IGI Logo

Enhanced b/s strength, better margin augurs well…

Q4 generally tends to be a strong quarter for Siyaram with revenue contributing ~32% to annual sales. The company was back in positive growth trajectory in Q4FY21 after five consecutive quarters of negative growth, partly supported by benign base. Revenue grew 9% YoY (33% QoQ) to | 507.1 crore. Fabric division (85% of sales) had witnessed a recovery at a faster clip compared to its garmenting division. Gross margins (including processing charges) improved 167 bps YoY to 38.6% but continues to below its average of ~45% (owing higher discounting and schemes given to dealers/distributors). Cost rationalisation measures (employee & other expenses down 20% and 8% YoY, respectively) significantly boosted EBITDA margins by 690 bps YoY (220 bps QoQ) to 15.8% with EBITDA increasing 93% YoY (54% QoQ) to | 80.1 crore. Lower depreciation and interest cost further boosted profitability with PAT coming in at | 58.2 crore vs. | 23.3 crore in Q4FY20. The company, in FY21, had significantly curtailed new inventory purchase. The same led to working capital release with debt coming in at an all-time low of | 125 crore (D/E: 0.2x) as on FY21.

Cost savings to aid margin improvement…

In FY21, Siyaram re-engineered its cost structure with significant rationalisation of overheads including marketing spends. Operating overheads declined 42% YoY in FY21. The management expects 25% of cost savings to be sustainable in nature, going forward. Gross margins (including processing charges) deteriorated by ~820 bps YoY to 35% mainly on account of higher liquidation discounts and schemes given to dealers and distributors. We expect gross margins to revert to normalised levels in FY22E. With a complete washout in Q1 (87% revenue decline), Siyaram witnessed a gradual recovery in demand with revenues declining 35% in FY21. The demand for fabrics has gradually inched towards normalised levels while given Siyaram’s strong brand patronage and distribution network (which mainly encompasses Tier II, III cities), it is well placed to capture market share opportunities in the segment.

Valuation & outlook

Siyaram has, over the years, focused on strengthening its balance sheet and has reiterated its stance of not aggressively pushing sales in trade channels at the cost of stretched working capital cycle (to avoid higher receivable days and risk of sales return later). Reduction in working capital employed translated into debt reducing substantially by 69% YoY to | 125 crore in FY21. Though we expect working capital debt to increase in FY22E on account of recovery in sales, it would still be at reasonable levels (D/E: 0.3x in FY22E vs. 0.9x in FY18). Enhanced capital efficiency (low leverage and controlled working capital cycle) and better profitability would result in Siyaram reporting healthy RoCE of ~17% by FY23E. Despite the recent rally in the stock price, Siyaram continues to trade at reasonable valuations of 6x FY23E EV/EBITDA and 9x FY23E EPS. We reiterate our BUY rating on the stock with a revised target price of | 350 (11.0x FY23E EPS, earlier TP: | 245).

To Read Complete Report & Disclaimer Click Here

https://secure.icicidirect.com/Content/StaticData/Disclaimer.html

Above views are of the author and not of the website kindly read disclaimer