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Review By Dilip Davda on September 16, 2024

•    The company is engaged in the business of designing, manufacturing, outsourcing and marketing of sleepwear under its brand "Sweet Dreams".
•    After robust performance for FY22, it marked setback following sudden spurt in commodity prices and volatile markets.
•    The company is on the path of regaining its unique position with expansion of its stores.
•    Based on FY24 earnings, the issue appears fully priced.
•    Investors may park fund for medium to long term. 

ABOUT COMPANY:
S D Retail Ltd. (SDRL) is engaged in the business of designing, manufacturing, outsourcing, marketing, and retailing sleepwear under the brand name "SWEET DREAMS". SWEET DREAMS is a sleepwear-focused company offering a wide portfolio of stylish and comfortable sleepwear for the entire family, celebrating the transition from work to home life and catering to every aspect of downtime.

The combination of comfort, style, and functionality places SWEET DREAMS in a unique position within a habit-forming apparel category, where SDRL's clothes are worn daily by customers in similar time-ranges. This brand is targeted primarily at the modern Indian woman's sleepwear requirements since she is most engaged with this category across various retail channels. In addition, it also sells sleepwear for men and kids, whose casual clothes are predominantly purchased by the women in the house. 

It offers one of the widest portfolios of sleepwear products among apparel retailers in India in terms of fabrics, colours, and styles. Its sleepwear products include Pyjamas, Night Sets, Nighties, T-shirts, etc. The company designs products to cater to men and women across all age groups including kids (from age 2 Year to 16 Year) and fits that are suitable to various body types and physiques. In addition, it is in adjacent categories such as loungewear, workout wear, athleisure, and work leisure pants.

The company has constructed well-established infrastructural facility and manufacturing unit that is equipped with all the necessary machines and tools that are required for a modern manufacturing unit. Machinery that is equipped in infrastructure is operated by its highly experienced team of professionals. Backed by sound manufacturing facility, it is capable of undertaking bulk requirements of clients and deliver within stipulated time schedule. Also, majority of its manufacturing is outsourced to the Job workers (on contract manufacturing basis) who manufacture products as per the design and requirement of the Company. The Contract manufacturing enable it to cater bulk orders and deliver the products to customers on time. It achieves varied price points through two product lines: Essentials and Fashion. Its Essentials product line is characterized by limited print or design, is relatively insulated from changes in fashion trends, lower ASPs, high repeat purchases and is sold throughout the year.

SDRL's Fashion product line on the other hand is MBOs) located across various states and union territories in India. It also sells products through e-commerce platforms such as Myntra, AJIO, Nykaa, Flipkart, Amazon, and own website. The company sells products across India and internationally through multiple distribution channels.

It also has a vast distribution network setup with MBOs covering a large geography in India and helping it achieve scale. Its sales pipeline for General Trade differs for the Fashion and Essentials product lines. For the Fashion product line, it organizes a bi-annual roadshow for retail partners for the Summer and Autumn/Winter seasons presenting them with newest designs and booking orders at the venue. For the Essentials product line, it treats as a replenishment product line with year-long production where its sales staff visits retail partners periodically and books orders. In the past two years, it has undertaken the journey of building a network of existing 23 exclusive brand outlets ("EBOs") as of March 31, 2024 and 33 EBO's as on date. Its cluster-based approach to opening and operating EBOs allows it to pursue the COFO model which results in better ROI. 

It has learned that retailing through EBOs creates better brand recall. Its EBOs are located in airports, high streets, malls, residential market areas in major metros, and other large cities. As of July 31, 2024, it had 237 employees on its payroll and additional contractual staff of 226 in various departments.

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden book building route IPO of 4960000 equity shares of Rs. 10 each to mobilize Rs. 64.98 cr. at the upper cap of the price band. It has announced a price band of Rs. 124 - Rs. 131 per share. The issue opens for subscription on September 20, 2024, and will close on September 24, 2024. The minimum application to be made is for 1000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME Emerge. The issue constitutes 26.49% of the post-IPO paid-up capital of the company. From the net proceeds of the fresh issue, the company will utilize Rs. 16.49 cr. for capex on setting up new exclusive brand outlets, Rs. 35.00 cr. for working capital, and the rest for general corporate purposes.

The issue is solely lead managed by Beeline Capital Advisors Pvt. Ltd.., KFin Technologies Ltd. Is the registrar to the issue, while Beeline Group's Spread X Securities Pvt. Ltd. Is the market maker for the company. 

Having issued initial equity shares at par, the company issued further equity shares in the price range of Rs. 175 - Rs. 1440 per share between March 2012 and December 2017. It also issued bonus shares in the ratio of 1 for 1 in July 2023, and 10 for 1 in May 2024. The average cost of acquisition of shares by the promoters is Rs. 0.33, Rs. 0.54, Rs. 7.69, and Rs. 9.09 per share. 

Post-IPO, company's current paid-up equity capital of Rs. 13.76 cr. will stand enhanced to Rs. 18.72 cr. Based on the upper cap of IPO price band, the company is looking for a market cap of Rs. 245.26 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has posted a total income/net profit of Rs. 128.74 cr. / Rs. 10.11 cr. (FY22), Rs. 135.69 cr. / Rs. 4.30 cr. (FY23), and Rs. 163.29 cr. / Rs. 7.60 cr. (FY24).  

For the last three fiscals, it has reported an average EPS of Rs. 5.33 and an average RoNW of 18.92%. The issue is priced at a P/BV of 4.31 based on its NAV of Rs. 30.37 as of March 31, 2024, and at a P/BV of 2.30 based on its post-IPO NAV of 57.03 per share (at the upper cap).

If we attribute FY24 super earnings to its post-IPO fully diluted paid-up equity capital, then the asking price is at a P/E of 32.27. Based on FY23 earnings, the P/E stands at 56.96. Thus the issue relatively appears fully priced.

The company reported PAT margins of 7.87% (FY22), 3.18% (FY23), 4.67% (FY24), and RoCE margins of 27.94%, 144.41%, 15.61% for the referred periods, respectively.

DIVIDEND POLICY:
The company has not declared any dividends for the reported periods of the offer document. It will adopt a prudent dividend policy based on its financial performance and future prospects.

COMPARISION WITH LISTED PEERS:
As per the offer document, the company has shown GO Fashions, Bella Casa, and S P Apparels as their listed peers. They are trading at a P/E of 79.5, 58.6, and 26.7 (as of September 16 2024). However, they are not truly comparable on an apple-to-apple basis. 

MERCHANT BANKER'S TRACK RECORD:
This merchant banker associated with the issue has handled 48 public issues so far, out of which 2 issued closed below the issue price on listing date.

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