3QFY2012 Result Update | Textile

February 8, 2012

Siyaram Silk Mills

Performance Highlights
Particulars (` cr) Net sales EBITDA EBITDA margin (%) Net profit 3QCY2012 3QCY2011 %chg (yoy) 2QCY2011 %chg (qoq) 222.0 29.2 13.2 13.2 228.0 29.8 13.1 15.9 (2.6) (2.0) 9bp (17.0) 244.4 32.8 13.4 17.0 (9.2) (10.7) (23)bp (22.3)

BUY
CMP Target Price
Investment Period
Stock Info Sector Market Cap (`cr) Beta 52 Week High / Low Avg. Daily Volume Face Value (`) BSE Sensex Nifty Reuters Code Bloomberg Code Textile 260 1.0 464/224 3,702 10 17,707 5,368 SIYR.BO SIYA@IN

`277 `380
12 Months

Source: Company, Angel Research

For 3QFY2012, Siyaram Silk Mills (SSM) reported a weak performance. The companys net sales declined by 9.2% qoq and 2.6% yoy to `222cr. OPM expanded by 9bp yoy to 13.2%. Net profit witnessed a 17.0% yoy decline to `13cr. We continue to maintain our Buy view on the stock. Top line declines, EBITDA margin flat: During the quarter, SSMs top line declined by 9.2% qoq and 2.6% yoy to `222cr, on the back of slowdown in demand. EBITDA declined by 2.0% yoy to `29cr on the back of lower revenue during the quarter. EBITDA margin expanded by 9bp yoy to 13.2% due to lower rawmaterial cost, which declined by 283bp yoy to 36.3% (39.1%) of sales. The decline in raw-material cost was partially offset by a 224bp yoy increase other expenditure to 21.4% (19.1%) of sales. For 3QFY2012, SSM witnessed a 17.0% yoy decline in PAT to `13cr on the back of lower revenue and higher interest and depreciation cost. Outlook and valuation: SSM is in a strong expansion mode. The company plans to add 286 looms (479 current looms) in a phased manner over FY2011-13 in the fabric segment and will be adding 400 machines in its readymade garment (RMG) segment by June 2012. Moreover, timely capacity expansion will help the company to take full advantage of the growing demand in India, which will drive its revenue at an 11.6% CAGR over FY2011-13E. The stock is currently trading at reasonable valuation of 4.4x FY2013E earnings (as against its historical median of 6x one-year forward EPS). We continue to maintain our Buy rating on the stock with a revised target price of `380, valuing the stock at 6x FY2013E earnings.

Shareholding Pattern (%) Promoters MF / Banks / Indian Fls FII / NRIs / OCBs Indian Public / Others 67.1 6.6 0.1 26.3

Abs.(%) Sensex Siyaram Silk Mills

3m 0.2 (11.1)

1yr (1.0) (4.7)

3yr 89.3 433

Key financials
Y/E March (` cr) Net sales % chg Net profit % chg FDEPS (`) EBITDA margin (%) P/E (x) RoE (%) RoCE (%) P/BV (x) EV/Sales (x) EV/EBITDA (x)
Source: Company, Angel Research

FY2010 660 24.4 34 194.2 35.9 10.6 7.7 21.6 13.0 1.5 0.6 6.0

FY2011 859 30.2 58 71.2 61.5 12.7 4.5 29.6 19.5 1.2 0.6 4.8

FY2012E 917 6.8 55 (4.7) 58.6 12.9 4.7 22.8 16.9 1.0 0.6 4.8

FY2013E 1,069 16.6 59 8.0 63.3 12.2 4.4 20.7 16.6 0.8 0.5 4.2

Sharan Lillaney
022-3935 7800 Ext: 6811 sharanb.lillaney@angelbroking.com

Please refer to important disclosures at the end of this report

Siyaram Silk Mills | 3QFY2012 Result Update

Exhibit 1: 3QFY2012 performance highlights

Particulars (Rs cr) Net Sales Total Expenditure EBITDA OPM (%) Depreciation EBIT Interest Other Income Excp. Item PBT Tax Net Profit NPM (%) Diluted EPS (`) 3QCY2012 3QCY2011 222.0 192.7 29.2 13.2 6.3 22.9 6.9 2.7 18.6 5.4 13.2 5.9 14.1 228.0 198.2 29.8 13.1 5.4 24.5 3.6 2.1 22.9 7.0 15.9 7.0 17.0 %chg (yoy) 2QCY2011 (2.6) (2.8) (2.0) 9bp 18.1 (6.4) 92.0 28.0 (18.7) (22.7) (17.0) (103) bp (17.0) 244.4 211.7 32.8 13.4 5.1 27.6 6.1 4.0 25.5 8.6 17.0 6.9 18.1 %chg (qoq) (9.2) (9.0) (10.7) (23) bp 23.0 (17.0) 14.4 (33.2) (27.0) (36.4) (22.3) (100) bp (22.3)

Source: Company, Angel Research

Revenue down by 9.2% qoq and 2.6% yoy

For 3QFY2012, SSM registered a 9.2% qoq and 2.6% yoy decline in its revenue to `222cr on the back of slowdown in demand witnessed during the quarter. Demand is expected to remain sluggish in the next quarter as well and, thus, we do not expect any significant growth in the coming quarter.

Exhibit 2: Revenue trend

(` cr) 300 250 200 150 100 50 228 3QFY11 245 4QFY11 181 1QFY12 244 2QFY12 Growth yoy 6.8 (2.6) 222 3QFY12 13.5
(%)

38.4 30.2

45 40 35 30 25 20 15 10 5 0 -5

Net Sales
Source: Company, Angel Research

February 8, 201

Siyaram Silk Mills | 3QFY2012 Result Update

EBITDA margin expands by 9bp yoy

During the quarter, EBITDA declined by 2.0% yoy to `29cr on the back of lower revenue. EBITDA margin expanded by 9bp yoy to 13.2% due to lower raw-material cost, which declined by 283bp yoy to 36.3% (39.1%) of sales. The decline in raw-material cost was partially offset by a 224bp yoy increase in other expenditure to 21.4% (19.1%) of sales.

Exhibit 3: EBITDA margin up yoy

(` cr) 35 30 25 20 15 10 5 30 3QFY11 32 4QFY11 22 1QFY12 EBITDA
Source: Company, Angel Research
(%)

14 13.4 13.1 13.0 13.2 14 13 12.0 13 12 12 33 2QFY12 Margin 29 3QFY12 11

PAT declines by 17.0% yoy

For 3QFY2012, the company witnessed a 17.0% yoy decline in PAT to `13cr on the back of lower revenue and higher revenue depreciation and interest cost. Depreciation cost increased by 18.1% yoy and interest cost surged by 92.0% yoy. Consequently, PAT margin declined by 103bp yoy to 5.9% (7.0%).

Exhibit 4: PAT trend

(` cr) 20 18 16 14 12 10 8 6 4 2 (%) 9 6.9 5.3 5.9 8 7 6 5 4 3 2 16 3QFY11 19 4QFY11 10 1QFY12 PAT
Source: Company, Angel Research

7.0

7.6

17 2QFY12 Margin

13 3QFY12

1 0

February 8, 201

Siyaram Silk Mills | 3QFY2012 Result Update

Investment arguments
SSM is one of the leading textile manufacturers in India. The company enjoys a strong brand presence across the country, with brands such as Siyaram, Mistair, J Hampstead and Oxemberg in its kitty.

Strong brand presence: SSM has built a strong brand presence in the country
through continuous advertisement and brand-building efforts over the past 30 years. The company has created a niche for itself in a highly competitive industry. SSM enjoys a monopolistic position for its fabric segment under the Siyaram brand, which constitutes nearly 85% of its revenue.

Largest distribution network across India: SSM has one the largest
distribution networks in the country. The company has a strong network of over 1,500 dealers and 500 agents supplying to more than 40,000 outlets across India. This enables the company to launch new products with a high success ratio and low marketing cost, giving it an edge over competitors.

Higher utilization to drive growth: SSMs yarn segment achieved 57% capacity
utilization in FY2011 compared to 41.9% in FY2009, which is further expected to improve to 80% in FY2012E.

Outlook and valuation: SSM is in a strong expansion mode. The company

plans to add 286 looms (479 current looms) in a phased manner over FY2011-13 in the fabric segment and will be adding 400 machines in its RMG segment by June 2012. Moreover, timely capacity expansion will help the company to take full advantage of the growing demand in India, which will drive its revenue at an 11.6% CAGR over FY2011-13E. The stock is currently trading at reasonable valuation of 4.4x FY2013E earnings (as against its historical median of 6x oneyear forward EPS). We continue to maintain our Buy rating on the stock with an upgraded target price of `380, valuing the stock at 6x FY2013E earnings.

Exhibit 5: Key assumptions

Particulars (%) Sales growth EBITDA margin Tax rate NPM
Source: Company, Angel Research

Estimates FY2012 6.8 12.9 31.5 6.0 FY2013 16.6 12.2 31.5 5.5

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Siyaram Silk Mills | 3QFY2012 Result Update

Profit and loss statement

Y/E Mar. (` cr) Total operating income % chg Total expenditure EBITDA % chg (% of Net sales) Depreciation& amortisation Interest & other charges Adj.Other income (% of PBT) Recurring PBT Extraordinary expense/(Inc.) PBT (reported) Tax (% of PBT) PAT (reported) Less: Minority interest (MI) Prior period items PAT after MI (reported) ADJ. PAT % chg FY2009 530 9.1 488 42 32.0 8.0 19 16.8 8.4 57.1 15 15 3.2 21.9 11 11 11 20.4 FY2010 660 24.4 589 70 66.1 10.6 20 12 11 22.3 49 49 15 31.3 34 34 34 194.2 FY2011 859 30.2 750 109 54.8 12.7 21 15 10 11.9 83 83 25 30.5 58 58 58 71.2 FY2012E 917 6.8 799 118 9.0 12.9 24 25 11 13.4 80 80 25 31.5 55 55 55 (4.7) FY2013E 1,069 16.6 939 131 10.5 12.2 30 26 11 13.0 87 87 27 31.5 59 59 59 8.0

February 8, 201

Siyaram Silk Mills | 3QFY2012 Result Update

Balance sheet
Y/E Mar. (` cr) SOURCES OF FUNDS Equity share capital Reserves& surplus Shareholders funds Total loans Deferred tax liability Total liabilities APPLICATION of FUNDS Gross block Less: Acc. depreciation Net block Capital work-in-progress Investments Current Assets Current liabilities Net Current Assets Total Assets 325 120 205 2 248 61 186 393 337 137 200 28 251 102 149 378 387 157 231 1 18 408 135 272 522 436 181 256 75 3 405 140 265 598 526 210 316 3 461 160 302 621 9.4 133 142 233 18 393 9.4 160 170 190 18 378 9.4 211 220 286 17 522 9.4 254 263 319 17 598 9.4 300 309 295 17 621 FY2009 FY2010 FY2011 FY2012E FY2013E

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Siyaram Silk Mills | 3QFY2012 Result Update

Cash flow statement

Y/E Mar. (` cr) Profit before tax Depreciation Change in working capital Less: Other income Direct taxes paid Cash Flow from Operations (Inc.)/Dec. in Fixed assets (Inc.)/Dec. in Investments (Inc.)/Dec. in loans and advances Other income Cash Flow from Investing (Inc.)/Dec. in loans Dividend paid (Incl. Tax) Others Cash Flow from Financing Inc./(Dec.) in Cash Opening Cash balances Closing Cash balances FY2009 15 19 34 8 3 56 (19) 0 (1) 8 (12) (38) (5) 0 (43) 1.0 1.1 2.1 FY2010 49 20 46 11 15 89 (11) (28) (8) 11 (36) (43) (7) (2) (52) 0.8 2.1 2.9 FY2011 83 21 (95) 10 25 (26) (51) 10 (29) 10 (60) 96 (8) (3) 85 (0.1) 2.9 2.9 FY2012E 80 24 7 11 25 75 (123) 15 11 (97) 33 (12) 21 (0.6) 2.9 2.2 FY2013E 87 30 (37) 11 27 41 (15) 11 (4) (24) (13) (37) 0.3 2.2 2.5

February 8, 201

Siyaram Silk Mills | 3QFY2012 Result Update

Key ratios
Y/E Mar. Valuation Ratio (x) P/E (on FDEPS) P/E (on basic, reported EPS) P/CEPS P/BV Dividend yield (%) Market cap. / Sales EV/Sales EV/EBITDA EV / Total Assets Per Share Data (Rs) EPS (Basic) EPS (fully diluted) Cash EPS DPS Book value Dupont Analysis (%) EBIT margin Tax retention ratio Asset turnover (x) ROIC (Post-tax) Cost of debt (Post Tax) Leverage (x) Operating RoE Returns (%) RoCE (Pre-tax) Angel RoIC (Pre-tax) RoE Turnover ratios (x) Asset turnover (Gross Block) Asset turnover (Net Block) Asset turnover (Total Assets) Operating income / Invested capital Inventory / Sales (days) Receivables (days) Payables (days) WC cycle (ex-cash) (days) Solvency ratios (x) Gross debt to equity Net debt to equity Net debt to EBITDA Interest coverage (EBIT / Interest) 1.6 1.6 5.5 2.5 1.1 0.9 2.3 5.9 1.3 1.2 2.4 7.4 1.2 1.2 2.6 4.7 1.0 0.9 2.2 5.0 1.7 2.6 1.3 1.3 71 85 41 138 2.0 3.3 1.7 1.8 52 64 45 91 2.4 4.0 1.9 2.0 51 64 51 88 2.2 3.8 1.6 1.7 61 71 55 106 2.2 3.7 1.8 1.8 59 64 51 96 5.7 5.7 8.2 13.0 13.6 21.6 19.5 20.7 29.6 16.9 18.6 22.8 16.6 17.9 20.7 4.4 78.1 1.3 4.4 5.2 1.8 3.1 7.6 68.7 1.8 9.3 3.9 1.2 16.0 10.2 69.5 2.0 14.4 4.3 1.1 25.1 10.3 68.5 1.7 11.8 5.7 1.1 18.8 9.5 68.5 1.8 11.5 5.8 1.0 17.1 12.2 12.2 32.7 5 151.8 35.9 35.9 57.5 6 181.2 61.5 61.5 83.8 7 234.6 58.6 58.6 84.2 11 280.5 63.3 63.3 94.8 12 330.1 22.7 22.7 8.5 1.8 1.8 0.5 0.9 11.6 1.2 7.7 7.7 4.8 1.5 2.2 0.4 0.6 6.0 1.1 4.5 4.5 3.3 1.2 2.5 0.3 0.6 4.8 1.0 4.7 4.7 3.3 1.0 3.9 0.3 0.6 4.8 1.0 4.4 4.4 2.9 0.8 4.3 0.2 0.5 4.2 0.9 FY2009 FY2010 FY2011 FY2012E FY2013E

February 8, 201

Siyaram Silk Mills | 3QFY2012 Result Update

Research Team Tel: 022 - 39357800

E-mail: research@angelbroking.com

Website: www.angelbroking.com

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Disclosure of Interest Statement 1. Analyst ownership of the stock 2. Angel and its Group companies ownership of the stock 3. Angel and its Group companies' Directors ownership of the stock 4. Broking relationship with company covered

Siyaram Silk Mills No No No No

Note: We have not considered any Exposure below ` 1 lakh for Angel, its Group companies and Directors

Ratings (Returns):

Buy (> 15%) Reduce (-5% to 15%)

Accumulate (5% to 15%) Sell (< -15%)

Neutral (-5 to 5%)

February 8, 201