Stock Review: Siyaram Silk Mills

 

Siyaram Silk Mills has low-debt and a good dividend-paying record. Long-term investors may consider the stock

 

SIYARAM Silks Mills have presence in tier-II and tier-III cities through its established brand Siyaram. The company has a low debt and a good dividend-paying record. Further, the company is also making profits for the past 15 years. Investors with a horizon of ine year can consider buying this stock.

BUSINESS:

Siyaram Silk Mills, which is one of the few consistently profit-making textile companies, is into manufacturing of blended fabric and known for its retail brand Siyaram. Branded fabric is the biggest segment with an 80% share in the company's revenue. The company has a strong distribution network of more than 60,000 franchise and retail units, which ensures that its brand remains one of the preferred choices of the masses. The company buys yarn from yarnproducers converts it into fabric and sells it under its brand. At present, the company has a capacity of four million metres of fabrics per month.

INVESTMENT RATIONALE:

The company has planned a capacity expansion with an investment of 210 crore in the next three years. It would add 286 looms to the existing capacity of 480 looms in the coming quarters in a phased manner —78 looms by September 2011, 120 looms by March 2012 and 88 looms by September 2012. At present, the company's weaving and garment capacities are 70 million metres and 2.4 million pieces per annum, respectively. This would increase to around 95 million pieces and 2.8 million pieces, respectively, by September 2012. Of the total amount, 135 crore would be funded through technology upgradation fund and hence the company's cost of funds would be economical in the range of 5-6%. This would ensure that the company's interest burden would be low.

   Unlike many other textile companies, Siyaram Silk Mills is not excessively dependent on cotton as major input costs. Polyesterviscose forms nearly 85% of its raw material. Since polyester is the product of the derivative of crude oil, rise in cotton prices wouldn't have much impact on its earnings. Further, the company is able to pass on any moderate increase in polyester prices due to higher crude oil prices to customers. In the past nine months, the company has increased prices of fabric by three times. Despite this, its volumes grew by 13% and realisations by 10%.

FINANCIALS :

In the December 2010 quarter, the company's net profit jumped considerably around 140% on a year-on-year basis to 15.9 crore. Net sales grew 38% on a year on year basis to 226 crore and operating profit shot up 73% to around 30 crore. The company's debt-equity ratio was 1.35 in FY10. In the blended fabric segment, the company commands a 16% return on capital employed, which is superior to some of the other textile companies.

VALUATION:

The stock of Siyaram Silks Mills is trading at a price-earnings multiple of five times. An immediate comparison with its peers Donear Industries and Bhilwara Spinners cannot be made as these companies are in losses. The company has a track record of dividends and keeps low debt on its books compared to its peers. Given its healthy financials and expected growth momentum, the stock looks attractive at the current valuations.