Siyaram Silk Mills - EBITDA Margin under pressure; Sales growth intact - Karvy

Siyaram Silk Mills (SSML) sales, EBITDA and net income grew by 26%, 7% and 5% YoY respectively.

Revenue Growth: The Company's top-line grew 25.6% YoY to Rs. 2,788 mn (our expectations Rs. 2,450 mn) during Q3FY13, while sequential growth was registered at 4%. The Company has introduced some value added products like 100% linen etc. to improve average realizations otherwise topline growth is largely attributed to volume.

Operating margins under pressure: The Company's EBITDA grew 6.7% YoY to Rs. 312 mn (our expectations Rs. 265 mn) during Q3FY13 on account of higher raw-material and other input costs. EBITDA margin for the quarter declined 199 bps YoY to 11.2% however on sequential basis improved by 161 bps. The Company is confident to clear inventory under discount sales in Q4FY13. Net Income for Q3FY13 grew 4.6% YoY to Rs. 138 mn (our expectations of Rs. 120 mn).

The Company's is under capex of 20 MMPA and 7.2 mn pcs per annum of readymade garments. 25% of new fabric capacity is expected to start commercial production by Q4FY13 while rest would commence during FY14. Also, during Q3FY13, the Company added around 20 stores to reach approx. 140 stores.

We revised up our sales by 3.0% and 4.3% and EBITDA marginally by 0.5% and 0.4% for FY13E and FY14E respectively. Expected net income has been revised down by 1.4% and 2.3% for FY13E and FY14E respectively on higher interest charges for capacity expansion.

Outlook & Valuation

SSML's revenue and net income are expected to grow at a CAGR of 15.7% and 6.6%, respectively over FY12-14E. At CMP of Rs. 276, the stock trades at 4.0xx of FY13E and 4.3x of FY14E earnings and EV/EBITDA respectively. We maintain our "BUY" recommendation and revised down our price target to Rs. 344 (Rs. 352), which has a potential upside of 25%.

Source : Equity Bulls

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