The stock of Siyaram Silk Mills has jumped 23 per cent in the past three months, a rise that can be attributed to catching up of valuation.
Siyaram is a fabric-to-readymade garment manufacturer.
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 to 20, given its strong financials.
In the past five years, the company has demonstrated a steady 10 to 15 per cent sales growth, consistent operating margin of 12 to 13 per cent, and return on equity 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.
At present, its readymade garment segment contributes 16 per cent to the company’s total revenues from 10 per cent in financial year ’11. In the same period, the company’s revenues share from the fabric segment fell to 75 per cent in financial year ’15.