Saraswati Saree Depot IPO Analysis: Saraswati Saree Depot is launching its IPO with a fresh issue of ₹104 crore and an offer for sale of ₹56.02 crore, totaling ₹160.01 crore. The IPO will open on August 12, 2024, and close on August 14, 2024, with a listing date set for August 20, 2024. This article will provide a review of the Saraswati Saree Depot IPO, examining its strengths and weaknesses. Keep reading to learn more about the company.

About Allied Blenders and Distillers

Founded in 1966, Saraswati Saree Depot operates in the wholesale saree (B2B) segment, offering a variety of women’s apparel such as kurtis, sarees, and dress materials, with sarees accounting for over 90% of their revenue.

The company runs two stores in Maharashtra, located in Kolhapur and Ulhasnagar. In fiscal 2024, Saraswati Saree Depot served more than 13,000 customers and provided over 300,000 different SKUs. They source products from over 900 weavers and suppliers across India, maintaining strong ties with manufacturers in key textile hubs.

They have a robust presence in southern and western India, especially in Maharashtra, Karnataka, and Goa. The company faces seasonal variations, with peak sales during festive and wedding periods. Their business model emphasizes bulk purchasing and offers a wide range of products.

Industry Overview

The Indian apparel industry is highly diverse, encompassing various business models such as manufacturing, branding, and distribution. Companies often operate across multiple segments, with effective supply chain management being crucial, particularly for ethnic apparel players. Distribution channels in the industry include exclusive brand outlets (EBOs), multi-brand outlets (MBOs), and e-commerce platforms, each offering distinct advantages and facing unique challenges.

The apparel market in India has rebounded strongly from the impacts of COVID-19, growing by approximately 9% in FY24. It is projected to sustain a steady CAGR of 10-11% from FY24 to FY29. Although ethnic wear currently represents about 30% of the market, its share is anticipated to decline to 25-28% by FY29, with western wear expected to experience faster growth.

The saree market in India is buoyed by demand for wedding and celebration attire, with an anticipated growth rate of 5-6% CAGR from FY24 to FY29, reaching ₹650-675 billion by FY29. While the saree market remains largely unorganized, the organized segment is expanding more rapidly, with a projected CAGR of 9-10% and an expected market share of 32-37% by FY29, indicating significant growth potential.

Financial Highlights

Saraswati Saree Depot reported a revenue from operations of ₹610.90 crores for FY24, marking a 1.49% increase from ₹601.89 crores in FY23. Net profits rose significantly by 28.52%, reaching ₹29.52 crores compared to ₹22.97 crores the previous year. Notable improvements were observed in the purchase of stock, employee benefits expenses, and other operational expenses, with stock purchases accounting for approximately 90% of total expenses in FY24.

The company’s Earnings Per Share (EPS) for FY24 was ₹8.92, reflecting a 28.53% increase from the previous year’s ₹6.94 per share. This rise in EPS is attributed to better management of expenses.

In FY24, the debt-to-equity ratio improved to 0.67 from 1.17 in FY23. However, the Return on Equity (RoE) decreased to 58.88% from 96.15% in the previous year. This decrease is partly due to a low base effect from the increased equity value following a capital infusion of ₹33 crores in 2024.

Despite the drop in RoE, the company successfully reduced its interest costs in FY24, improving its Return on Capital Employed (RoCE) to 64.46% from 98.03% in FY23. The lower base effect continues to impact overall returns.

Saraswati Saree Depot generates its revenue from wholesale trading in sarees and other garments. In FY24, the revenue distribution across India was as follows: 82.68% from the West, 17.04% from the South, 0.04% from the East, and 0.23% from the North.

Competitors

Saraswati Saree Depot’s listed peers include Go Fashion (India) Limited and Sai Silks (Kalamandir) Limited. In FY24, Saraswati’s debt to equity ratio stands at 0.67, which is better than Go Fashion’s 3.96 but slightly higher than Sai Silks’ 0.45. This indicates that while Saraswati’s debt is relatively high due to the capital-intensive nature of the business, it is more comparable to Sai Silks.

The PAT margin for Saraswati is 4.83%, which is higher than Go Fashion’s 3.82% but lower than Sai Silks’ 7.34%. This suggests that while Saraswati’s profitability is stronger than Go Fashion’s, it lags behind Sai Silks in terms of net profitability.

Saraswati’s EBITDA margin is around 6.73% in FY24. In comparison, Go Fashion’s margin is 13.71% and Sai Silks’ margin is 15.43%. This performance indicates that Saraswati is less efficient operationally compared to its peers.

Saraswati boasts a high return on equity (RoE) of 58.88%, surpassing its peers. This high RoE could be attributed to its lower equity value relative to net profits. Additionally, Saraswati has outperformed its peers in Return on Capital Employed (RoCE). Overall, the company excels in some financial metrics but falls short in others compared to its peers.

Strengths

• Diverse Customer Base: Saraswati sources from over 900 suppliers across India and serves more than 13,000 unique customers. The top 10 customers account for less than 9% of revenue, showing a well-diversified customer base.
• Wide Product Range: The company offers over 300,000 SKUs, including kurtis, sarees, and other women’s apparel, providing various options for different occasions. This broad range helps reduce dependence on any single product category.
• Bulk Buying Power: Saraswati buys in large quantities to optimize costs and mitigate supply chain risks. This enables better price negotiations with suppliers, allowing the company to offer competitive prices to its customers.
• Experienced Leadership: The company’s leadership includes Shankar Dulhani with over 38 years and Vinod Dulhani with 27 years of experience, providing extensive market knowledge and strategic direction.
• Strong Relationships: Leveraging existing relationships, Saraswati has built strong connections with suppliers and customers, resulting in benefits such as favorable pricing, payment terms, exclusive designs, and repeat business.

Weaknesses

• Over-reliance on Saree Sales: Revenue is heavily dependent on saree sales, which make up over 90% of total revenue, leaving the company vulnerable to changes in customer preferences and market demands.
• Limited Geographic Presence: Operating only two stores in Maharashtra restricts market reach, exposing the company to local economic fluctuations and potential risks that could limit growth and expansion opportunities.
• Lack of Retail Presence: As a B2B wholesale player, the company misses out on direct consumer interactions, potentially hindering brand visibility and the ability to quickly adapt to changing consumer preferences.
• Strong Competition in a Fragmented Industry: The saree industry is fragmented with many unorganized players, leading to increased competition, pricing pressure, and challenges in maintaining or growing market share.
• Seasonal Business Fluctuations: Heavy reliance on seasonal festive and wedding periods results in significant revenue variations, creating challenges in inventory management, cash flow planning, and consistent operations during off-peak times.

GMP

As of August 9th, 2024, Saraswati Saree Depot Ltd shares were trading at a 15.62% premium in the grey market. The shares were priced at ₹185, reflecting a ₹25 premium over the cap price of ₹160.

Key IPO Information

Particulars	Details
IPO Size	Rs. 160.01 Cr
Fresh Issue	Rs. 104.00 Cr
Offer for sale (OFS)	Rs. 56.02 Cr
Opening date	12 August 2024
Closing date	14 August 2024
Face value	Rs. 10
Price band	Rs. 152 – Rs. 160
Lot size	90 Shares
Minimum Lot Size	1 Lot (90 Shares)
Maximum Lot Size	13 Lots (1,170 Shares)
Listing date	20 August 2024

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.

Conclusion

Saraswati Saree Depot Limited maintains a strong presence in West and South India. The wholesale saree market is expected to expand, driven by increased spending for various occasions and rising income levels, particularly among women. This growth potential could significantly boost the company’s revenues.

However, the company operates with a margin of less than 10%, which could be vulnerable to economic slowdowns. Saraswati Saree Depot is exploring diversification into other products, and its financial growth will depend on the successful execution of these strategies.