Not Rated Siyaram Silk Mills Ltd for the Target Rs NA by Emkay Global Financial Services Ltd
We met the senior management of Siyaram Silk Mills (SSML), to understand the outlook on growth, margins, the new retail foray, and capital-allocation priorities. KTAs:
1) The management has given guidance for ~12% revenue CAGR over the mid-term, driven by i) GST-led formalization and consequent market-share gains from unorganized players, and ii) healthy growth in the newly launched retail business
2) SSML envisages scaling up its retail business to ~70 stores by end-FY27 (vs ~44 in FY26), while prioritizing store economics over store-count
3) In FY27, SSML aims to maintain its current margin profile of ~14%, with a ~150bps drag expected from nascent retail stores
4) FY27 capex outflow guidance is ~Rs1bn (Rs500-600mn on maintenance, while balance ~Rs400mn on store expansion), funded by internal accruals. At CMP, the stock trades at ~13x FY26 PER (TTM basis). Key risks: slow discretionary demand; execution risk in the retail ramp-up.
Branded fabrics – The cash cow
The fabric division accounts for ~80% of revenue, with garments at ~15% and ‘others’ at ~5%. SSML follows an asset-light distribution model (50-70k retailers across India), with ~50% of production outsourced to third-party manufacturers. The management expects the fabric segment to grow via gaining share from unorganized players. To capture this share, SSML intends to leverage its deeply penetrated distribution network and strong brand pull, aided by the ongoing formalization of the sector.
Steady scaling up of retail stores
SSML plans to scale up its retail business (ZECODE: South India-focused value fastfashion brand; and DEVO: North India-focused mid-premium men's ethnic-wear brand) to ~70 stores by FY27 (vs 44 stores in FY26). To achieve this, the management is opening stores at a measured pace and prioritizing store economics before scaling up. Store area varies from ~6,000sqft to 10,000sqft and the lease period from 9Y to 12Y, with SSML incurring average capex of Rs10-15mn per store. The retail vertical recorded revenue of ~Rs800mn in FY26—its first full year of operations.
Retail business – Margin drag now, but potentially return-accretive at maturity
SSML expects ~14% EBITDA margin in FY27, with a ~150bps drag expected from retail store additions (loss-making, till SSML scales up). The management expects a mature store to offer a healthy margin profile with a high RoCE, given SSML’s asset-light model.
A self-funded balance sheet
The management has guided for FY27 capex of ~Rs1bn, of which ~Rs500-600mn will be utilized for maintenance and ~Rs400mn for new stores. The management expects the capex to be comfortably funded via internal accruals, given the company's PAT-to-OCF conversion of 80/71% over the last 3/5Y, respectively.
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