Sai Silks IPO review (Apply)

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Review By Dilip Davda on September 17, 2023

•    SSKL has emerged one of the 10 top retailers of ethnic apparel with major focus on sarees.
•    For FY21, FY22, it marked impact of Covid on its performance.
•    For FY23, it posted super results indicating prospects ahead with addition of new stores.
•    Based on FY23 earnings, the issue appears fully priced.
•    Well-informed investors may park funds for medium to long term rewards. 

PREFACE:
The company tried its maiden IPO in the month of February 2013 to mobilize Rs. 89 cr. at a price band of Rs. 70-75 per share of Rs. 10 each, but failed to garner one-time subscription and ultimately withdrew. At that time "Safety Net" mode for IPOs was in place and despite such regime, it failed. The mandate for February 2013 IPO was with Ashika Capital and Vivro Financial. Now the company is coming out with its IPO worth Rs. 1201 cr. at a price band of Rs. 210 - Rs. 222 per share of Rs. 2 each, comprising of Rs. 600 cr. worth fresh equity issue and Rs. 601 cr. worth Offer for Sale (OFS), and the mandate is with Motilal Oswal Investment, HDFC Bank, and Nuvama Wealth. In the meanwhile, the company has posted good growth and is set for bright prospects, as claimed by the management. SSKL has proved its mettle in the intervening period and its FY23 performance indicates that the company is now in fast-forward mode. 

ABOUT COMPANY:
Sai Silk (Kalamandir) Ltd. (SSKL) is amongst the top 10 retailers of ethnic apparel, particularly sarees, in south India in terms of revenues and profit after tax in Fiscal 2020, 2021 and 2022. (Source: Technopak Report). Through its four store formats, i.e., Kalamandir, VaraMahalakshmi Silks, Mandir and KLM Fashion Mall, SSKL offers products to various segments of the market that include premium ethnic fashion, ethnic fashion for middle income and value-fashion, with a variety of products across
different price points, thereby catering to customers across all market segments. 

It leverages store network of 54 stores as of July 31, 2023, to focus on spreading India's vibrant culture, traditions and heritage by offering a diverse range of products which includes various types of ultra-premium and premium sarees suitable for weddings, party wear, as well as occasional and daily wear; lehengas, men's ethnic wear, children's ethnic wear and value fashion products comprising fusion wear and western wear for women, men and children.

The share of organized retailing in apparel has increased from 14% in Fiscal 2007 to 32% in Fiscal 2020. The evolution of the market, in its current phase, represents distinct segmentation of channels of organized retail for apparel. This phase also represents emergence of category leaders in respective groups of western (formal and casual), Indian, and athleisure (Source: Technopak Report). Historically, the ethnic retail trade of sarees was dominated by unorganized players in small format stores with a very few organized players. (Source: Technopak Report).  

Today, SSKL offers one of the widest portfolios of saree SKUs among women's apparel brands in India. (Source: Technopak Report) with large retail outlets that provide customers a wide variety of options in ethnic wear across various price points. (Source: Technopak Report). The company commenced operations through its 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, with an aggregate area of approximately 603,414 square feet, as of July 31, 2023. 

As of July 31, 2023, its average store size, calculated on the basis of r operating stores, is 10,390 square feet for Kalamandir format stores, 3,310 square feet for Mandir format stores, 6,099 square feet for VaraMahalakshmi format stores, and 18,400 square feet for KLM Fashion Mall format stores. SSKL's stores provide a unique experience and customer service, which combined with its inventory and variety of SKUs on offer, enables it to attract and retain a growing customer base that, as of July 31, 2023, exceeded over 5.98 million customers in India.

The company manages inventory and logistics as well as entire supply chain for all its channels from four warehouses in Karnataka, Andhra Pradesh, Telangana and Tamil Nadu with an aggregate area of approximately 164,000 square feet and a designated storage space located at one its stores in Chennai, Tamil Nadu. The products have been sourced from an aggregate of 4,832 master weavers, weavers and vendors from across India in the last three Fiscal years and up to July 31, 2023.

Its store formats have a strong offline and online presence. As of July 31, 2023, it had 4873 employees on its payroll and additional 85 contract labourers with various departments.

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with a maiden combo book building route IPO of fresh equity shares issue worth Rs. 600 cr. (approx. 27026996 shares at the upper cap) and an Offer for Sale (OFS) of 27072000 equity shares (worth Rs. 601 cr. at the upper cap). Thus the overall size of the IPO will be for 54098996 shares worth Rs. 1201 cr. at the upper cap. The company has announced a price band of Rs. 210 - Rs. 222 per share of Rs. 2 each. The issue opens for subscription on September 20, 2023, and will close on September 22, 2023. The minimum application to be made is for 67 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE and NSE. The issue constitutes 35.27% of the post-IPO paid-up capital of the company. 

From the net proceeds of the fresh equity shares issue, the company will utilize Rs. 125.08 cr. for setting up of new 30 stores, Rs. 25.40 cr. for setting up of two warehouses, Rs. 280.01 cr. for working capital, Rs. 50.00 cr. for repayment/prepayment of certain borrowings and the rest for general corporate purposes. 

The company has allocated not more than 50% for QIBs, not less than 15% for HNIs, and not less than 35% for Retail investors. 

Motilal Oswal Investment Advisors Ltd., HDFC Bank Ltd., and Nuvama Wealth Management Ltd. are the joint Book Running Lead Managers (BRLMs), and Bigshare Services Pvt. Ltd. is the registrar of the issue. 

Having issued/converted initial equity shares at par value, the company issued/converted further equity shares in the price range of Rs. 15 -  Rs. 22 per share (based on Rs. 2 FV) between April 2011 and June 2022. The average cost of acquisition of shares by the promoters/selling stakeholders is Rs. NA, Rs. 1.17, Rs. 1.50, Rs. 2.14, Rs. 5.48, Rs. 5.64, and Rs. 19.81 per share. 

Post-IPO, SSKL's current paid-up equity capital of Rs. 25.27 cr. will stand enhanced to Rs. 30.67 cr. Based on the upper cap of the IPO pricing, the company is looking for a market cap of Rs. 3404.73 cr.  

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, SSKL has posted a total income/net profit of Rs. 679.10 cr. / Rs. 5.13 cr. (FY21), Rs. 1133.02 cr. / Rs. 57.69 cr. (FY22), and Rs. 1358.92 cr. / Rs. 97.59 cr. (FY23). Following Covid impact, it suffered a minor setback for FY21. 

For the last three fiscals, SSKL has reported an average EPS of Rs. 5.72, and an average RoNW of 19.03%. The issue is priced at a P/BV of 6.72 based on its NAV of Rs. 33.02 as of March 31, 2023, and at a P/BV of 3.28 based on its post-IPO NAV of Rs. 67.68 per share (at the upper cap). 

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. Thus the issue appears fully priced based on its financial performance so far, but is cheap against listed peers except TCNS and ABFRL.

For the last three fiscals, SSKL has posted RoE margins of 2.16% (FY21), 21.22% (FY22), and 27.96% (FY23) and management is confident of maintaining such trends with addition of stores.

DIVIDEND POLICY:
The company has not declared any dividends for the financial years reported in the offer document. It has adopted a prudent dividend policy in June 2022 based on its financial performance and future prospects. 

COMPARISON WITH LISTED PEERS:
As per the offer document, SSKL has shown Vedant Fashions, TCNS Clothing, Go Fashion, Aditya Birla Fashion, Shoppers Stop, and Trent as their listed peers. They are trading at a P/E of 74.89, 0.00, 87.82, 0.00, 70.04, and 121.92 (as of September 15, 2023). However, they are not truly comparable on an apple-to-apple basis. 

MERCHANT BANKER'S TRACK RECORD:
The three BRLMs associated with the offer have handled 33 public issues in the past three years, out of which 12 issues closed below the offer price on listing date. 

Sai Silks (Kalamandir) IPO FAQs