Buy This Small Cap Textile Stock For A Gain of 23% In 6 Months: HDFC Securities

HDFC Securities Ltd one of Indias largest equity broking firms has placed a buy call on the stock of Siyaram Silk Mills Limited (SSML) with a target price of Rs.559. From the current market price of Rs 454 of the stock, the brokerage estimates a rise of roughly 23 percent in six months. Siyarams Silk Mills Limited is a global fabric manufacturer with an ISO 9001:2008 certification. SSML in Q2FY22 reported strong performance. Overall revenues stood at Rs. 480Cr which grew by 1.76x/1.06x on a YoY/QoQ basis. Segment-wise, branded Fabric, garments and yarn revenue for the quarter stood 80/16/4% respectively.Fabric segment reported a volume of 23lk Mtrs which grew 70% on sequential basis while realization stood at Rs. 164/ mtr on QoQ basis registering a growth of 23% due to lower discounting and improved product mix.Garments segment volumes for the quarter stood at 12lk pcs up 97% on QoQ basis while realization stood at Rs. 632 - up 20% on a QoQ basis while Yarn segment volume for the quarter stood at 6lk MT - up 6% on a QoQ basis while realization stood at Rs. 299.5/MT - up 8% on a QoQ basis.EBITDA for the quarter stood at Rs.85 Cr v/s a loss of Rs. 6Cr in Q2FY21 while on a sequential basis EBITDA grew by 1.92x. SSML reported best ever operating performance for the quarter whereby it clocked highest ever quarterly EBITDA margin of 17.6% v/s 12.4% in Q1FY22.Consequently, PAT for the quarter stood at Rs. 52Cr v/s a loss of Rs. 14Cr in Q2FY22. Sequentially it reported a growth of 3x in PAT over Q1FY22.Advertisement The brokerage in its research report has said that Siyaram Silk Mills Ltd (SSML) has one of the most prudent capital allocation track record in the textile and apparel space in India. Despite the covid-19 pandemic-related turmoil, it operated at a Net D/E of 0.1x as of FY21. It has been in a constant endeavor to establish itself as an asset light and a pure branded fabric and apparel player in the highly commoditized and working capital intensive textile industry. SSML is one of the largest poly-viscose blended fabric players in India. Its portfolio of products include suiting fabrics, shirting fabrics, casual and formal apparels and home furnishing. SSML has registered a smart recovery in earnings post the 2nd covid-19 wave whereby it reported best ever quarterly performance in Q2FY22. HDFC Securities has further clarified that In Q2FY22, it reported a PAT of Rs. 52Cr which was mainly driven by strong operating leverage and its lean cost structure. SSML has positioned its products mainly in the mid-market whereby it competes directly with unorganized and regional fabric players. Its strong balance sheet, deep penetration with a consistent and focused approach toward brand building were the key growth drivers for the company. Over FY10-20, it had undergone a cumulative investment of ~Rs. 600Cr behind A&P activities which accounts for 4% of its cumulative revenues. Key demand drivers like social gatherings, marriage season and festivals are likely to play out in H2FY22. The brokerage has claimed in its research report that In our view, SSMLsrevenue and EBITDA are likely to record a growth of 23% and 73% CAGR over FY21-24E while PAT for FY24E is likely to reach Rs. 183Cr v/s Rs. 3.5Cr in FY21 and Rs.69Cr in FY20. Along with this, we expect the company to benefit from strong operating leverage and generate consistent FCF with improvement in working capital and ROCE from 7% in FY20 to 19% by FY24E. HDFC Securities has reported in its research report that Given the healthy growth outlook and a strong set of numbers in Q2FY22, we reiterate our positive view on the stock and expect the stock to further get re-rated. Consequently, we have now revised earnings and increased the target price for SSML. We feel investors can buy the stock in the band of Rs. 460-465 and further add-on dips at Rs. 410 for a base case fair value of Rs. 503 (13.5x Sept FY23E) and bull case fair value of Rs. 559 (15x Sept FY23E) for a time horizon of 2 quarters. The stock has been picked from the brokerage report of HDFC Securities Ltd. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.