Q3FY21 Company Update - Siyaram Silk Mills - ICICI Direct

Siyaram reported healthy Q3FY21 results with a sharp recovery sequentially. For Q3FY21, revenue de-growth was restricted to 8.5% YoY to Rs. 382.4 crore (vs. decline of 64% in Q2FY21) on the back of healthy demand during the festive season and also supported by low base of Q3FY20. Gross margins (including processing charges) contracted sharply by 740 bps YoY to 37% owing to higher discounting and schemes given to dealers/distributors. However, cost rationalisation measures (employee, other expenses down 39%, 42%, respectively, YoY) significantly boosted EBITDA margins by 530 bps YoY to 13.6% with EBITDA increasing by 50.5% YoY to Rs. 52.0 crore. Lower depreciation and interest cost further boosted profitability with PAT coming in at Rs. 28.0 crore vs. Rs. 8.2 crore in Q3FY20. Fabric division (85% of sales) bounced back at a faster clip with recovery rate reaching close to 90-95%, whereas garmenting segment continued to be laggard with recovery rate reaching 60-70%. Reduction in interest cost (down 31% QoQ) signals further retirement in debt through working capital release.

Valuation & Outlook

Siyaram has reiterated its stance of not aggressively pushing sales in the trade channels at the cost of stretched working capital cycle (to avoid higher receivable days and risk of sales return later). We believe the company during the quarter has further reduced working capital debt through optimisation of existing inventory and reducing fresh purchases. 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 YTDFY21 are likely to sustain (15-20%) post normalisation of demand scenario, which would aid EBITDA margins, going forward. Factoring in the better than anticipated revival, we upgrade our earnings estimates for FY21, FY22E and roll over estimates to FY23E. We bake in CAGR of 22% in FY20-23E (on comparatively low base) and expect Siyaram to generate RoCE of ~15% in FY23E. We reiterate BUY on the stock with a revised target price of Rs. 245 (9x FY23E EPS, previous TP: Rs. 170).

For details, click on the link below: https://www.icicidirect.com/mailimages/IDirect_Siyaram_CoUpdate_Feb21.pdf

Shares of SIYARAM SILK MILLS LTD. was last trading in BSE at Rs.204.4 as compared to the previous close of Rs. 201.8. The total number of shares traded during the day was 38886 in over 1136 trades.

The stock hit an intraday high of Rs. 208.5 and intraday low of 202.15. The net turnover during the day was Rs. 7979910.

Source : Equity Bulls

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