Is this IPO worth your investment? Exploring the allure of a 60 per cent RoE company

The company consistently achieved growth over the past few years, with an impressive 28 per cent surge in net profit for FY24 compared to FY23.

About the Issue  

Saraswati Saree Depot Ltd is preparing to launch its Initial Public Offering (IPO) for equity shares. See the issue details below.

Objects of the Issue  

The offer encompasses both the fresh issue and the offer for sale. It's important to note that the company will not accrue any proceeds from the offer for sale. The company plans to allocate the net proceeds raised from the fresh issue for the following purposes:

1. Funding working capital requirements of the company

2. General corporate purposes

Promoter holding  

Shankar Dulhani, Mahesh Dulhani, Rajesh Dulhani, and Vinod Dulhani are the promoters of the company. The promoters and promoter group currently hold a pre-issue shareholding stake of 100 per cent in the company.

Company profile  

Saraswati Saree Depot Ltd, a leading player in the sarees wholesale (B2B) segment, has deep roots in the sarees business dating back to 1966. The company generates over 90 per cent of its total revenue from saree sales, with products sourced from major manufacturing hubs across India, including Surat, Varanasi, Mau, Madurai, Dharmavaram, Kolkata, and Bengaluru. Currently, the company's extensive product catalogue features more than 300,000 unique SKUs.

The saree product portfolio of the company is diversified into a range of traditional weaves including Banarsi, Paithani, Kanjivaram, Maheshwari, Patola, Handloom, Bomkai, Gadwal, Tanchoi, Bandhani, and Dharmavaram. The collection is further categorized by pattern, featuring woven, printed, floral, digital print, dyed, geometric, self-design, solid, and embroidered sarees.

In addition to sarees, the company is also involved in the wholesale business of women’s apparel, offering products such as kurtis, dress materials, blouse pieces, lehengas, bottoms, and more.

Financials  

The company has consistently achieved growth over the past few years. In FY24, it not only saw a considerable rise in revenue but also experienced an impressive 28 per cent growth in net profit compared to FY23. In FY24, the company achieved an outstanding Return on Equity (RoE) of 59 per cent and a Return on Capital Employed (RoCE) of 64 per cent.

Valuation and outlook  

At the upper price cap, it is priced at a P/BV ratio of 3.75 times, considering its post-IPO NAV.  When calculating the PE ratio for the company based on FY24 earnings relative to the fully diluted paid-up equity capital, the resulting PE ratio stands at 18. Considering both valuation and returns, the offer looks attractive when compared to its listed peers.

The apparel industry in India is poised for significant growth, driven by increasing consumer spending and a burgeoning middle class. With innovations in fashion and technology, along with expanding e-commerce platforms, the industry is set to thrive in the coming years. According to a CRISIL report, the saree industry in India is projected to grow at a 5-6 per cent CAGR from fiscal 2024 to fiscal 2029.

The company earns a substantial portion of its revenue, around 40 per cent, during the three-month season from September to November, due to the high demand associated with festivals.

Given the company's consistently strong financials and the promising opportunities both in the near future and long term; we recommend investors to consider subscribing to the issue with a long-term perspective.