Stock Market

ICICI Direct has a buy call on Siyaram Silk Mills with a target price of Rs 650. The current market price of Siyaram Silk Mills is Rs 525.55. Time period given by the brokerage is one year when Siyaram Silk Mills price can reach the defined target. The view of the brokerage on the company: New brand launches to enhance revenue growth for garments: The garmenting space is expected to be the next leg of growth for SSSML.

The garmenting division delivered a superior performance in FY18 with revenues increasing 20 per cent YoY to Rs 401.9 crore (14 per cent volume growth, 6 per cent realisation growth).

To further scale up the garmenting segment, the company will be launching two new brands, ‘Mozo’ and ‘Espiro’, which will cater to lower price point product category.

The shift towards garmenting is visible as share of garments has increased from 21 per cent in FY17 to 23 per cent in FY18.

Furthermore, garmenting division yields superior operating margins (16-17 per cent) against the fabric division (12-13 per cent).

We model 18 per cent revenue CAGR in FY18-20E for the garmenting division. Increased in house processing capacity, premium brand Cadini to enhance margins for fabrics segment: After a suppressed performance in the fabric division for FY17, a recovery was visible with revenues increasing 10 per cent YoY to Rs 1269.7 crore in FY18.

SSML’s Italian lifestyle brand Cadini has proved to be fruitful as the brand performed significantly well in a short span of time.

The brand witnessed healthy traction with revenues increasing 31 per cent YoY to Rs 130 crore in FY18.

Share of Cadini brand in total fabric sales has increased from 4 per cent in FY16 to 10 per cent in FY18.

SSML is enhancing its processing fabric capacity from the current 3.6 crore metre to 4.8 crore metre.

Higher in-house processing capacity is expected to enhance margins for fabric division. Recovery in due course; maintain BUY: The management addressed the key issue regarding the sluggish recovery in trade channels post implementation of GST.

Normalisation at the dealer’s level is taking longer than anticipated.

Also, working capital days are expected to remain elongated, keeping debt levels high in FY19E.

Going forward, with stabilisation of trade channels, we expect working capital to ease out in FY20E and generate healthy cash flow from operations.

Factoring in the performance of Q1FY19, we revise our estimate downwards for FY19E, FY20E.

Going forward, we expect overall revenues to increase at 10 per cent CAGR and PAT to grow at 17 per cent CAGR in FY18-20E.

We value SSML at Rs 650 i.e.

20x P/E on FY20E EPS of Rs 32.7 with a BUY rating on the stock.





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