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Siyaram Silk Mills Ltd

| Q3 FY26 Earnings Conference Call

NEUTRAL SENTIMENT

Report Source

⬤3rd Feb 26

Summary : Siyaram's reported moderate Q3 growth with upgraded annual revenue guidance, but PAT declined due to new retail losses and increased costs, while management remains confident in long-term strategy and store expansion.

Management Perspective positive : Management expressed confidence in achieving upgraded guidance, strengthening market position, and seeing positive trends in new retail. They highlighted disciplined capital allocation and strong brand recognition.

Concall Report Analysis & Insights

Business Overview

  1. Siyaram's Q3 FY'26 total income grew 8.9% year-on-year to INR639 crores.
  2. Nine-month FY'26 total income increased 15.3% to INR1,782 crores.
  3. Fabric contributed 78% of Q3 revenue, Garment 15%, and Yarn & Others 7%.
  4. Q3 EBITDA grew 1.5% to INR84 crores, with a 13.2% margin.
  5. Q3 PAT was INR42 crores, down from INR46 crores last year, with a 6.6% margin.

Future Growth Prospects

  1. Company aims to open 35 new ZECODE and DEVO stores in FY'26.
  2. Upgraded FY'26 revenue growth guidance to 12-15% from 10-12%.
  3. Expanding retail network and widening retail footprint with new stores.
  4. Strengthening core capabilities in design, product development, and consumer preferences.
  5. India's position as a manufacturing hub and new FTAs will boost exports.

Management Insights

  1. Siyaram's focuses on developing products aligned with changing market trends and customer needs.
  2. The company has strengthened its market position despite a challenging environment.
  3. Disciplined capital allocation helped maintain absolute EBITDA while pursuing sustainable growth.
  4. Board declared a second interim dividend of INR3 per share, reflecting financial strength.
  5. Management is confident in achieving the upgraded 12-15% overall growth guidance for FY'26.

Signs of Skepticism

  1. Management declined to provide store-level economics for new retail, citing early stage.
  2. PAT declined year-on-year despite revenue growth, attributed to one-time costs and retail losses.
  3. Store expansion for ZECODE/DEVO was slower in Q3, with some spillover expected.
  4. Management advises against looking at quarterly numbers due to seasonality, preferring annual guidance.

Risk Factors

  1. Customers remained cautious with spending and footfall was moderate in Q3.
  2. Demand was largely occasion-driven, lacking sustained trends.
  3. New retail businesses (ZECODE/DEVO) are nascent and currently incur losses.
  4. Increased employee costs due to new labor code impacted Q3 PAT.
  5. Higher advertising and sales promotion expenses affected profitability.

Good To Know

  1. The company's in-house design and R&D capabilities help differentiate its fashion offerings.
  2. Cadini, an Italian brand subsidiary, provides exposure to European fashion trends.
  3. Legacy business is asset-light, requiring maintenance Capex of INR50-70 crores annually.
  4. Retail business capital expenditure is a calibrated INR35-40 crores for the year.
  5. Exports currently contribute approximately 9% of total revenue, primarily semi-finished fabrics.

Key Drivers

  1. New store openings drive retail growth.
  2. Upgraded revenue guidance reflects momentum.
  3. Exports benefit from new trade treaties.
  4. Strong brand recognition supports sales.

Key Analyst Discussions

Competitive Environment

  1. Overall apparel market is very large and unorganized, offering significant headroom for growth.
  2. Company is in a nascent stage in new retail, not comparable to established players yet.
  3. No significant pricing pressures observed in the fabric business due to varied product blends and markets.
  4. Focus is on distribution, supply chain efficiency rather than competitive pricing pressures.

Market Trends & Consumer Behavior

  1. Discretionary spending is high during festive seasons, benefiting both premium and value segments.
  2. Value segment has a larger audience, but premium segment also has good customer numbers.
  3. Festive season demand is more festive-driven than price-point driven.
  4. New ZECODE and DEVO stores in opened markets show better footfall and repeat customers.

Financial Highlights

  1. Q3 textile business volume growth was not advised, but 9-month fabrics volume growth was 9%.
  2. Gross margins increased by approximately 3% year-on-year due to product mix.
  3. Increased processing and labor charges (14-15% of net sales) due to inventory build-up for Q4.
  4. Finance costs increased due to extra working capital deployed for inventory preparation.
  5. EBITDA margin declined to 13.2% in Q3 FY'26 from 14.1% in Q3 FY'25 due to new labor code, advertising, and retail losses.

Product Composition

  1. Fabric contribution to revenue has decreased from over 80% to 75-78% as other businesses grow.
  2. Indigo business (Yarn & Others segment) now contributes 5-6% of revenue.
  3. New retail business will become more meaningful as store numbers increase.
  4. ZECODE and DEVO are currently focused on offline retail, with online channels considered for later stage.

Strategic Considerations

  1. ZECODE and DEVO revenue for 9 months FY'26 was INR55 crores, targeting INR70-80 crores for the full year.
  2. Store expansion for ZECODE/DEVO in Q3 was slower to focus on festive season operations.
  3. Company is reviewing FY'27 store expansion plans and new geographies, to be declared next quarter.
  4. Larger format ZECODE stores (6,000-8,000 sq ft) are performing better than smaller formats.
  5. No immediate plans for strategic partnerships or acquisitions, but open to new ideas.
Siyaram Silk Mills Ltd (SIYSIL) Concall Report Analysis & Insights | Dhanarthi