SSKL’s IPO Set To Hit The Markets Next Week

Sai Silk (Kalamandir) Ltd (SSKL), like among many other retail companies, is coming up with its initial public offering (IPO). Its Rs 86 crore IPO is to be launched on February 11 this year. The issue will close on February 13. The company has decided a price band of Rs 70 to Rs 75 for this public offering. It is planning to issue fresh equity shares with a face value of Rs 10. Investors can bid for a minimum of 200 equity shares and in the multiples of 200 equity shares thereafter.

SSKL is expected to use these IPO proceeds for setting up of 4 more retail outlets, brand promotion, pre-payment of term loan facility and meeting long-term working capital requirements. Interestingly, the company’s promoters are offering a Safety Net Scheme for the original resident retail investors. The scheme will be valid for six months from the date of credit of equity shares in Demat accounts of retail individual allottees. This means that if the market value of SSKL's equity share falls below the issue price within the scheme period of next six months, the promoters of the company will buy back the original allotted equity shares from the eligible allottees up to a maximum of 1000 equity shares per eligible allottee.

SSKL is primarily into the business of retailing of sarees under the brand names of “KALAMANDIR”, “MANDIR” & “VARAMAHALAKSHMI”. Started in 2005, the Hyderabad-based company operates from 15 retail outlets across South India spread in over 1,29,035 square feet. Currently, the company is diversified across all segments, including sarees, women’s dress materials and readymade garments, men’s wear, kid’s wear, Gold Jewellery and Silver articles, etc.

For the display and sale of gold and silver ornaments, the company operates its outlets under franchises and shop-in-shop model by a franchisee arrangement with Tanmai Jewellers Pvt Ltd at Hyderabad and Sai Swarnamandir Jewellers Pvt Ltd at Bengaluru.

SSKL is promoted by Mr Chalavadi Naga Kanaka Durga Prasad and Mrs. Chalavadi Jhansi Rani. The book running lead managers to the issue are Ashika Capital Ltd and Vivro Financial Services Pvt Ltd. The equity shares of the company will be listed on the Bombay Stock Exchange and the National Stock Exchange.

The company has posted a revenue growth of 7.79% to Rs 262.76 crore in FY12 from Rs 243.77 crore last year. Further, the company's net profit has shown a growth of 40.67% to Rs 17.71 crore in FY12 from Rs 12.59 crore in FY11.

At an upper band price, the offer price is 13.56x times of SSKL's FY2013E annualised EPS of Rs 5.53 and at lower band price, offer price is 12.84x times of its FY2013E annualised EPS. This is considerably lower as compared to its listed peers, where the share of Shoppers Stop is trading at 191.08x times its TTM EPS, Pantaloons Retail trading at 32.73x times its TTM EPS and Trent is trading at 57.43x times its TTM EPS. Further, the recent public issue of V-Mart Retail Ltd offered equity shares at 19.68x times of V-Mart's FY2013E annualised EPS of Rs 10.93 at upper band price.

We believe that there will be a considerable retail growth due to an expected rise in disposable income in India. Considering the government’s recent nod for FDI in multi-brand retail, the domestic retail industry has been eyeing the retail and institutional investors for the past few months. This has resulted in a spurt in major retail stocks like Shoppers Stop, Pantaloons Retail and Trent.

Further, SSKL has shown a decent growth in the recent past and will possibly witness a poised growth at a decent pace in the near future. We suggest our readers to subscribe this IPO as investors can consider it a risk free investment (for six months), with a possibility of getting higher returns, like in equity, because of the Safety Net Scheme.