Saraswati Saree Depot IPO Review 2024: GMP, Subscription Status, Risks & Investment Analysis

Saraswati Saree Depot Ltd (SSDL), a dominant wholesaler in the saree market, is set to conclude its Initial Public Offering (IPO) today, August 14, 2024. The IPO, carrying a Grey Market Premium (GMP) of 50% and showing a positive subscription response, seems promising. However, investors need a clear understanding of both potential rewards and risks before subscribing. This IPO analysis provides a comprehensive review to help make an informed decision.

Saraswati Saree Depot IPO Details

• Issue Size: 160.01 crore
• Fresh Issue: 104 crore
• OFS: 56.02 crore
• Price Band: Rs 152 – Rs 160
• Market Lot: 90 shares
• Minimum Investment Value: Rs 14,400
• Listing Date: August 20, 2024

Use of Proceeds

SSDL plans to utilise the net proceeds from the fresh issue for the following purposes:

• Funding its working capital requirements; and
• General corporate purposes.

Saraswati Saree Depot IPO Subscription Status

The IPO of Saraswati Saree Depot Ltd continued to draw significant interest from investors on its second day of bidding, August 13. The offering has been oversubscribed by 16 times, with 16.34 crore equity shares subscribed against the IPO size of 1 crore shares.

Leading the subscription surge are the non-institutional investors, who have subscribed 57.18 times their designated portion. Retail investors have also shown strong interest, subscribing 20.3 times their reserved portion, while qualified institutional buyers have subscribed 1.32 times their allotted quota.

Overview of Saraswati Saree Depot Ltd

SSDL operates as a B2B wholesaler specializing in sarees and a diverse range of women's apparel including kurtis, dress materials, blouse pieces, lehengas, and bottoms. It procures its products from over 900 weavers and suppliers across various states in India. With a product catalogue featuring over 300,000 SKUs, the firm served more than 13,000 unique customers in FY24. 

Saraswati Saree Depot Ltd Key Strengths

• Steady Growth: SSDL has maintained a consistent growth pattern, with a compound annual growth rate of 5% in total income from FY22 to FY24. EBITDA and net profit have increased significantly, with CAGRs of 40% and 55% respectively.
• Strong Return Metrics: SSDL exhibits solid return ratios, featuring a Return on Equity of 58.88% and a Return on Capital Employed of 64.46% as of FY24.
• Diversified Base: SSDL maintains a well-distributed customer and supplier base, with top 10 customers making up 7.85% of total revenue and top 10 suppliers accounting for 25.68% of total purchases in FY24. 

Saraswati Saree Depot Ltd Risk Factors

• Product Concentration Risk: SSDL heavily relies on women's sarees for 90% of its revenue, making it vulnerable to market demand shifts and changing consumer preferences.
• Cash Flow Concerns: SSDL has faced negative cash flows in operating, investing, and financing activities over the last three financial years. Continued negative cash flows could harm the firm’s financial stability.
• High-Volume, Low-Margin Operations: SSDL operates on a high-volume, low-margin basis, leading to relatively low operating and net margins. 
• Competitive and Fragmented Market: The industry is highly competitive and fragmented, with numerous small, unorganized players in various markets. SSDL’s inability to effectively compete with these entities could negatively impact its business.

Saraswati Saree Depot Ltd Valuation & Investment Recommendation

Although SSDL has shown an increase in profits and margins recently, its long-term stability may be hampered by risks such as a high dependency on saree sales for revenue, persistent cash flow issues, and operating in a fiercely competitive market with low margins.

However, in terms of valuations, the IPO seems reasonably priced with a P/E ratio of 18x based on FY24 earnings. Additionally, the grey market premium (GMP) for the issue, indicates a solid listing on the bourses. Given these aspects, investors may consider subscribing to the IPO for potential listing gains.

For a deeper dive into this IPO, explore: IPO Corner on Liquide

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