Saraswati Saree Depot

Regional women’s wear player

Present predominantly in the wholesale segment of sarees

Saraswati Saree Depot (SSD) is a wholesaler (B2B) of sarees as well as other women‘s apparel, such as kurtis, dress materials, blouse pieces, lehengas and bottoms.The company sources sarees and other women’s apparel from more than 900 weavers and suppliers across different states in India. It has developed relationship with these manufacturers in the hubs like Surat, Varanasi, Mau, Madurai, Dharmavarm, Kolkata, and Bengaluru.

Currently, the product catalogue lists more than 300,000 different stock keeping units (SKUs). Products are majorly sold in the western and southern regions, comprising mainly Maharashtra, Goa, Karnataka and Tamil Nadu. More than 13,000 unique customers were served in FY2024. Owned stores offer saree products categorized by occasion, fabric, weave, and ornamentation. SSD currently operates from two stores located at Kolhapur and Ulhasnagar, both in Maharashtra.Over 90% of the revenue comes from saree sales.

Object of the offer

The IPO consists sell of fresh equity shares upto 64,99,800 equity shares (Rs 104 crore) and 35,01,000 equity shares through offer for sale (OFS).

Post issue, promoters holding will reduce to 74.7% of the total shareholding from the current 100%.

Out of the proceeds from the fresh issue of Rs 104 crore, Rs 81 crore will be utilized to fund working capital requirements and the balance towards general corporate purposes.

Strengths

A diversified supplier and customer base. Long-standing relationships with the manufacturers in hubs like Surat, Varanasi, Mau, Madurai, Dharmavaram, Kolkata, and Bengaluru. Sources sarees and other women’s apparel from more than 900 weavers/suppliers across different states in India. Currently, the product catalogue lists more than 300,000 different SKUs. Revenue from its top 10 customers represented 7.85% of the total revenue in FY 2024, 8.91% in FY 2023, and 7.90% in FY 2022, underscoring the diversified customer base. Similarly, purchases from the top 10 suppliers represented 25.68% of the total purchases in FY 2024, 22.89% in FY 2023, and 26.81% in FY 2022.

The diversified product portfolio spans over wide range of items, including sarees, kurtis, dress materials, blouse pieces, lehengas and bottoms, with over 300,000 different SKUs.

To offer a diversified portfolio, the focus is on purchasing in bulk from the weavers and suppliers. Bulk purchases enable optimizing costs and reduce supply chain risks. Further, procurement in bulk allows better prices, resulting in competitive prices to customers.

An experienced promoter and management team. Shankar Dulhani is the promoter, chairperson as well as the executive director. Is associated with the company since incorporation. Has experience of over 38 years in the industry and a deep understanding of the product and all its facets spanning from manufacturing to marketing and business development. Vinod Dulhani is the promoter, managing director and chief executive officer. Is associated with the company since incorporation. Has an experience spanning over 27 years in the wholesale saree business.

Has longstanding relationship with clients, helping to enjoy several benefits including pricing, exclusivity in designs, and payment terms. All these benefits are passed on to the customers by attractive prices, an exclusive product range, and high-quality products.

Weaknesses

Despite offering a diversified product range, the business is concentrated on the sale of women’s sarees. Hence, vulnerable to variations in demand. Earned 90% of the revenue from sale of sarees in FY2024. Any change in consumer preference could have an adverse impact on the business.

Operates out of two stores in Maharashtra. These are located at Kolhapur and Ulhasnagar. Any localized social unrest, natural disaster or breakdown of services or any other natural disaster in and around Maharashtra or any disruption in production at, or shutdown of, stores could have material adverse impact on the business.

Operating in the wholesale segment. Therefore, lacks visibility and direct connection with the end consumers of the products, adversely affecting the ability to build brand loyalty and awareness with the end consumers.

Operates in a highly competitive and fragmented industry with a presence of many smaller unorganized players operating standalone outlets markets in each of its product segments. An inability to compete effectively with them may adversely affect the business.

A significant portion of the sales are derived from the western zone. Any adverse developments in this market could affect the business. Earned around 79% of the revenue from the western markets in FY2024.

The covid-19 pandemic, or any future pandemic or widespread public health emergency, could affect the business and financial condition.

The wholesale business is highly working capital intensive, governed by seasonality. A high level of inventory is required to be maintained to ensure a ready availability of stock. Unable to do so can affect the business.

Dependent on third-party weavers and suppliers for sourcing products. Does not have long-term or exclusive agreements with the weavers and suppliers. Hence, may not be able to procure sufficient quantity or quality of goods from the weavers and suppliers in a timely manner and at an acceptable price, thereby adversely affecting the business.

Experienced negative cash flows in operating, investing and financing activities in the last three financial years. Any negative cash flows in future could adversely affect the financial condition.

Operates a high-volume, low-margin business. Therefore, the operating and net margins are low. Any sudden changes in price movements of goods traded or sudden ad hoc anomalies in the business or operations could substantially affect profit.

Valuation

Consolidated sales were up by 1.5% to Rs 610.90 crore in FY 2024. The OPM rose 96 bps to 6.62%, which led to an 18.7% increase in OP to Rs 40.43 crore. OI was up 3.0% to Rs 1.68 crore, while interest cost decreased 35.3% to Rs 2.47 crore and depreciation declined 1.6% to Rs 0.98 crore. Eventually, net profit jumped 28.5% to Rs 29.53 crore.

The FY2024 EPS on the post-issue equity works out to Rs 7.5. At the upper price band of Rs 160, P/E FY2024 works out to 21.5 times. The listed industry peer Sai Silk (Kalamandir) istrading at P/E FY2024 (EPS Rs 6.58 For FY2024) of 24.1 times.