What you must know about Sai Silk Kalamandir IPO

Sai Silks (Kalamandir) Ltd was incorporated in the year 2005 to provide an outlet that provides ethnic apparel and value-fashion products. While the basic inspiration for the offerings of Sai Silks (Kalamandir) Ltd is India’s rich ethnic diversity and its cultural history, it has also packaged its product offerings to have a solution for every possible occasion. Sai Silks (Kalamandir) Ltd currently offers a whole range of ultra-premium and premium sarees that are ideal for weddings, party wear and daily wear. In addition, Sai Silks (Kalamandir) Ltd also offers lehengas, men's ethnic wear, children's ethnic wear as well as semi-western wear with ethnic content for women, men, and children. It sells its apparel products through 4 different format stores that constitute the front end for the company’s marketing. As of July 2023, Sai Silks (Kalamandir) Ltd has more than 54 stores in the 4 south Indian states of Andhra Pradesh, Telangana, Karnataka, and Tamil Nadu. Its stores cover an aggregate area of approximately 603,414 square feet (SFT).

The company’s first store format is the Kalamandir. Here it offers contemporary ethnic fashion for the middle income groups. These include varieties of sarees, such as Tusser, Silk, Kota, Kora, Khadi, Georgette, Cotton etc. The second format store is Vara Mahalakshmi Silks. Under this format stores it offers premium ethnic silk sarees and handlooms for wedding and special occasion wear. These include Banarasi, Patola, Kota, Kanchipuram, Paithani, and Organza. The third format store is the Mandir. Under this format, the company offers very high-end and ultra-premium designer sarees targeting wealthy customers. These include designer sarees such in Banarasi, Patola, Ikat, Kanchipuram, Paithani, and Kuppadam. Finally, the fourth type of format store is the KLM Fashion Mall. This format offers value fashion at affordable prices. These include fusion wear, sarees for daily wear, and western wear for women, men, and children. It has an omnichannel approach and sells its products through physical store formats and through e-commerce channels. It has its dedicated website and also markets through online e-commerce marketplaces. The issue will be lead managed by Motilal Oswal Investment Advisors, HDFC Bank and Nuvama Wealth Management. Bigshare Services Private Ltd will be the registrar to the issue.

Highlights of Sai Silk Kalamandir IPO issue

Here are some of the key highlights to the public issue of Sai Silk Kalamandir IPO:

• Sai Silk (Kalamandir) IPO has a face value of ₹2 per share while the price band for the book building IPO has been set in the band of ₹210 to ₹222. The final price will be discovered within this band.
   
• Sai Silk (Kalamandir) IPO will be a combination of a fresh issue and an offer for sale (OFS). The fresh issue portion comprises the issue of 2,70,27,027 shares (2.70 crore shares approximately), which at the upper price band of ₹222 per share will translate into fresh issue size of ₹600 crore.
   
• The offer for sale (OFS) portion of the IPO comprises the issue of 2,70,72,000 shares (2.71 crore shares approximately), which at the upper price band of ₹222 per share will translate into an offer for sale (OFS) size of ₹601 crore.
   
• Therefore, the overall IPO portion will comprise of the issue of 5,40,99,027 shares (5.41 crore shares approximately), which at the upper price band of ₹222 per share will translate into a total IPO issue size of ₹1,201 crore.

While the fresh issue will be capital and EPS dilutive, the offer for sale portion will only result in transfer of ownership. There will 7 holders offering shares under the OFS portion of which 2 will be the core promoters and the other 5 will be part of the promoter group. The proceeds of the fresh issue portion will be used to fund capex for 25 new stores, setting up 2 warehouses, repayment of certain borrowings and for meeting working capital needs.

Promoter holdings and investor quota allocation quota

The company was promoted by Nagakanaka Durga Prasad Chalavadi and Jhansi Rani Chalavadi. Currently the promoters hold 95.23% of the company, which will get diluted post the IPO to 60.80%. As per the terms of the offer, 50% of the net offer is reserved for the qualified institutional buyers (QIBs), while 35% of the total issue size is reserved for the retail investors. The residual 15% is kept aside for the HNI / NII investors . The stock of Sai Silk (Kalamandir) Ltd will be listed on the NSE and on the BSE. The table below captures the gist of the allocation to various categories.

Lot sizes for investing in Sai Silk (Kalamandir) IPO

Lot size is the minimum number of shares that the investor has to put in as part of the IPO application. The lot size only applies for the IPO and once it is listed then it can be even traded in multiples of 1 shares since it is a mainboard issue. Investors in the IPO can only invest in minimum lot size and in multiples thereof. In the case of Sai Silk (Kalamandir) Ltd, the minimum lot size is 67 shares with upper band indicative value of ₹14,874. The table below captures the minimum and maximum lots sizes applicable for different categories of investors in the IPO of Sai Silk (Kalamandir) Ltd.

It may be noted here that for the B-HNI category and for the QIB (qualified institutional buyer) category, there are no upper limits applicable.

Key dates for Sai Silk (Kalamandir) Ltd IPO and how to apply?

The issue opens for subscription on 20th September 2023 and closes for subscription on 22nd September 2023 (both days inclusive). The basis of allotment will be finalized on 27^th September 2023 and the refunds will be initiated on 29th September 2023. In addition, the demat credits are expected to happen on 03rd October 2023 and the stock will list on 04th October 2023 on the NSE and the BSE. Sai Silk (Kalamandir) Ltd offers a very unique combination. It has an established and tested business model and the company is profitable. It is likely to use a combination of online and offline channels, but the bigger point is that its ethnic and semi-ethnic products are again being rediscovered by Indian buyers. Let us now turn to the more practical issue of how to apply for the IPO of Sai Silk (Kalamandir) Ltd.

Investors can apply either through their existing trading account or the ASBA application can be directly logged through the internet banking account. This can only be done through the authorized list of self-certified syndicate banks (SCSB). In an ASBA application, the requisite amount is only blocked at the time of application and the necessary amount is debited only on allotment. Investors can apply in the retail quote (up to ₹2 lakh per application) or in the HNI / NII quota (above ₹2 lakh). Minimum lot sizes will be known after pricing.

Financial highlights of Sai Silk (Kalamandir) Ltd

The table below captures the key financials of Sai Silk (Kalamandir) Ltd for the last 3 completed financial years.

Data Source: Company RHP filed with SEBI (All ₹ figures are in crores)

There are few key takeaways from the financials of Sai Silk (Kalamandir) Ltd which can be enumerated as under

1. In the last 2 years, the revenues growth has been robust showing the potential that the idea of retailing the ethnic wear in India actually has. The tweaking of ethnic ideas into high fashion is an idea that is still being experimented by Sai Silks has successfully done it in the high spending southern markets.
    
2. The latest year profit margins and the return on assets are extremely healthy, as is the return on equity at above 20%. That will be ammunition for the stock to sustain valuations at higher levels. In the retail business, retail margins are often in single digits and under pressure. That is where the high ROE will be a boost for valuations.
    
3. The company has maintained an impressive rate of sweating assets as is evident from the asset turnover ratio. It has consistently averaged above 1.1X, which is a very good sign for a capital intensive business like retailing. It will give the much needed comfort for the company as it embarks on a massive expansion.

While pricing of the IPO does matter here, what is more critical is the eventual PAT margins that will sustain and the ROE on a sustainable basis. The company has a latest year EPS of ₹8.11 and a 3-year average EPS of ₹5.72. The former would be a better barometer and that discounts the earnings of the latest year by around 25 times or 25X PE ratio. That is reasonable for the retail business and as growth picks up, things should only get better for the valuation matrix of the company. It could be along haul bet, but even conservative investors can consider this issue.