Time To Exit - Siyaram Silk Mills

Siyaram Silk Mills (SSML) was a part of our recommendations in Issue No 3 dated January 18-31, 2010. The scrip was recommended in our ‘Analysis’ column at Rs 162 and carried target price of Rs 233. However, the scrip has outperformed and has indeed provided some generous appreciation to the investors. Since our recommendation, SSML has yielded an overall appreciation of 105 per cent, while at its CMP of Rs 315 the current appreciation is 94 per cent. This is quite in contrast to the Sensex performance, which has given an upside of just 2 per cent during the same period.

SSML is a manufacturer of suiting and shirting fabrics. It has built its presence in the manufacturing of readymade garments and value-added yarns along with entering into the home furnishing business as well. In the fabric sector, SSML has four brands, while in the readymade garments it has two brands.

There are certain specific reasons that led us to recommend SSML. These include the company’s focus on core competencies related to fabric manufacturing, clear focus on the mass market segment and Tier II, Tier III cities along with the rural areas, strong brand recall, phased retail expansion, cost rationalisation measures and low valuations. The company has performed exceptionally well in FY10 wherein its topline grew by 24.43 per cent to Rs 662.64 crore while its bottomline grew by 195 per cent to Rs 33.72 crore. Thus, considering the outperformance of the scrip and the current momentum it makes sense to book full profit in this counter.