Siyaram Silk Mills on the move with a consistent performance

ET INTELLIGENCE GROUP: The stock of fabric-to-readymade garment manufacturer Siyaram Silk Mills has jumped 23 per cent to Rs 1,183.25 in the past three months, a rise that can be attributed to catching up of valuation.

Even after the sharp run-up in the stock price, it is still trading at 13 times its earnings multiple, when it should trade in the price-to-earnings multiple range of 18-20, given its strong financials.

In the past five years, the company has demonstrated a steady 10-15 per cent sales growth, consistent operating margin of 12-13 per cent, and return on equity (ROE) of around 20 per cent. Besides, it has regularly paid dividends.

Such consistent financial performance can be attributed to a shift in Siyaram’s model over the past few years, which has helped the company move up the textile value chain. From being a pure fabric manufacturer, the company stepped into manufacturing of readymade garments with brands such as Oxemberg and J Hampstead.

In the past five years ending FY15, the company’s revenues from readymade garment grew to Rs 242 crore from Rs 89 crore in FY11. At present, its readymade garment segment contributes 16 per cent to the company’s total revenues from 10 per cent in FY11. In the same period, the company’s revenues share from the fabric segment fell to 75 per cent in FY15.

There are two factors which have boosted the revenue growth of the company’s readymade garment segment. First, the company’s readymade garment brands cater to mass market segments. It has been observed that even in times of weak business, demand in mass segment remains relatively unaffected when pitted against the premium segment. Second, unlike in the fabric segment, profit margins in the readymade garment segment are high.

The company has been able to scale up its readymade garments and reduce marketing costs to promote its brands compared with its peer