Shares of Sai Silks have had a tough 30 days at the bourses but analysts at Ventura see the stock going further up as demand for sarees is expected to grow rapidly.
The Sai Silks Analyst: Analysts at Ventura initiated coverage on the stock with a "buy" rating and target price of ₹421 over the next two years. The target indicates an around 52% upside from the stock's last closing price of ₹277.50.
The Sai Silks Thesis: Founded in 2005, Sai Silk (Kalamandir) is a prominent South Indian apparel retailer, with a specialization in sarees. The company has made a mark in the retail landscape, operating a network of 54 stores. These stores are strategically positioned under both premium ethnic apparel and value fashion brands, catering to a diverse customer base.
The analysts said that the company has successfully established a robust presence in both offline and online marketplaces, covering key regions such as Telangana, Andhra Pradesh, Karnataka, and Tamil Nadu. The company employs a cluster-based model for store expansion, a strategic approach that allows it to efficiently navigate regional markets. Additionally, SSKL has implemented an in-house Enterprise Resource Planning (ERP) system, contributing to operational efficiency.
As per the brokerage firm, the company is working on the following to propel growth
- Store Expansion: The company aims to expand its store count from 54 in March 2023 to 84 in March 2026. This growth strategy includes entering new markets within South India.
- Warehouse Optimization: The retailer plans to establish a new warehouse in Chennai and renovate the Hyderabad warehouse. This initiative is geared towards streamlining inventory management, a critical aspect supporting the ambitious store expansion plan.
- Debt Reduction: It looks to allocate ₹50 crore to reduce its outstanding debt of ₹357 crore, to improve the debt-to-equity ratio.
- Internal Funding: The company plans to utilize internal accruals for business investments and additional store expansion, showcasing a self-sustaining approach to finance its growth initiatives.
The domestic brokerage expects a robust 13.0% compound annual growth rate (CAGR) to achieve a revenue of ₹2,206 crore by FY26. The analysts expect an impressive 23.4% CAGR for EBITDA, to reach ₹509 crore, and a significant 28.6% CAGR for Profit After Tax (PAT), targeting ₹267 crore by FY26.
The brokerage also listed out its investment rationale for investing in the saree retailer
- Market Presence: Expansion of store count in existing geographies is poised to strengthen the company’s presence in the current markets.
- Saree Market Growth: Southern India, where the company operates, accounts for approximately 50% of India's saree market, which as per the brokerage is experiencing rapid growth.
- Demand for Ethnic Wear: The expected surge in demand for ethnic wear, particularly among millennials, positions the retailer favourably in the market.
- Organized Sector Dominance: SSKL holds a leading position in the shift of the Indian saree industry from the unorganized sector to the organized sector, with a significant stronghold in southern India.
- First-Mover Advantage: As the only established player in the organized sector for Indian saree wear, SSKL enjoys a first-mover advantage, further solidifying its position in the market.
HDFC Securities also initiated coverage on the stock with a “buy” rating last month.
© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.