One of my friends visited the AGM last year and his feedback was poor. It was held in a small room and quickly wrapped up in a few minutes in a haphazard manner.
Through my another resident friend in Kolkata, I came to know that they are not treating their franchisees well and have a careless attitude towards them. Although he said that the brand is well recognised, but he has ill opinion about the way the promoters treat their franchisees.
One of my friends visited the AGM last year and his feedback was poor. It was held in a small room and quickly wrapped up in a few minutes in a haphazard manner.
The showroom map you have cited gives us the details of states in which Sreeleathers has stores. If you scroll on any of these pointers you will notice a pop-up showing the various stores in various cities of that state (Please see below image).
Appreciate your effort in finding the company owned stores and the franchisees. However, we will need a more reliable source to get this fact- as this is a really important question.
My apologies, I should have been careful. I had accessed the website using a non desktop device due to which I wasn’t able to click on those pins and see the extensive store list. As you rightly mentioned, we’ll have to scout for more reliable sources. Yet again, I’m sorry.
An alternative approach to estimate the company owned stores would be the employee count. They have 48 employees on their payroll. I’m inclined to believe that their stores in Kolkata- Lindsay street and Free School street are company owned. They’re the crown jewels . Also, the store in Connaught Place in Delhi and a store in Chennai. Such massive stores would require at least 6-8 people per store. So, that’s 24-32 employees. The remaining 15-20 employees must be in the remaining stores. Let’s assume their other stores are smaller in size. If each store employs 2 people we’ll have 8-10 stores. In all, the company owned stores should be in the range of 10-15 stores.
I had a similar experience with a company called Capital Trust 2 years back. AGM over in 10 minutes and as i was late by 10 minutes the promoter had already left. I was mostly surrounded by shareholders who had 1-100 shares who had come for Tea, coffee, and Biscuits. I sold the shares the next day as I was in profit. Many other companies out there to invest in!
In 09 they amalgamated their cat financial services, sree leather p ltd and a few more firms. return ratios which seem to be depressed. Remove the effect of (118 cr land + 38 cr building) for the sake of calculation your return ratios would improve.
These properties / land were not purchased they came in from sree leather p ltd and then the merged entity name was changed to sree leather ltd.
These properties / buildings might have been developed much earlier.
Today these assets world certainly have higher value.
People pounce to shop in their stores mainly because of cheap prices. The quality of the merchandise is such that it might not last more than 6 months.
They don’t manufacture, they procure from small vendors their stuff and hence are able to exert pressure while paying up for the same.
Since these area retail stores the sales are on cash basis. They work on B2C model hence cash sales and nil debtors.
They were not billing fully under sree name. Sumanti sushamto and several others firms directors have cross interests in.
The drastic scaling up in recent period could also be an effect of billing under sree slowly and scaling down other firms.
No branding on several products because the procure these merchandise from small vendors and sree wants to save cost to brand them.
Their merchandise starts from 100 rs goes into 3000 rs.
Tried speaking to sree das the person who takes care of franchises. (I contacted him as a potential client to opt for their franchise). But it seems management is not quiet interested in growth or expansion.
Sincere corporate governance issues here.
Had visited their store in Jpr as customer and got the contract details of sree das for franchise.
Speaking of today’s time. Land+ construction on MI road jpr where they are located would need 10-12 cr+ minimum.
They had opened a large New store in Kolkata around Oct’17
The biggest concern i have
—Do not see the hunger in the promoters to expand. They have been doing business for a long time now, but have not been able to expand much. The two big stores in Kolkata are always fully packed with customers. I, myself have tried their shoes and it does last well. They have a nice range of products priced to meet demand from lower and middle class customers. But again their plans to expand has never been implemented. So Management pedigree is the biggest concern for me.
Management had mentioned in 2011 that they plan to expand to 100 stores in next 2 years, but i am not sure if they pursued that. As they still have the same number of stores they had in 2011.(Owned + Franchisee). Hence this makes me think if they can really become big with the same management. Can they compete with ever expanding Bata and Relaxo… I still feel the answer is a NO…
Others following this company please share your thoughts on management…
Disc : - Not Invested…Analyzing the company to see if it can be invested into
“Safalyer Chabikathi” – Success Recipe
Satyabrata Dey – MD Sreeleathers on YouTube
Rough transcript of Bengali Video – thought it will be useful for everyone to catch the basic essence. Think there are some initial good insights about Management Ethos/DNA here
How did you come into business?
My coming into business was not by choice. When I was small (I was not so good in studies) there was lot of pressure on me to do well. Everyone around me in family would joke – we better open a business for him. But I had decided then itself that I will run a business - Subconsciously seemed to have accepted a challenge.
You decided to get into business. And landed opening up an outlet in Lindsay Street. That was a huge risk. How were you able to do that?
Had the courage always, but not enough money. Those who owned the Lindsay Street land – after talking over everything and the deal being signed – I informed then I cant pay in one go. You will get some now. And some I will pay later. Luckily the gentleman agreed.
It was a small space, right?
No it was a big enough space. 2117 sq feet. I could have started with a small place but I decided I needed that kind of space. I had roamed about for days and days and observed consumer activity in that area – what kind of business could work. I decided to start only in Lindsay Street – not anywhere else. I thought it could work. Initially I was chased away when I made the approach. But ultimately Luck favoured me.
But tell us how did you manage to get started? I heard it was very tough – no proper place to stay, not enough money for food, It was a big struggle?
I had some money - not that I had no money - but was scared to spend it. I had Left home in One t-shirt and 1pant - used to wash every night and wear next day
To save money to put in business - used to go to babughat and have 1 re lunch - 6 rotis, tarkari Free. Not that I didn’t have money to eat. I could have managed better food. I could have also got money from lot of resources – but preferred not to. I wanted to be very very cautious where I was spending the money – wanted to reinvest as much as possible in the business.
So Financial Management is very critical?
Yes very much. Those who have been managing business here for a number of years understand the value of money. To spend money very cautiously is key. To have the ethos to save money to re-invest in the business.
What would you say are your Key Success Factors?
I once heard IIM Prof Mote response when asked what do you teach in all the 2 years at IIM – “Sasta”, “Motu” and “Available” that’s all we teach in our 2 year course. Key is logistics. Cheap, Good quality, and Availability. Logistics. is the key ingredient for resounding success - being available to meet customer demand-
right product, at the right place.
How do you manage the Technology and Product design – today these things are pretty advanced in Shoes segment?
Today we can afford technology and designs. We have german designers. We have another Italian designer Kamuchi - he is internationally-reknowned. But more than the design - the first basic – the shoe has to be comfortable on wearing. That’s the foremost and the easiest thing - the moment you wear you should feel the comfort. Even a Kamuchi designed shoe can be not comfortable - it has to be ensured that it becomes comfortable to wear. Then there are other things like look, cost. Today yes we get the assistance of good designers, but even when we couldn’t afford we focused on these basics.
Market - how do you keep on top of design trends. What is in fashion, where is the demand? Today there are even “keds” costing 5000/- ruppes and there is a market.
We attend international fairs every year. Our promoters and key managers go out of the country 8-10 times a year. One catches a sense from there that these are certain trends that would reach Mumbai, Delhi, Chennai, Kolkata our metros in a certain timeframe
Other than catching the trend - if you have a good product and you are powerful - then even ou can change a trend/establish a trend. There was a time when no one used to wear a certain type of chappal - if the chappal wasnt padded, one wouldnet wear. We can perhaps take the credit for changing that in a way. We said the product has to be long-lasting, and hygenic. Even if it may be padded and comfortable initially, if it doesn’t last it is of not much use to consumers.
What kind of help and opportunities you got from where?
Today we can say we get help from everywhere. We have a very proactive government. But in early days we didn’t get to see that kind of environment. infact 30-40 years back business in bengal was looked down upon; marriage proposal would get refused if you were a businessman. In today’s world you need to get help from many corners - so its essential that one is well-networked.
Role of Hard Work, Goals, and Luck in Success?
I would say it’s mostly hardwork. Goals has to be there, but goals keep changing with time with progress. Luck is created entirely through ones own efforts - that’s my opinion.
So much success achieved in Shoes segment. Why did you choose “Shoes” segment. Well we had a background in shoes in family. But even if i hadnt chosen shoes, and chosen any other segment, I would have been successful
(grins big and takes some time). Well one was - I had to be successful- that was an inspiration in itself- and two- my mother kept inspiring me from when I was small. I was very naughty, not good in studies - I was like the untouchable in the family and relatives. Only my mother believed in me and used to tell me, You will succeed. You will have to succeed. That’s how I got the confidence.
Leather Segment Jobs/Opportunities?
We have an aim of establishing an Academy encompassing all areas of leather technology across the industry - so we can create the right training environment for skills building in the industry - so that we can create people ready for employment. We will work to ensure that those trained get jobs in the industry. We are talking to people in the industry. Dont know when we can start but hopefully may be within 6 months we may take some steps.
Really good company to dig in from numbers perspective. I am trying to reach the management since 3-4 weeks but could not connect.
I have spoken to one of their competitor and he shared his concerns about scalability of business model in absence of any footwear brands (their show room is their identity) and hiding of some expenses in subsidiaries and other private companies.
Looking at Sreeleather numbers against its leading competitor I could not find justification for following
- Their gross margins are lowest while their EBIDTA is highest amongst peers. Part can be justified by absence of manufacturing related expense, rent from P&L and no branding related expense
- If you look at Gross block break up 95% is in Land and Building, which means his most of the stores are owned also reflected in absence of rent expense which is one of the major cost item for any retail company
- Above two points can be clarified looking at its return ratios, despite of highest margins, no manufacturing led model, it enjoys poor return ratios.
- No clarity on its business model like how many owned, franchisee stores, area under operation, stores opened each year, same store growth etc.
Based on above understanding I have doubts on
- Sustainable growth rate (which has been 20% in last few years),
- If they intend to expand in new cities through existing model of owning the store, it will be capex led growth and funding will be really difficult beyond a point. If they expand through rent / lease model then margins will be impacted
Which one are you mentioning?
again to spoke to Mr Sreedas as a potential interest in opting for a franchise.
Points of interest in this conversation
- He said one needs property of approx 9000-10000 sq ft (either ground + basement) for opening up a store.
- Investment required is 5 cr
- The average price of their merchandise is 300 rs.
- You need sale of 4-5 lacs per day to breakeven
They have total 35 stores. (co owned + franchise).
Then he said you need 4-5 lacs daily sale.
Points of concern
He said what ever expansion we had to do for the next 1.5 - 2 years. We have already done. We don’t plan to expand any further for next 2 years or so.
A franchise needs min 4-5 lacs sale per day to break even. Secondly he said the avg value of their merchandise is Rs 300.
Taking 100 cr sales (if i distribute it evenly is 100 / 12 = 2.85 cr sales per store per annum or 80 - 85 thousand sales per day rough average.)
May be thats why they are not expanding franchise stores on a rapid pace. They might be giving less margins to franchise and demanding higher volume sales which does not look likely at this moment.
If still their sales keep growing it could be
- avg 80-85k sales goes up to 1 lac a day
- they scale down in sister concern firms and scale up billing in free leathered.
I am may be wrong in assuming this.
Your conversation with Mr. Sreedas is quite insightful.
I had a few doubts though:
1.Why would they require such a high amount of sales for break even and would this be applicable for stores which are smaller than their main store on Lindsey Street?
Expected Sales for FY18 should be 120Cr (Assuming another 30 Cr in Q4FY18). So they’re still only at 95K a day. Seeing the current footfall already in the stores, it is hard to imagine this number to improve 4x without increasing their margins, which would also affect the brand’s identity as a mid to low price shoe manufacturer.
Are there any plans to reduce this cost?
- the sales he wants looks tough at this moment. May be that’s why drastic franchise stores are not coming up. Scalability of their business looks a bit concern.
What i see and i may be wrong. They are scaling down sale in other firms and scaling up in this. This 100cr sales could go up to 130-150 on next 1-2 years with addition of further stores.
scaling up to 4-5 lacs that’s 4x from current position would take time.
they are not stamping, branding lots of merchandise. That means they buy from small small vendors (that’s why they exert their payment terms on them. As sree is very big as compared to small small vendors). So how much more they can reduce cost as the merchandise is picked up directly and sold in their stores.
Sumanto sushanto form belongs to other member (director) of the promoter family. It’s like division of business between brothers.
Promoters have kept funds to buy back stock of our falls to a certain level.
I see this (and i may be wrong). Company is valued at 550-560 cr that may or may not be today’s value of their properties.
To buy sree it world be better if we get a 10% correction and get the business at 450-475 cr market cap. That would give us margin of safety.
I am no pro in valuation. This is just my thought and i may be wrong.
No such option. He emphasised and said
Study you mkt
- can this 4-5 lac per day sale u can do.
- avg merchandise is rs 300
These guys focus on playing volume game. But cheap sell cheap at such a price which others cannot match.
They focus on cost a lot. Only 2 sales men were on 1 floor when i had visited their store
Great Feedback. Let’s see how the numbers look in April.
Your valuations seem fair, let’s see if any corrections come. The stock picked up lot of interest mid December.
Sreeleathers is coming with a new store in Chennai Purasalvakkam and I am seeing the advertisement for the upcoming store in the leading tamil newspaper throughout this month. Here is an advertisement in today’s (28-03-2018) daily thanthi. It also provides email for franchisee enquiry. I am not sure whether the new upcoming store is franchisee owned or directly by SREEL