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.

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As per the brokerage firm, the company is working on the following to propel growth

1. 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.
2. 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.
3. Debt Reduction: It looks to allocate ₹50 crore to reduce its outstanding debt of ₹357 crore, to improve the debt-to-equity ratio.
4. 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.

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