Saraswati Saree Depot Company is coming up with its IPO fresh issue of Rs. 104 crores and offer for sale worth Rs. 56.02 crores, totalling Rs. 160.01 crores. which will open on 12th August 2024. The issue will close on 14th August 2024 and be listed on the exchange on 20th August 2024. In this article, we will look at the Saraswati Saree Depot IPO Review and analyze its strengths and weaknesses. Keep reading to learn about the company.
Saraswati Saree Depot IPO Review – About the Company
The company was incorporated in 1966. It is in the wholesale saree (B2B) business segment. They offer a range of women’s apparel, including kurtis, sarees, and dress materials, with sarees contributing over 90% of their total revenue.
Saraswati Saree Depot operates two stores in Maharashtra, located in Kolhapur and Ulhasnagar. In fiscal 2024, they served over 13,000 customers and offered more than 3,00,000 different SKUs. The company sources the products from over 900 weavers/suppliers across India while maintaining strong relationships with manufacturers in various textile hubs in India.
They have a strong presence in southern and western India, particularly in Maharashtra, Karnataka, and Goa. The company experiences seasonal fluctuations, with peak sales during festive and wedding seasons. Their business model focuses on bulk buying capabilities and a diverse product portfolio.
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About the Industry
The Indian apparel industry is diverse, with various business models spanning manufacturing, branding, and distribution. Companies often operate across multiple segments. Supply chain management is crucial, especially for ethnic apparel players. The industry uses different distribution channels, which include exclusive brand outlets (EBOs), multi-brand outlets (MBOs), and e-commerce platforms, each with its advantages and challenges.
The apparel market in India has shown robust growth, recovering from COVID-19 stress. It grew by about 9% in FY24 and is expected to maintain a steady 10-11% CAGR from FY24 to FY29. Ethnic wear currently contributes about 30% of the overall market but is expected to decrease to 25-28% by FY29, while western wear is projected to grow faster.
The saree market in India is driven by growth in wedding and celebration wear. It’s expected to grow at a 5-6% CAGR from FY24 to FY29, reaching Rs 650-675 billion by FY29. While the saree market is largely unorganized, the organized segment is growing faster at a 9-10% CAGR and is expected to constitute 32-37% of the overall market by FY29 which shows the opportunity to grow.
Saraswati Saree Depot IPO Review – Financial Highlights
Saraswati Saree Depot reported revenue from operations of Rs. 610.90 crores in FY24, up 1.49% from Rs. 601.89 crores in FY23. Net Profits in FY24 were Rs. 29.52 crore, an increase of 28.52% from Rs. 22.97 crore in FY23. There was an improvement in Purchase of stock, Employee benefits expenses, and Other expenses YoY. The majority of the expenses are from stock purchases which account for around 90% in FY24.
In FY24, the EPS was Rs. 8.92 per share, an improvement of 28.53% from the previous year’s Rs. 6.94 per share. The increase in EPS is based on an improvement in expenses.
The company’s, debt to equity ratio stood at 0.67 in FY24 compared to 1.17 in FY23. RoE was 58.88% in FY24 compared to 96.15% in FY23. There was a capital infusion into the company in 2024 by Rs. 33 crores.
There decrease in RoE was due to a low base effect of equity value. The company has reduced its interest cost in FY24, which relates to RoCE. It stood at 64.46% compared to 98.03% in FY23. The lower base effect has an impact on its returns.
Saraswati Saree Depot recognises its revenue from operations under wholesale trading in sarees and other garments. Geographically in India, the West contributed to 82.68% of the revenue, the South – 17.04%, the East – 0.04%, and the remaining North – 0.23% in FY24.
Saraswati Saree Depot – Key Players
The listed peers of Saraswati Saree Depot are Go Fashion (India) Limited and Sai Silks (Kalamandir) Limited.
Compared to its peers, the debt to equity is around 0.67 compared to its peers 0.45 for Sai Silk and 3.96 for Go Fashion, Saraswati fares better and near to Sai Silks in FY24. As the business is capital-intensive, the debt usually would be higher. The PAT margins of Saraswati are 4.83%, as compared to Go Fashion’s 3.82% and 7.34% of Sai Silks.
The EBITDA margin of Saraswati is around 6.73% in FY24 when compared to its peers Go Fashion has 13.71% and Sai Silks has 15.43%. Saraswati has underperformed among its peers which shows its operational efficiency.
Saraswati’s return on equity is around 58.88%, which is higher compared to its peers. The High RoE can be due to lower equity value against net profits. In RoCE, Saraswati has outperformed its peers. Overall it outperformed in some parameters and lagged in some with the peers.
Strengths Of The Company
- Diverse customer base: The company sources from 900+ suppliers across India and serves 13,000+ unique customers. The top 10 customers represent less than 9% of revenue, indicating a well-distributed customer base.
- Wide product range: Saraswati offers over 3,00,000 SKUs including kurtis, sarees, and other women’s apparel. Customers are provided various options for different occasions, such as weaves, fabrics, patterns, and ornamentations, which reduces reliance on any single product category.
- Bulk buying power: The company purchases large quantities to optimize costs and reduce supply chain risks. This might allow better price negotiations with suppliers and in return can offer competitive prices to its customers.
- Experienced leadership: The Saraswati company’s promoters and management bring their experience in the industry to develop the business. Key members like Shankar Dulhani (38+ years) and Vinod Dulhani (27+ years) provide deep market knowledge and strategic direction.
- Strong relationships: From the promoter’s existing relations the business has fostered solid connections with suppliers and customers. This results in benefits like better pricing, payment terms, exclusive designs, and repeat business.
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Weaknesses Of The Company
- Over-reliance on saree sales: The company’s revenue is heavily dependent on saree sales, accounting for over 90% of total revenue. This product concentration leaves the business vulnerable to shifts in customer preferences, fashion trends, or market demands away from sarees.
- Limited geographic presence: Saraswati is operating in two stores, residing both in Maharashtra. This might restrict the company’s market reach. This narrow geographic focus exposes the business to local economic fluctuations, operating risk, or any unrest in the region that might limit opportunities. This might hinder the growth of expansion and diversification into other markets.
- Lack of retail presence: The company is operating in the B2B wholesale segment. The company might miss out on the opportunity to target direct consumer interactions. This absence of retail presence might hinder brand visibility. This limit can be a barrier to understanding quickly changing consumer preferences.
- Strong competition in a fragmented industry: The saree industry is highly fragmented with numerous unorganized players. Higher Competition can lead to reduced profit margins and pricing pressure. This might bring challenges to maintain or to grow market share. Competitors may have advantages in specific product segments or resources.
- Seasonal business fluctuations: The company’s sales are heavily dependent on the seasonal festive and wedding seasons. This might cause significant revenue variations throughout the year. This may create challenges in inventory management, cash flow planning, and maintaining consistent operations during off-peak periods.
Saraswati Saree Depot IPO Review – GMP
The shares of Saraswati Saree Depot Ltd’s price in the grey market were trading at a 15.62% premium as of August 9th, 2024. The shares in Grey Market traded at Rs.185. This gives it a premium of Rs.25 per share over the cap price of Rs. 160.
Saraswati Saree Depot IPO Review – Key IPO Information
Promoters: Mahesh Dulhani, Rajesh Dulhani, Shankar Dulhani, and Vinod Dulhani.
Book Running Lead Manager: Unistone Capital Private Limited.
Registrar to the Offer: Bigshare Services Private Limited.
The Objective Of The Issue
- Funding Working capital requirements for the company.
- General Corporate purposes.
Conclusion
Saraswati Saree Depot Limited has a strong presence in concentrating regions of West and South India. The Wholesale market for Sarees might further grow due to an increase in spending for various occasions. The rise in income, even for women might help the company to grow their revenues by high spending.
However, the company operates on less than 10% margin, which might come under pressure if there is any kind of slowdown in the economy. The company is planning to diversify to other products and the company’s financial growth is based on the execution.
So what do you think of this company? Will it be able to increase its market presence and maintain growth based on its competition with peers? What is your view? Let us know in the comments below.
Written by Santhosh
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