Sai Silks (Kalamandir) - only listed player in the organized saree market

  1. They are amongst the top 10 retailers of ethnic apparel, particularly sarees, in south India.
  2. They have four store formats - Kalamandir, Varamahalakshmi Silks, Mandir and KLM Fashion Malls.
  3. As of July 2023, they operate 54 stores in four major south indian states i.e Telangana, Andhra Pradesh, Karnataka and Tamil Nadu.
  4. Share of organized retail in women’s apparel was 15% in 2015, increased to 31% in 2022, and is expected to reach 44% in 2028, amounting to 1,75,444 cr.
  5. Too many related party transactions for rent, marketing, purchases
  6. 68.38% of FY23 revenue is from Women’s Sarees
  7. Revenue split between normal vs premium vs ultra premium
  8. Revenue split across states
  9. 31.33% promoter shareholding pledged to SBI
  10. Inventory turnover ratio for FY23 compared to listed peers
  11. Company provided 32.6cr loans to employees.
  12. Few pending cases with GHMC, bombay high court and Income tax.
  13. Company planning to setup 30 new stores in next 3 years in below split:
  14. Saree & Others category(Lehenga, Indian dresses/gowns) within women’s apparel is expected to grow at a CAGR of 19% from FY 2022 to FY 2027, reaching INR 1,24,837 Cr in FY 2027.
  15. Main Competitors - Nalli, Pothys, The Chennai Silk, Kankatala, Rangoli, Neerus and VRK Retail
  16. Women Indian Wedding and Festive wear market, which forms the largest share of this category is expected to grow at a CAGR of 23%% to reach ₹ 1,30,129 crore in Fiscal 2027 from the existing ₹ 46,211 crore in Fiscal 2022
  17. Working capital heavy business compared to listed peers (No listed peer with major revenue from sarees).
  18. Region wise share of saree market -
  19. Sai silks has 9% market share in south india organized saree market.
  20. The key organised players and their share in the South India saree market are given as below:-

Disc - Not Invested. Studying

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This could be a interesting play.
South india is getting lot of manufacturing business which will result to higher income in the region. A pure play in local market can be fuitfulll

The consumption growth runway in India is a popular theme and Kalamandir is an opportunity to ride this with a focus on high end Saree business while the valuation looks reasonable relative to listed peers.
If the company can grow store count at 15-16% as promised, I think this is a company that can deliver 20+% earnings CAGR over the next 5 years.

South India has produced quite a few popular consumer brands with good economics which have created significant wealth for investors.
Further, Pan-India companies like Titan, Vedant or Trent which are not South based, also have a significant portion of revenues coming from South India.

From company perspective, I like their approach of cluster based expansion and exhaustive product range covering entire gamut of south Indian Sarees.
The opportunity on wedding wear and occasional attires also is clear with their Vara Mahalakshmi and Kalamandir stores showing strong SSG with decent unit economics and ROE. Mgt comment on opening only these type of stores going ahead in both TN and Telangana is a structural positive.

TN expansion is a reasonable opportunity for the company as despite the multiple brands present in the region, the unorganised market still remains high, almost 55%.

The key risk factor here will be pace of expansion as that will tilt the market share and the growth opportunity among the organised players. TN is home to multiple Silk Saree brands Pothys to Chennai Silks and Kalyan Silks. Similarly, RS Brothers Group, Chandana Group, J.C. Brothers Group, Kalanikethan Silks, Nalli Silks etc have strong presence in AP& Telangana. The fresh proceeds from IPO does give Sai Silks the upper hand at the moment.

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Everyone else is releasing Sept quarter results. It looks like Kalamandir just released June quarter results. Why is it so ?

The companies that got listed in June-September would have filed only FY23 results in prospectus. They get 30 days post listing to file their 1Q results and from then on 2Q results will follow usual calendar.
You can expect 2Q results to also be announced by the 30th Nov deadline.

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The Company has launched 2 (Two) new stores (i.e., Varamahalakshmi Silks format) at Coimbatore, Tamilnadu on 15th October 2023 & 16th October 2023.
Now Total Stores count 56.

Microsoft Word - Showroom launch intimation (bseindia.com)

06.11.2023: One new store in the format of Varamahalakshmi Silks at Poonamallee, Chennai, Tamilnadu.

An important aspect: Company did IPO this year and got close to Rs 475 Crores on FDR,where 7.25% interest would be Rs 17 Crores and after tax it would be Rs 12/13 Crores on profit plus interest costs saved when repaying debt.
7456e36e-54b9-4dc0-bfb3-6189fe2e9025.pdf (bseindia.com)

e252b700-d425-473d-837f-86d292f5969d.pdf (bseindia.com)

Transcripts of first Investor call, I was also participating and ask some question on business.

Existing stores are 57, company intent to open 29 more stores in next 18 months. It is almost 50% more stores.
Aims to have approximately 200 to 250 stores in South India in the next six to seven years.

Growth and Outlook:

  • Expects robust growth in the next two quarters due to festivals and the marriage season.
  • Anticipates a 5% to 10% improvement in turnover for FY24 compared to the previous year.
  • Targets revenue of INR 1,700 crores to INR 1,800 crores next year, with potential for better results than the 15% to 20% growth target.
  • Expects 20%-25% growth in the present year.
  • Targets a profit of INR 120 crores, with a 10% variation.

Operations and Efficiency:

  • Made progress in finalizing new locations for future store openings.
  • Identified locations for two new warehouses in Hyderabad and Tamil Nadu.
  • Aims to improve margins by 4% to 5% by 2026 through operational efficiencies and premium format stores.
  • Focusing on optimizing inventory and reducing payable days.
  • Expect improved margins in H2 due to higher throughputs and improved purchase efficiency.

Store Performance:

  • Same store growth in Q2 was approximately -5% due to the shift in wedding dates, but expects to achieve single-digit growth by the end of the financial year.
  • Mylapore store may have lower productivity due to metro construction.
  • Estimated impact of metro construction on store revenue is around INR 15 crores to INR 20 crores.

Available at 38 PE. a retailing company with long highway of growth.
Risk: Geographic concentration and single line of retail that is saree.

Disclosure: Invested and keep adding at current levels.

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Concall Highlights:

  1. Market Challenges: Ethnic wear market facing slowdown due to factors like cyclone impact and reduced purchasing power in Andhra Pradesh, Telangana and Chennai due to water clogging.
  2. Store Expansion: Company added 4 new stores and plans for more, indicating growth despite market challenges. In Chennai plan is to have from 2 to 20 stores. In Karnataka only have store in Bangalore. Kerala is not discovered. Andhra and Telangana can still accommodate 20 to 25 stores. 100 stores in Southern states are possible.
  3. Financial Performance: Last year’s revenue was 378.6 crore with a gross margin of 39.80% and a net profit after tax (PAT) of 31.3 crore (8.28% margin).
  4. Customer Base: Approximately 50% of customers are repeat buyers, highlighting brand loyalty and value proposition.
  5. Gross Margins: Gross margins vary from 25% to over 60%, averaging 40%, reflecting a diverse product mix and pricing strategy.
  6. Sales Growth Target: Targeting 3-4% like-to-like sales growth, indicating a focus on improving operational performance.
  7. Geographic Expansion: Focus on expanding in Tamil Nadu, with plans to increase stores from 2 to 20, tapping into the lucrative silk sarees market. Additionally, potential for significant store additions in Kerala, Telangana, and Andhra Pradesh.
  8. Market Dynamics: Chennai market commands a 15% premium over Hyderabad, indicating potential for higher margins.
  9. Competition: Transitioning from unorganized to organized competition in Tamil Nadu, with 30% currently organized, suggesting opportunities for market share gains.
  10. Market Size: Total addressable market (TAM) estimated at 50,000 crores for Tamil Nadu, indicating significant growth potential.
  11. Marketing Strategy: Planning to increase marketing spend by 3-4%, suggesting a focus on brand awareness and customer acquisition.
  12. Same Store Growth: Slightly negative on a blended basis, indicating the need for improved performance in existing stores.

Store expansion and revenue growth to be seen in numbers. Total Address Market is huge.
Disclosure: Invested

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A innocent question Do young girls love to wear saree? Now i tried asking a few girls I know the top 5-6 reasons why they hate saree is

  1. Uncomfortable - wearing saree is a task and even difficult to commute with saree, sarees don’t have pockets and our generation cannot live without mobile, in summer it’s makes you sweat and in rainy season it’s even worse to commute

  2. Cost and usage: the cost of a saree does not justify occasional usage of the saree mostly they are worn for special events, else it lies in the cupboard somewhere on the corner

  3. Age: it makes young girls feel old

  4. Possibility of malfunction

  5. Difficult to use washroom

Now it made sense to me that indeed wearing a saree is a challenge as these are very logical points now with india with 50% population below 30 yrs of age if not many girls love wearing a saree it filters out a majority of customers, also I feel saree is more predominant in south india rather than north india, I feel these facts weigh high and may reduce growth of this company in long run

Disclaimer: I am not invested and these are my 2 cents will love to be corrected

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Hi @Balas

The question is whether demand for sarees as ethnic wear is a sustainable trend?

In my opinion (I live in Chennai and have been to quite a few south Indian weddings). Saree or the half Saree more prevalent in south, have been replaced by western wear and leggings/kurti for casual wear. But when it comes to occasions (festive/weddings), you will find a large majority still wearing Sarees. Notably, Young girls/ladies have a fancy for Silk Sarees when it comes to festive occasions.

This has actually created a niche market where Silk Sarees are becoming a premium product.

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