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Sai Silks (Kalamandir) Ltd

| Q2 FY 2025-26 Earnings Conference Call

BULLISH SENTIMENT

Report Source

⬤28th Oct 24

Summary : Sai Silks (Kalamandir) delivered strong Q2/H1 FY26 results driven by festive demand and strategic store expansion, with management optimistic about future growth despite initial lower margins for new formats and competitive pressures.

Management Perspective positive : Looking ahead, we remain very optimistic about the second half of the year, supported by the major festive season and the wedding calendar. Quarter 3 and quarter 4 traditionally has a healthy contribution, and we are well prepared with curated festive collections, localized marketing campaigns and inventory planning.

Concall Report Analysis & Insights

Business Overview

  1. Q2 FY26 revenue grew 28% to INR 444 crores; H1 revenue grew 34% to INR 823 crores.
  2. EBITDA for Q2 was 16.21%, up 26 basis points; H1 EBITDA was 15.68%, up 368 basis points.
  3. PAT for Q2 reached INR 40 crores; H1 PAT was INR 70 crores.
  4. Same-store sales growth (SSG) was 17.5% for Q2 and 21.5% for H1.
  5. Added 1.5 lakh sq ft of new retail space over two years, including six new stores in H1 FY26.

Future Growth Prospects

  1. Optimistic about H2 FY26 due to major festive season and wedding calendar.
  2. Targeting 18-20% annual growth, with total sales reaching approximately INR 1,750 crores.
  3. Expanding retail square feet by 8-10% in FY27, focusing on Valli and Varamahalakshmi stores.
  4. Focus on sustainable growth, product innovation, and digital integration.
  5. Aiming for optimal productivity of INR 45,000-INR 50,000 per square foot for new stores.

Management Insights

  1. Ethnic retail market saw healthy traction from strong wedding dates and festive demand.
  2. Consumer sentiment remained upbeat, driving bulk purchases and gifting sales.
  3. Digital discovery is rising, with consumers starting shopping journeys online.
  4. Valli format is designed for rapid expansion with lower capex and leaner inventory.
  5. Varamahalakshmi expansion is on schedule, with 19 stores operational and more planned.

Signs of Skepticism

  1. Management is not providing a specific business model for Valli format yet, awaiting more operational quarters.
  2. The exact INR 200 crores PAT target for FY27 was not confirmed, only a percentage range.
  3. Franchising for KLM format is not planned for the next couple of quarters, awaiting a solid model.
  4. Inventory turn target of 2.5x is expected by next financial year, not immediately.

Risk Factors

  1. Valli format currently commands lower margins, expected for a couple of quarters.
  2. Temporary impact on footfalls from new competition in existing store locations.
  3. Increased rental costs for new stores, though existing leases are stable.
  4. External factors like heavy rains or cyclones can temporarily affect market conditions.

Good To Know

  1. Added 33,000 sq ft of retail space through six new stores in H1, with no closures.
  2. Converted three existing stores to the Valli format, bringing total Valli stores to seven.
  3. Valli stores are 3,000-3,500 sq ft, quicker to expand, with 20-25% reduced capex.
  4. Varamahalakshmi stores require INR 20,000 inventory per square foot.
  5. KLM Fashion is showing improved SSG, focusing on new collections and reducing expenditures.

Key Drivers

  1. Strong wedding calendar drives demand.
  2. Festive season boosts consumer spending.
  3. New store formats expand reach.
  4. Digital integration enhances customer engagement.

Key Analyst Discussions

Competitive Environment

  1. Competition includes organized, unorganized, and a few digital-only players.
  2. Brand power and positioning help sustain loyalty against new competition.
  3. New competition can cause temporary footfall impacts as consumers explore options.
  4. Management is not worried about long-term competitive impact due to brand strength.

Market Trends & Consumer Behavior

  1. Consumer sentiment is upbeat, driving strong demand for wedding and occasion wear.
  2. Digital discovery is influencing shopping journeys, even for in-store purchases.
  3. Retailers are enhancing unified online/offline presence to meet evolving preferences.

Financial Highlights

  1. Gross margins are maintained around 42%, with a focus on productivity before margin improvement.
  2. Other expenses increased due to business promotion and customer vouchers (INR 6-7 crores).
  3. Payables increased due to substantial purchases for upcoming festive and wedding seasons.
  4. Inventory aging is tracked, with 10-12% of inventory over one year old, managed through incentives and stock rotation.
  5. Rent-to-revenue ratio is 4%, outperforming traditional players despite expansion.

Product Composition

  1. Valli format focuses on power loom and entry-level silk sarees, mostly under INR 4,000.
  2. Kalamandir stores are family-oriented, offering menswear, kids wear, and traditional sarees.
  3. Company is focused on womenswear, with no immediate plans to diversify into menswear/kids wear.
  4. Developing in-house private label 'DESI SITARA' for kurtas and kurtis to improve margins.
  5. Majority of product offering is outright purchase, with negligible sale or return category.

Strategic Considerations

  1. Valli format is a digital-first approach, catering to evolving consumer preferences.
  2. Expansion includes both Valli and Varamahalakshmi stores in existing and new Tier 2 cities.
  3. No plans for franchisee-based expansion for Valli format currently.
  4. Existing stores' leases typically increase 15% every three years, new leases are negotiated.
  5. Conversion of Mandir and Kalamandir stores to Valli format is based on market dynamics.