HDFC Securities, a prominent domestic brokerage firm, has recently initiated coverage on Sai Silks (Kalamandir) and provided a ‘buy’ rating with a target price of ₹385 per share. This target suggests a substantial 36% upside from the stock’s previous closing price of ₹285 per share.
Established in FY05, Sai Silks (Kalamandir) Ltd (SSKL) stands as one of the major apparel retailers in South India, specializing in ethnic wear, particularly sarees, and value fashion. The company boasts four popular brands, including Kalamandir (KMR), Kancheepuram, Vara Mahalakshmi Silks (VML), Mandir (MDR), and KLM Fashion Mall (KLM), spanning various price points.
The brokerage outlined key reasons for its optimistic outlook in its report:
- Benefiting from Migration to Organised Saree Market: Traditionally, the saree retail sector was dominated by unorganised players in small-format stores. SSKL, alongside other organized retailers, is addressing the demand for consolidated SKU offerings through large-format retailing. The brokerage believes SSKL, with a 5% market share in the ₹262 billion saree market in South India, is well-positioned to benefit from this value migration.
- Strategic Expansion Model: SSKL has adopted a disciplined scaling strategy, focusing on a concentrated cluster-based expansion approach. Operating strategically in 12 districts out of over 150 in South India, the company maintains a robust presence with 54 stores covering 6,03,414 sq. ft. This regional presence enhances brand recall, improves sales density, and keeps retailing costs efficient. SSKL boasts the highest revenue per square foot (₹22,000 per sq. ft) and is noted for its cost-effective retailing model within the apparel retail sector.
- Promising Foray into Tamil Nadu Market: With a valuation of ₹74 billion and a 32% market share in the South, the Tamil Nadu market offers higher footfall density, making it crucial for saree brands. SSKL’s allocation of ₹5.66 billion from its IPO proceeds for expanding in Tamil Nadu through Vara Mahalakshmi Silks (VML) is expected to yield positive results. VML is anticipated to generate approximately 2 times the revenue per square foot and 3–4 times the EBITDA per square foot compared to the company’s average. SSKL’s entry into Tamil Nadu, particularly through VML, is viewed as promising for growth and unit economics.
While acknowledging the potential, the brokerage also highlighted a few risks, including high concentration in a single product category (saree), potential challenges in SKU management (saree high SKU/store product), and increased competition from e-tailers.
