Going forward, we expect SSML to report net sales CAGR of ~9% to ~Rs 2,173cr and adj. net profit CAGR of ~13% to Rs 130cr over FY2019- 21E on the back of market leadership in blended fabrics, strong brand building, wide distribution channel and strong presence in tier 2 and tier 3 cities coupled with emphasis on latest designs and affordable pricing points. At the current market prices, SSML trades at inexpensive valuations. We maintain our Buy recommendation on the stock with a Target Price of Rs 333.
On the balance sheet front, with stringent control on cash conversion cycle, the company was able to reduce its total debt by 22% YoY to | 460.2 crore (D/E: 0.6x in FY19 vs. D/E: 0.9x in FY18). Given the subdued market conditions, the working capital cycle may witness certain deterioration owing to higher inventory days. With no major capex plans in the near term, debt is expected to remain at levels similar to FY19. We expect revenue to grow at a CAGR of 7% in FY19-21E, with EBITDA margins remaining range bound at ~13%. SSML’s stock price witnessed a significant correction of ~33% since our last result update, making it available at valuation of 8.5x FY21E earnings. Hence, we have a BUY recommendation with a revised target price of Rs 270 (10x FY21E EPS).
FY19 was a year of consolidation for SSML, where the management’s keyfocus was on strengthening its balance sheet in lieu of revenue growth. Working capital cycle witnessed noteworthy recovery with NWC declining by ~10 days to 84 days. Subsequently, higher cash flow generation led to decline in total debt by 22% YoY to Rs 460.2 crore (D/E: 0.6x in FY19 vs. D/E: 0.9x in FY18). With no major capex plans in the near term, we expect SSML to consistently generate FCF and enable the company to further reduce its debt levels. We roll our estimates to FY21E and expect revenue, EBITDA to grow at a CAGR of 11%, 12%, respectively, in FY21E. SSML’s stock pricewitnessed a significant correction of ~48% in the last 12 months, making it available at valuation of 11.0x FY21E earnings. Hence, we have a BUY recommendation with a revised target price of | 410 (13x FY21E EPS).