Siyaram Silk Mills - Q2FY21 Company Update - ICICI Direct

Given the weak demand scenario for fabric and apparel categories in domestic markets and excess inventory in trade channels, Siyaram (SSML) reported revenue decline of 64.4% YoY to Rs. 173.6 crore (up 3.2x QoQ). However, the recovery rate trajectory has been on an upward trend MoM. Green shoots are visible for the fabric division (~80% of revenues), wherein recovery rate in September reached 60-70% of pre-Covid levels. Garmenting segment continued to be a laggard with recovery rate reaching 30-40% in September. Gross margins (including processing charges) contracted sharply by 900 bps YoY to 34% owing to higher discounting and schemes given to dealers/distributors. However, cost rationalisation measures (employee, other expenses down 54%, 62%, respectively, YoY) curtailed EBITDA losses, to a certain extent. The company reported EBITDA loss of Rs. 5.6 crore (Q1FY21: Rs. 43.7 crore loss, Q2FY20: Rs. 55.2 crore). Subsequently, SSML reported a net loss of Rs. 13.6 crore vs. net profit of Rs. 30.1 crore in Q2FY20 (Q1FY21: Rs. 67.3 crore loss).

Valuation & Outlook

Despite challenging times, SSML continued to focus on stringent control on cash conversion cycles, which resulted in further reduction in debt by ~Rs. 35 crore in H1FY21. The company’s focus on strengthening balance sheet is visible with significant decline in debt from Rs. 590.0 crore in FY18 (D/E: 0.9x) to Rs. 360.0 crore (D/E: 0.5x) as on H1FY21. Some of the cost rationalisation measures undertaken by the company in H1FY21 are likely to sustain post normalisation of demand scenario. This would aid EBITDA margins, going forward. We model earnings CAGR of 19% in FY20-22E (on comparatively low base) and expect the company to generate RoCE of ~13% in FY22E. The company continues to trade at reasonable valuations. Hence, we maintain BUY rating with a revised target price of Rs. 170 (8.0x FY22E EPS).

For details, click on the link below: https://www.icicidirect.com/mailimages/IDirect_Siyaram_CoUpdate_Nov20.pdf

Shares of SIYARAM SILK MILLS LTD. was last trading in BSE at Rs.137.8 as compared to the previous close of Rs. 135.1. The total number of shares traded during the day was 16159 in over 612 trades.

The stock hit an intraday high of Rs. 138.5 and intraday low of 135.5. The net turnover during the day was Rs. 2217155.

Source : Equity Bulls

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