Siyaram Silk Mills (Siyaram) reported disappointing results with revenues declining 5.4% to | 281.4 crore due to a subdued market scenario. The first quarter is usually a seasonally weak one for the company. A pick-up in revenue growth in the forthcoming festive season would be a key parameter to watch, going ahead.EBITDA declined 4.4%YoY | 29.71 crore. EBITDA margins improved marginally by 11 bps YoY 10.55%. A 250 bps decline in raw material cost to sales ratio aided the EBITDA margin improvement in spite of an increase in employee cost to sales ratio and higher processing charges to sales ratio .Though other income increased 25% YoY to | 5.05 crore, higher interest cost (up 32% at | 9.01 crore) and increase in depreciation (up 11.7% YoY to | 10.88 crore) led the net profit to decline 23.1% YoY to | 9.77 crore.
Valuation : A strong product portfolio and pan-India network along with aggressive brand promotion with focus on asset light franchise model would enable SSML to register a steady growth in revenue, going ahead. Though we remain positive on the prospects of the company, we believe the key monitorable would be the up-tick in revenue growth in the forthcoming festive season. We have factored in the weak performance in Q1FY17 and revised our EPS estimate downward. We expect EPS to grow a CAGR of 20.5% to | 131.5 in FY16-18E. We have a HOLD recommendation on the stock with a revised target price of | 1315 (based on 10x FY18E EPS of | 131.5). However, we advise caution while buying owing to low liquidity in such stocks.