure for 4-5 quarters on subdued consumer demand and inability to pass on rise in input costs. However, during Q2FY14, it took ~5% price hike and optimized product mix over the year to recover margins.

We revise upwards our sales and EBITDA estimates by 3.1% and 1.6% for FY14E and FY15E respectively, keeping EBITDAM unchanged. Expected net income has been revised up by 2.1% and 1.1% for FY14E and FY15E respectively, factoring higher tax payments.

Outlook & Valuation
SSML’s revenue and net income are expected to grow at a CAGR of 19% and 21%, respectively over FY13-15E. At CMP of Rs. 253, the stock trades attractively at 2.9x and 3.2x FY15E EPS and EV/EBITDA respectively. We reiterate our “BUY" recommendation on strong financials, superior return ratios and inviting valuations for a target of Rs. 382, valuing at 4.5x FY15E EPS, which is a potential upside of 51%.

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