The ₹1,201-crore initial public offering (IPO) of Sai Silks (Kalamandir) opened for bidding today, September 20 and will close on Friday, September 22. The company has set the price band in the range of ₹210-222 apiece for the issue. 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 FY22.
Issue size: The issue includes a fresh share sale of ₹600 crore, and an offer for sale (OFS) of up to 2.70 crore equity shares by its promoter group shareholders including Nagakanaka Durga Prasad Chalavadi, Jhansi Rani Chalavadi, Dhanalakshmi Perumalla, Doodeswara Kanaka Durgarao Chalavadi, Kalyan Srinivas Annam, Subash Chandra Mohan Annam and Venkata Rajesh Annam.
Objective: The company will use proceeds from the IPO to set up 30 new stores at a cost of ₹125.08 crore, two warehouses with a spend of ₹25.4 crore, and for working capital requirements amounting to ₹280.07 crore. Sai Silks will also repay its ₹50-crore debt. On the other hand, proceeds from OFS will go to selling shareholders.
Subscription status: The issue has received a weak response from investors. At 2:30 pm on its first day of bidding, the IPO was subscribed to just 5 percent against its offer. It has received bids for 19.38 lakh shares against 3.78 crore shares on offer. The category for retail investors was bid the most, 9 percent, followed by that of non-institutional investors (NII), which was subscribed to just 2 percent. However, the qualified institutional buyers (QIBs) portion has not received any bids till now.
Grey Market Premium: Shares were commanding a premium of ₹12 in the grey market today, indicating a 5.4 percent premium at listing ( ₹234). The GMP has risen from ₹7 in yesterday's session.
However, it is important to note that grey market premiums are just an indicator of how the company's shares are stacked up in the unlisted market and are subject to change rapidly.
Reservation: Half (50 percent) of the public issue size has been reserved for qualified institutional buyers (QIB), 15 percent for high-net-worth individuals (non-institutional investors), and the remainder 35 percent for retail investors.
Lot size: Investors have been invited to participate with a minimum bid of 67 equity shares, with increments in multiples of 105 equity shares. Hence, one lot will cost the investors ₹14,874.
Anchor investors: Ahead of the IPO, Sai Silks (Kalamandir) raised ₹360.3 crore from 26 anchor investors by allocating 1,62,29,707 equity shares at a price of ₹222 apiece. Societe Generale, Citigroup Global Markets Mauritius, HSBC, BNP Paribas Arbitrage, Whiteoak Capital, Eastspring Investments India, Abakkus Growth Fund and Mirae Asset India and various domestic mutual funds participated in the anchor book.
About the firm: Incorporated in 2005, Sai Silks (Kalamandir) provides ethnic apparel and value-fashion products. They include 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 and more.
Through its four store formats -- Kalamandir, VaraMahalakshmi Silks, Mandir, and KLM Fashion Mall -- Sai Silks offers products to various segments of the market that include premium ethnic fashion, ethnic fashion for middle income and value-fashion.
As of July 31, 2023, Sai Silks (Kalamandir) had more than 54 stores in four southern states of India namely Andhra Pradesh, Telangana, Karnataka, and Tamil Nadu with an aggregate area of 6,03,414 square feet, as of July 31, 2023. It also offers its products through e-commerce channels including its own website and other online e-commerce marketplaces.
Peers: The company's listed industry peers are Vedant Fashions Ltd (P/E ratio of 71.29), Go Fashion (India) Ltd(P/E ratio of 87.74), Aditya Birla Fashion and Retail Ltd, Trent Ltd ((P/E ratio of 163.76), and Shoppers Stop Ltd (P/E ratio of 69.34).
Financials: For the financial year ended March 2023, the company has reported a healthy financial performance with its net profit rising 69.1 percent YoY to ₹97.6 crore, backed by strong operating performance as compared to ₹57.7 crore in the year-ago period. Meanwhile, its revenue from operations during the same period rose 19.7 percent to ₹1,351.5 crore in FY23 versus ₹ ₹1,133.02 crore in FY22. EBITDA (earnings before interest, tax, depreciation and amortisation) in FY23 also jumped 60 percent to ₹212.5 crore with a margin expansion of 394 bps at 15.72 percent, compared to the previous year.
Book-running managers: Motilal Oswal Investment Advisors, Nuvama Wealth Management and HDFC Bank are the lead managers to the issue, while Bigshare Services is the registrar to the issue. Shares of the company will be listed on both BSE and NSE.
Important dates: The finalisation of the basis of allotment will be done on September 27, and the initiation of refunds will be done on September 29. The company's shares are proposed to be listed on both BSE and NSE, with October 4 as the tentative date of listing.
Brokerage Views
Most brokerage firms are recommending subscribing to the issue on the back of its strong brand value, strong margins and a favorable return profile in recent years, sound fundamentals, and fair valuations. Here's what various brokerage firms said about the issue:
Choice Broking: Subscribe
Sai Silk ranks amongst the top 10 retailers in South India, specialising in ethnic wear, with a primary emphasis on sarees. Setting aside the challenges posed by the COVID-19 pandemic, the company has showcased impressive growth in terms of both revenue and profitability. The company appears to hold a favorable position. If we compare SSKL to its peer companies, the company appears to hold a favorable position, particularly when evaluating their respective performances.
The company’s P/E multiple at after adjusting for post-IPO fully diluted paid-up equity, comes out to 34.9 times, which seems fairly valued. As part of its expansion strategy involving the establishment of new stores, it is poised to consistently increase its revenue, facilitating steady and sustainable growth in the long term and thus we assign a 'subscribe' rating.
Anand Rathi Research: Subscribe for long term
Sai Silk (Kalamandir) is among the leading ethnic and value fashion retail companies in south India, having a portfolio of established formats with focused sales and marketing strategy with a strong presence in the offline and online marketplace with an omnichannel network and a leading apparel retail brand in India with a scalable model.
It is well positioned to leverage growth in the ethnic and value-fashion apparel industry in India with a track record of growth, profitability, and unit economics with an efficient operating model. It is valued at P/E of 33 times with a market cap of ₹3,404.7 crore post-issue of equity shares. We believe that the company is fairly priced and recommend a 'subscribe for long term' rating.
Reliance Securities: Subscribe
Production is in-house and through third parties and its entire supply chain and inventory management is system-driven and algorithmically managed at every stage. Sai Silk intends to continue to enhance the brand recall of products through the expansion of footprint digital marketing campaigns, brand ambassador content and advertising. This gives it a strong competitive advantage in women’s ethnic wear, strong margins and returns profile over the past few years. We expect consistent growth in its key metrics through its store expansion over the next few years, and we recommend a 'subscribe' to the issue.
Ventura Securities: Subscribe
The notable aspects of their business strategy are the use of IT infrastructure to improve operational efficiencies, scale and enhance productivity. The innovative technology solutions implemented to assist in front-end and back-end operations, which include procurement, distribution, and supply chain operations. We have a 'subscribe' rating to the issue.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie. We advise investors to check with certified experts before taking any investment decisions.
