Durga Prasad Chalavadi, CMD, Sai Silks Kalamandir Ltd.

19 Sep 2023 , 08:43 AM

Why should retail investors subscribe to this IPO?

The key reasons for subscribing the issue would be the unique ethnic wear model and the favorable demographics of India where in females aged over 25 years are expected to reach from 37.6 crore in 2021 to 45.5 crore in 2031.

Other strengths of the company include catering to large and growing organized apparel retail market in India, particularly sarees.  Sai Silks Kalamandir is a leading saree player in South India with a diversified brand portfolio, templatized store roll-out strategy using a distinct cluster-based expansion approach, differentiated sales and marketing strategy driven by targeted ATL and BTL activities, planned inventory management and design strategy supported by technology-based supply chain network and processes.

Who are your listed peers?

SSKL is one of the leading saree retailers to tap the markets to raise funds through an IPO. SSKL operates through four different format stores, namely Kalamandir, Mandir, Varamahalakshmi Silks, and KLM Fashion Mall, as well as through e-commerce channels that include their own websites and other online e-commerce marketplaces.

The diverse range of products offered includes (i) various types of ultra-premium and premium sarees suitable for weddings, party wear, as well as occasional and daily wear; (ii) lehengas; (iii) men’s ethnic wear; (iv) children’s ethnic wear and (v) value fashion products comprising fusion wear and western wear for women, men, and children.

None of the current listed companies have a similar model so there is no listed peer group. Having said that, some of the organised listed retail players can be taken for the comparison are Vedant Fashions Ltd., TCNS Clothing Co. Ltd., Go Fashion (India) Ltd., Aditya Birla Fashion and Retail Ltd., Shoppers Stop Ltd. And Trent Ltd. 

What is your company’s market share? Are you also present in the online channel? If yes, do share details.

The South India Market is a large contributor to the organised saree market with approximately 50 to 60% of organised market of India being based out of the south region. Sai Silks Kalamandir is one of the largest apparel retailers in South India in terms of revenue in FY22 with a market share of 10% in the South India Organised Saree market.

We recognize the importance of expanding our sales through online e-commerce marketplaces as well as through other third-party online e-commerce websites which provides an omni-channel network to our customers, through our online and offline channels. The seamless integration between our offline and online channels also ensures that our products are easily available to our customers. Our journey of online saree sales began in the year 2021 during the Covid and we did Rs. 5.49 crore sales and which had grown to Rs. 18.47 crore in FY23, which is a good growth rate in the last three years. 

The new store adds will be in which locations? Any plans to expand beyond South India?

The company is planning to set-up 30 new stores in next 3 financial years across different formats in Chennai and rest of the Tamilnadu, Telangana, Karnataka and Andhra Pradesh. While we have currently not identified the locations where the new stores will be established, however the same will be undertaken basis an analysis primarily focused on the demographics of such location, existing businesses in the surrounding areas, the site quality such as site visibility, footfall generation, accessibility and parking and the feasibility of the location to the customers, etc.

Part of the proceeds from the issue will be used to repay debt, how much is the debt on the company’s books now and what will it be after this repayment?

The company will repay its Rs 50-crore debts via issue proceeds. The current long term debt in the books stands at Rs. 65.38 crore and rest of the debt is working capital to the tune of Rs. 280.12 crore in FY23.

What are the key margin drivers for the company?

Company’s EBITDA has increased from Rs. 62.36 crore in FY21 to ₹ 1,33.05 crore in FY22 and was ₹ 2,12.53 crore in FY23, while our EBITDA Margin has increased from 9.21% in Fiscal 2021 to 11.78% in Fiscal 2022 and was 15.73% in Fiscal 2023. 

On the domestic ethnic wear front, India is the 3rd largest apparel market globally and is experiencing a growing demand for organized retail. Women’s Indian wear segment is expected to grow at a CAGR of 18% over FY 2023-2027 period and become Rs. 2,61,061 crore market by FY 2027. Indian and fusion wear continues to lead the growth in women’s apparel with Saree and SKD contributing the highest revenue share In FY22.

In FY23, the company had posted net profit of Rs 97.6 crore, up 69.2%, backed by strong operating performance. Revenue from operations increased by 19.7% to Rs 1,351.5 crore. The company has declared Rs. 1351 crore in sales and PAT of Rs. 97.60 crore in FY23 and per sq.ft. realisation was Rs. 22,397. 

On the operating front, EBITDA (earnings before interest, tax, depreciation and amortisation) in FY23 surged by 60% YoY to Rs 212.5 crore with margin expansion of 394 bps at 15.72% as compared to previous year.

Organized retail has led to a shift of demand away from the unorganized sector and this is going to be the biggest growth driver for the company.

What are the key macro growth opportunities for the company? 

Indian Wedding and festive Wear Market is driven by increased demand for sarees, especially in South India. Women Indian wedding & festive wear market contributed 76% of total occasional wear market in FY2022. Women occasion wear market is poised to grow at 20.3% CAGR (FY23-27) and reach Rs. 1,30,129 crore by FY2027. Saree is the major contributor in the Women Indian Wedding & Festive Wear Market. India is a land of diverse culture & heritage, with many festivals celebrated throughout the year and saree is the preferred choice for both rural & urban India during festivals. 

As per the Technopack report, the saree market continues to be India’s first choice of apparel and is expected to become Rs. 124,837 crore market by FY2027. South India is the largest saree market & contributed to 50% of total saree sales. Saree market is expected to grow at a CAGR of 16.5% over FY23-27 period and reach Rs. 124,837 crore with an organized contribution reaching 40% by FY25.

What are the company’s key strategies?

In order to support our growth strategy, we intend to leverage our experience to expand our operations by opening new stores such that it offers us potential for better market share gains, increased brand recognition and economies of scale. Using our brand leverage, our product quality and customer engagement, we intend to open new stores over the course of the next three fiscals. 

The issue proceeds will be used for setting-up of 30 new stores at a cost of Rs 125.08 crore, two warehouses with a spend of Rs 25.4 crore, and working capital requirements amounting to Rs 280.07 crore. This is part of company’s growth strategy.

Our key strategies can be further elaborated as under:

Company continues cluster-based expansion model and expand presence in south India (30 new stores in next 3 financial years). We also plan to increase market share in the value fashion segment by opening 5 more franchise stores under KLM Fashion Mall in next 3 years. Additionally, we will also explore franchisee and B2B models to improve return ratios – 5 franchisee stores in next 3 financial years. Cluster based model helps the company in setting large warehouses like the ones in Hyderabad, which would increase the efficiency of the stock management, reduces costs and fast delivery. Once company achieves the scale the savings would be very huge on account of this strategy and this would helps in margin expansion.

Data based decision making to ensure optimum stock and better assessment of tastes and purchasing patterns to reduce the stock levels to release the working capital.

We have strengthened our E-Commerce play and the same should yield better results in the next three years. 

We had opened eight stores in FY23, out of which two stores are opened in Chennai under Kancheepuram Varamahalakshmi Silks form which has been the so far the successful format of the company. Out of the 30 stores to be opened majority of the stores would be Varamahalakshmi and KLM stores.

Chennai market is an untapped market for the company and the company will be aggressively expanding in to Chennai and rest of the Tamilnadu as the major saree consuming State in the country. 

Sustainable fashion is an upcoming area in India. What are the company’s plans in this domain? 

The saree is one of the most sustainable pieces of garments where one-size fits all and is used across all age groups and body types. Sarees are also being manufactured using yarns of natural fibres like jute, banana, hemp, bamboo, etc. These fibres are eco-friendly that do not harm the environment and are usually 100% bio-degradable. Using natural dyes to make sarees also helps reduce the environmental damage to an extent.

Is there a dividend distribution policy of the company? If yes, provide us an overview of the same. 

The company has adopted a dividend distribution policy pursuant to a resolution of the Board dated June 4, 2022. In terms of the Dividend Policy, the dividend pay-out, if any, shall be determined by the Board after taking into account a number of financial parameters, internal factors and external factors, including the operating cash flow of the Company, profit earned during the year, working capital requirements, capital expenditure requirements, dividend pay outs ratios across industries, inflation rate and taxation, amongst others.