Famous Indian ethnic apparel brand which has a 5 percent market share with 54 stores all over south India gets a ‘Buy’ tag on it from HDFC Securities which is one of the leading and well-known investment banks, with an upside potential of 29 percent from its previous close price.
Sai Silks (Kalamandir)
Sai Silks (Kalamandir) is an Indian retail textile company, which is among the top 10 retailers of ethnic apparel. It operates through 4 store formats i.e. Kalamandir, VaraMahalakshmi Silks, Mandir, and KLM Fashion Mall, with 54 stores as of July 2023 in 4 south Indian states i.e. Andhra Pradesh, Telangana, Karnataka, and Tamil Nadu.
The company offers a diverse range of products which includes various types of ultra-premium and premium sarees suitable for weddings, party wear, 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.
With a market capitalization of Rs.4,607 Crores, on November 28, 2023, the shares of Sai Silks (Kalamandir) Limited closed at Rs. 299 up 0.08 percent from its previous day’s close price of Rs. 298.75.
HDFC Securities, one of the well-known Investment Banks, has given a ‘Buy’ tag to the company’s stock with a target price of Rs 385 indicating a potential upside of 29 percent as compared to the closing stock price levels.
The rationale behind providing such a recommendation pertains to various trigger points Comprising,
A benefactor of unorganized to organized migration in sarees:
Historically, the retail trade of sarees was dominated by unorganized players in small format stores. Sai Silks(Kalamandir)(SSKL), along with a few other organized retailers, continues to solve the need to consolidate SKUs/variety on offer for consumers via large-format retailing.
The saree market in south India is pegged at Rs. 262 Billion with the overall saree market valued at Rs. 523.93 Billion. SSKL with a 5 percent market share is expected to be the key beneficiary of this value migration as it is attacking a broad consumer cohort at multiple price ranges.
SSKL a smart scaler:
SSKL has been a disciplined scaler with an extremely concentrated cluster-based expansion approach. Of the 150+ south districts, SSKL is only present in 12 districts with 54 stores spanning 6,03,414 sq. ft. Such a dense presence typically helps improve brand recall within catchments, ergo aids sales density and, keeps the cost of retailing tight. SSKL enjoys amongst the highest revenue/sq. ft (Rs. 22k/sq. ft) and among the lowest retailing costs within apparel retail (25 percent of sales).
Tamil Nadu (TN) foray holds promise:
Tamil Nadu market has a 32 percent share in the South valued at Rs. 74 billion, enjoys higher footfall density, and consumer affinity for saree purchases. Hence, it is key for all saree brands. Most of SSKL’s IPO proceeds (Rs. 5.66 billion) are earmarked to expand its TN presence via VML. Given that SSKL has a mere 1 percent share in TN, SSKL’s foray into the state via VML seems promising in terms of both growth and unit economics. 25 out of 30 stores earmarked for expansion will be VML stores and in TN.
The broker is expecting a Compounded annual growth of 17 percent for the sales, 27 percent for the EBITDA, and 40 percent for profit after tax for FY23-26E with an average return on capital employed of 16 percent.
Its revenue from operations grew 19.66 percent from Rs. 1,129 Crores in FY22 to Rs. 1,351 Crores in FY23, accompanied by increasing profits of Rs. 58 Crores to Rs. 98 Crores.
It has reported a return on equity (ROE) of 24.56 percent and a return on capital employed (ROCE) of 27.62 percent, it is making good returns on its equity and capital employed.
According to the latest shareholding data available for the June 2023 quarter, the company’s Promoters hold a 60.8 percent stake, Domestic Institutional Investors hold 18.85 percent and Foreign Institutional Investors hold 7.11 percent.
Written by: Bharath K.S
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