Saturday, June 23, 2012

>Siyaram Silk Mills Limited

Suited for growth…
We met the management of Siyaram Silk Mills Ltd (Siyaram) to understand the company’s business and its plans, going forward. Siyaram, a mid-segment textile player, commenced operations in 1978. The company, promoted by the Poddar group (comprising companies like Balkrishna Tyres and Siyaram Silk Mills), started off as a fabric manufacturer and later forward integrated into ready-made garment manufacturing. The fabric segment (primarily polyester blended fabrics) comprises ~80% of the total turnover. The current fabric capacity stands at 50 million metre and the company plans to add another 22.5 million metre over the next two to three years. Siyaram has strong brands like Siyaram, MiStair, J Hampstead, MSD, Oxemberg, Featherz and Little Champ in its portfolio. Over the years, the company has improved its operational performance significantly (the operating margin improved from 8.0% in FY09 to 12.1% in FY12) and has been able to increase the return on equity from single digits to over 20%. Also, considering that the company is a textile player having its own manufacturing facilities, the leverage at sub 1.0x seems quite comfortable.

Healthy improvement in operational performance
Over the years, Siyaram has managed to increase the operating margin from ~8% in FY09 to 12.1% in FY12. This has been possible on the back of lower fixed expenses (branding costs, employee costs, etc). Also, an increasing share of ready-made garments (currently ~15% of sales) has aided this margin expansion.

Strong brand portfolio
On the back of strong branding efforts undertaken by the company, Siyaram has been able to build a strong portfolio of brands. Siyaram (the flagship brand contributing ~50% to sales), MiStair and Featherz are its fabric related brands. Even in the ready-made garments segment, the company has built strong brands like Oxemberg, MSD and J Hamsptead. Comfortably leveraged and healthy return ratios Siyaram is comfortably leveraged with the debt to equity standing at 0.8x (FY12E). The company has a conservative approach towards capacity addition and associated leveraging. Hence, Siyaram has lower debt/equity ratio as compared to its peers. Also, with improving operational performance and better utilisation of enhanced capacities, the company’s return ratios are commendable.

At the CMP, the stock is trading at a P/E of 4.3x (FY12 EPS – | 60.5) and 0.9x FY12 book value of | 285.0. Considering the healthy financials and a strong presence in the Tier II and III cities, we believe Siyaram can be a beneficiary of growing rural incomes.