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Siyaram Silk Mills - Company Update - ICICI Securities

Posted On: 2020-07-02 04:43:18

Since Q4 is a critical quarter for Siyaram (~32% of revenues), Covid-19 disruptions impacted financials in Q4FY20. Revenue for the quarter de-grew 20.6% YoY Rs. 466.7 crore. As per the management, January-February was a decent period for the company. It was on track to surpass the previous year's topline. However, owing to supply chain issues (logistics issues), the company was unable to execute orders in March. Lower gross margins, coupled with negative operating leverage led EBITDA margins to contract 610 bps YoY to 8.9%. Absolute EBITDA de-grew 53% YoY to Rs. 41.5 crore. PAT fell 50% YoY to Rs. 23.3 crore (effective tax rate: 23% vs. 31% in Q4FY19). While Q1FY21E is expected to be a complete washout quarter, better rural spending and revival in demand owing to festive and wedding season are expected to aid growth. Stringent working capital policy has enabled it to gradually bring down its debt levels (0.5x in FY20 vs. 0.9x in FY18).

Valuation & outlook

Despite a challenging year, SSML continued to focus on stringent control on cash conversion cycles through better management of working capital days (NWC remained steady at 81 days). Subsequently, the company generated healthy operating cash flows (~Rs. 165.0 crore) in FY20. The company's focus on strengthening balance sheet is visible with a decline in debt from Rs. 590.0 crore in FY18 to Rs. 395.0 crore as on FY20. We expect debt to increase for short-term purpose to support its channel partners. However, it is expected to revert back to FY20 levels by end of FY21E. We model earnings CAGR of 16% in FY20-22E and expect the company to generate RoCE of ~11% in FY22E. Owing to significant correction in stock price (down 41% YTD), we upgrade the stock from HOLD to BUY with a revised target price of Rs. 160 (8.0x FY22E EPS).

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Shares of SIYARAM SILK MILLS LTD. was last trading in BSE at Rs.134.2 as compared to the previous close of Rs. 135.6. The total number of shares traded during the day was 8244 in over 274 trades.

The stock hit an intraday high of Rs. 140 and intraday low of 131. The net turnover during the day was Rs. 1105499.

Source: Equity Bulls

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