HDFC Securities has maintained a BUY rating on this apparel retailer, which specialises in ultra-premium and premium silk sarees and various wedding and party wear. HDFC Securities has given a target price of INR 270 per share (reduced from INR 280). This implies an 89% upside from the previous session’s market price of INR 128.55. Despite rising competition in core markets and underperformance in Tamil Nadu. We are talking about Sai Silks (Kalamandir), which launched its IPO in late 2023. Let’s check why HDFC is bullish.
Sai Silks Financial Performance
Sai Silks reported a standalone total income of INR 454.20 crore for Q3 FY25, a 28.46% growth from Q2 FY25 and 15.72% from Q3 FY24. The net profit was INR 46.02 crore. The company has strong financials with 60.8% promoter holding and FIIs and DIIs holding 3.26% and 15.41%, respectively.
While growth is strong, Sai Silks is facing execution issues in the Tamil Nadu expansion. The Vara Mahalaxmi (VML) format in Tamil Nadu has not met expectations, though it will catch up by FY26. This underperformance has impacted sales density, which takes 2-3 wedding seasons to mature. The delayed ramp-up will impact short-term revenue growth and add to the risk to the bull case.
Increasing Pressure in Core Markets
Sai Silks’ core markets—Andhra Pradesh and Telangana—are seeing increasing competition from Varahi Silks, Mangalya Silks and Chennai Silks. Management thinks these price wars are temporary, but it’s a concern, especially since it’s a discretionary industry. KLM Fashion Mall format, particularly Men’s and Kids’ wear, is underperforming, need to get the product mix right.
Sai Silks IPO Details
Sai Silks (Kalamandir) launched its IPO on September 22, 2023, with an issue size of INR 1,201 crore. The IPO was oversubscribed 4.4 times and delivered a listing gain of 10.32%. Since then, the stock reached its all-time high of INR 298.75 per share on 24 November 2023, marking a 34.57% increase from its allotment price. However, following this peak, Sai Silks’ stock experienced a significant decline and currently trades around INR 145 per share, reflecting a 51.4% drop from its highest level.
Valuation and Growth Prospects: Cheap or Justified?
HDFC Securities has given a 17x FY27E P/E for an INR 270 target on a DCF basis. Sai Silks is trading at ~8x FY27E PAT. So most of the downside is already priced in. But are we factoring in execution risks, store level profitability and competition?
The company plans to add 29 stores in 3 years to reach 89 stores by FY27 which will drive future revenue growth. Also, GM gains of 60 bps in FY26 due to a reduction in creditor days from 62 days in FY23 to 16 days in FY24. Cash flow will improve. But the new 45-day MSME payment regulation will limit the margin gains. This is not fully factored into the estimates.
Final Verdict: A Calculated Bet or an Optimistic Call?
HDFC Securities’ bullish stance on Sai Silks is based on expectations of a revenue, EBITDA, and EPS CAGR of 19%, 33%, and 43%, respectively. While the valuation appears attractive, it is not without risks. The company’s execution challenges in Tamil Nadu, intensified competition in core markets, and struggling KLM format could dampen the anticipated upside.
While the long-term growth narrative remains compelling, investors must weigh the near-term execution risks against the potential upside. The buy call seems justified for those with a high-risk appetite, but a wait-and-watch approach may be prudent for conservative investors until execution hurdles are visibly overcome.
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