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  • 20 Sep 2023
  • ICICIdirect

Sai Silks (Kalamandir) Limited IPO is open for subscription: All you need to know

 

The Sai Silks Kalamandir Limited (SSKL) is the second IPO that opens for subscription this week, along with Signature Global India Limited (SGIL). In this article, we will discuss Sai Silks IPO in detail, which opens for subscription on 20th September and closes on 22nd September. The various aspects related to the company will help you decide whether to subscribe or invest in the IPO for the long term.

Sai Silks Limited IPO: Key Details

Below are the key details related to the SSKL IPO:

  • Issue Size: Rs 1,201 crore
  • Price Band: Rs 210 - Rs 222
  • Issue Details: Rs 600 crore Fresh Issue + Offer for Sale of Rs 601 crore
  • Market Cap: At the upper price band, Rs 3,404.73 crore
  • Minimum Investment: Rs 14,874

 

Sai Silks Limited IPO: About the business

Sai Silks is amongst the top 10 retailers of ethnic apparel, particularly sarees, in south India in terms of revenues and profit after tax in FY21, FY22, and FY23. 

The company has four store formats - Kalamandir, VaraMahalakshmi Silks, Mandir, and KLM Fashion Mall. The business was founded by Managing Director, Nagakanaka Durga Prasad Chalavadi, a first-generation entrepreneur. They commenced operations through their first ‘Kalamandir’ store in 2005 at Hyderabad, Telangana, with a store size of 3,213 square feet and have over the years expanded to 54 stores in four south Indian states, i.e., Andhra Pradesh, Telangana, Karnataka, and Tamil Nadu.

As per the company, their stores provide a unique experience and customer service, which combined with their inventory and variety of SKUs enables them to attract and retain a growing customer base. 

Sai Silks Limited IPO: Store Format and Presence

Their ethnic wear and value-fashion products are available in stores under four different formats stores and through e-commerce channels comprising their own website and other online e-commerce marketplaces. Below are the details:

  • Kalamandir: The target segment is contemporary ethnic fashion for middle income. The product portfolio includes different variety of sarees, such as Tusser, Silk, Kota, Kora, Khadi, Georgette, Cotton, and Matka. The product price range is between Rs 1,000 and Rs 1,00,000.
  • VaraMahalakshmi Silks: The target segment is premium ethnic silk sarees and handlooms targeting wedding and occasional wear. The major product offerings include a premium variety of sarees such as Banarasi, Patola, Kota, Kanchipuram, Paithani, and Organza, Kuppadam, with a focus on handlooms such as Kacheepuram silk sarees. The product price range is between Rs 4,000 and Rs 2,50,000.
  • Mandir: The target segment is ultra-premium designer sarees targeting high net-worth individuals. The product offerings include an ultra-premium variety of designer sarees such as Banarasi, Patola, Ikat, Kanchipuram, Paithani, Organza, and Kuppadam. The product price range is between Rs 6,000 and Rs 3,50,000.
  • KLM Fashion: The target segment is value fashion at affordable price points. The product portfolio includes fusion wear, sarees for daily wear, and western wear for women, men, and children. The product price range is between Rs 200 and Rs 75,000.
 

Sai Silks Limited IPO: Industry Overview

The total organized apparel retail in FY20 was Rs 1,43,280 crore, which grew at a CAGR of 29% to reach a value of Rs 1,44,113 crore and is further expected to reach a market size of Rs 5,12,760 crore. The share of organized retail, which was 32% (15% B&M+18% E-commerce) in 2020 is expected to increase to 48% (24% B&M+24% E-commerce) in 2027.

 

 

The total unorganized apparel market in FY20 was Rs 3,04,470 crore, which is expected to increase to Rs 5,55,490 crore in FY27. However, its overall share in the apparel market is expected to decrease from 68% to 52%.

The share of E-tail in apparel and accessories in overall retail share was 17.5% in FY20. It is estimated that in FY2022, E-tail’s share in Apparel and Accessories was over 22%, and the share is expected to reach approximately 24%% by FY27. 

Sai Silks Limited IPO: Listed Peers

SSKL has many limited peers including names like Vedant Fashions Limited, TCNS Clothing Co. Go Fashion, Aditya Birla Fashion and Retail, Shoppers Stop, and Trent Limited. Let us compare Sai Silks with all the listed peers to understand how the company is placed in terms of financials (FY23):

  • In terms of revenue, Aditya Birla is the largest player, followed by Shoppers Stop, Trent, Vedant Fashions, and Sai Silks.
  • The average inventory turnover ratio is highest for Vedant Fashion (8.56), followed by Aditya Birla Fashion (3.48), and Go Fashions (3.36). Sai Silks at the bottom of the table.
  • The average ROCE of all listed peers is 29.67%. The ROCE of Sai Silks is 23.55%.
  • The gross margins are highest for Vedant Fashion, followed by TCNS and Go Fashions. Sai Silks has the lowest gross margins among the listed peers.

 

Sai Silks Limited IPO: Financials

Let us now look at the most essential part that you need to consider while evaluating a new company - the financials. Below are the financial numbers of SSKL over the last three financial years:

  • The company has reported a revenue of Rs 679.10 crore, Rs 1,133.02 crore, and Rs 1,358.92 crore for FY21, FY22, and FY23, respectively. Revenue has grown at an exceptional rate of 41.47% in this period. 
  • SSKL has reported an EBITDA of Rs 62.36 crore, Rs 133.05 crore, and Rs 212.53 crore for FY21, FY22, and FY23, respectively. In the same period, the EBITDA margins were 9.21%, 11.78%, and 15.73%, respectively. The margins have increased gradually in the last three financial years.
  • They have reported a net profit of Rs 5.13 crore, Rs 57.69 crore, and Rs 97.59 crore for FY21, FY22, and FY23. 
  • For the last three financial years, SSKL has reported an average EPS of Rs 5.72 and an average RoNW of 19.03%. 
  • If we attribute FY23 earnings to its post-IPO fully diluted paid-up equity capital, then the asking price is at a P/E of 34.91. 
  • The Return of Capital Employed (ROCE) has grown at an exceptional rate. In FY21, the ROCE was 8.51%, which increased to 21.71% in FY22 and 23.55% in FY23. ROE has increased from 2.16% in FY21 to 27.96% in FY23.
  • The debt-to-equity ratio is moderate and more or less the same. For the last three financial years, the D/E ratio was 0.89, 0.87, and 0.87, respectively.
 

What are the competitive strengths of Sai Silks Limited?

As per the company, their competitive strength is as below:

  • They are among the leading ethnic and value-fashion retail companies in south India, having a portfolio of established formats with a focused sales and marketing strategy.
  • SSKL has a strong presence in the offline and online marketplace with an omnichannel network.
  • The company has a track record of growth, profitability, and unit economics with an efficient operating model.

 

Risks associated with Sai Silks Limited

Below are the risks associated with SSKL:

  • Their business is highly concentrated on the sale of women’s sarees and is vulnerable to variations in demand and changes in consumer preference, which could hurt the business.
  • The company has generated substantially all of its sales from stores located in Southern India, and any adverse developments affecting the operations in these regions could hurt the company's revenue.
  • SSKL has entered into a business assets transfer agreement to acquire the business assets of Sai Retail India Limited. Any failure to realize the anticipated benefits of the transfer or any future acquisition, partnership, or purchase that they undertake, may impact the business. 
  • The promoter has pledged certain Equity Shares and entered into an agreement for the pledge of shares with certain lenders.