Sai Silks Kalamandir IPO (Avoid)

Highlights

Sai Silk (Kalamandir) Ltd (SSKL) are among the top 10 retailers of ethnic apparel, particularly sarees, in south India in terms of revenues and profit in Fiscal 2020, 2021 and 2022. The Company operates in 4 store formats i.e. Kalamandir, VaraMahalakshmi Silks, Mandir and KLM Fashion Mall. With a variety of items at various price points, the Company caters to customers in all market segments by offering its products to a number of market sectors, including premium ethnic fashion, ethnic fashion for middle-income consumers, and value fashion.

The company will use their 54-store network as of July 31, 2023, to focus on spreading India’s vibrant culture, traditions, and heritage by offering a diverse range of products such as (i) lehengas, (ii) men’s ethnic wear, (iii) children’s ethnic wear, and value fashion products such as (i) fusion wear and (ii) western wear for women, men, and children.

The Company believes that its stores provide a unique experience and customer service, which combined with its inventory and variety of SKUs that they offer, enables them to attract and retain a growing customer base that, as of July 31, 2023, exceeded over 5.98 mn customers in India.

The Company would utilize Rs. 1250 mn of the net proceeds of the new equity issuance for funding capital expenditure towards setting-up of 30 new stores, Rs. 254 mn for funding capital expenditure towards setting-up of two warehouses, Rs. 2,800 mn for Funding working capital requirements of Company, Rs. 500 mn for re-payment or pre-payment, in full or in part, of certain borrowings availed by the Company. The Rs. 500 mn of the repayment of the debt is scheduled to be deployed by Fiscal 2024.

Key Highlights

• The organized apparel retail share, which was 32 pct in 2020, is predicted to climb to 48 pct by 2027. (From the Technopak Report). The organized retail share of women’s apparel climbed from 14 pct in Fiscal 2015 to 31 pct in Fiscal 2022 and is predicted to reach 44 pct by Fiscal 2028, totalling Rs. 1,754.44 bn. By looking at the growth rate and potential market size there is a huge opportunity to grow in this industry.
• Kalamandir store was founded in 2005. It focuses on ethnic fashion for middle-class income with an average price range of Rs. 1,000 to 100,000. In 2011, the company founded the Mandir store which caters to Ultra-premium designer sarees targeting high net-worth individuals with an Average price range of Rs. 6,000 to Rs.350,000. VaraMahalakshmi Silk store was founded by the company in 2011 and it focuses on Premium ethnic silk sarees and handlooms targeting wedding and occasional wear with an average price range of Rs. 4,000 to Rs. 250,000. Also, the company has KLM Fashion Mall which focuses on value fashion at an affordable price point with an average price range of Rs.200 to Rs. 75,000.
• SSKL expanded their presence in the online e-commerce marketplace and started selling products through its own online websites, www.kalamandir.com, www.brandmandir.com, www.kanchivml.com, www.klmfashionmall.com and www.kalamandirroyale.com as well as through other third-party online e-commerce websites.
• The Company has 25 stores in Telangana which contributes 44.9 pct of revenue. 16 stores in Andhra Pradesh which contributes 32 pct of revenue. 9 stores in Karnataka which contributes 13.3 pct of revenue and 4 stores in Tamilnadu which contributes 9 pct of revenue, also the company wants to Penetrate the Tamilnadu market because it is the highest saree consumption Market.
• Between Fiscal 2021 and Fiscal 2023, the company opened 15 stores including three format conversions providing requisite experience in expanding their store network. Also company intends to open approximately 30 additional stores and these are planned over the course of the next 2 Fiscal with more focus on expanding  VaraMahalakshmi Silks store formats.
• To provide fresh and varied products to their customers throughout the year, the Company focuses on generating innovative designs with an emphasis on quality. To keep up with the newest design trends and inventiveness, the company outsource design features and leverages the design infrastructure accessible from third-party manufacturers.
• Sales of the company have grown by 41.26 pct CAGR during the period FY21-23 while EBITDA and PAT have grown by 84.7 pct CAGR and 337.24 pct CAGR respectively over the same period. During FY23, the company reported revenues of Rs. 13,515 mn which increased by 20.2 pct YoY while EBITDA grew by 59 pct YoY to Rs. 2,125 mn as EBITDA margin improved sharply from 11.78 pct in FY22 to 15.73 pct in FY23. PAT in FY23 stood at Rs. 975 mn, which increased by 69 pct YoY.

Key Risk

• The Company generates substantially all of their sales from stores located in Southern India and any adverse developments affecting their operations in these regions could have an adverse impact on their revenue and results of operations.

• The growth of online retailers and current trends of discounting and pricing strategies may adversely affect company pricing ability.

Valuation

At the upper end of the price band, the issue is quoting at a PE of 35x based on FY23 earnings, the issue appears fully priced. One can avoid this issue.

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Disclaimer: The views expressed in the blog are purely based on our research and personal opinion. Although we do not condone misinformation, we do not intend to be regarded as a source of advice or guarantee. Kindly consult an expert before making any decision based on the insights we have provided.