Sai Silks — Q3 FY25 earnings call

Call held 29 Jan 2025

Management summary

Sai Silks delivered a strong Q3 FY25 performance, with revenue growing 17.5% YoY to ₹448.6 crores and PAT increasing by 43%, primarily fueled by festive and wedding demand. Margin expansion was notable, driven by premiumization from Varamahalakshmi stores and procurement efficiencies. While 9-month SSSG remained negative, management anticipates a neutral SSSG by year-end, supported by strategic store expansions and digital marketing efforts.

Highlights

  • Q3 FY25 Revenue grew 17.5% YoY to ₹448.6 crores, driven by strong festive and wedding season demand.

  • Q3 FY25 Gross Margin expanded 190 bps to 41.8%, and EBITDA Margin expanded 235 bps to 17.59%.

  • Q3 FY25 PAT grew by a robust 43% YoY, indicating strong profitability.

  • Working capital borrowings significantly reduced from ₹230 crores last year to ₹125 crores as of December 31, 2024.

  • The higher-margin Varamahalakshmi format's revenue contribution increased to 50% of total revenue, up from 40% pre-IPO.

Concerns

  • 9-month SSSG was lagging at -6%, though expected to turn neutral by year-end.

  • KLM format experienced degrowth in menswear and kidswear categories due to competition.

  • Statutory MSME payment rules reduced the benefit from early payment discounts, impacting procurement efficiencies slightly.

Key financials

3 periods

Headline

  • Revenue
    ₹448.6 Cr
    YoY +17.5%
  • Gross Margin
    41.8%
  • EBITDA Margin
    17.6%
  • PAT Growth
    43%

Q3

  • SSSG
    6.8%
  • Operating Cash Flow
    ₹45 Cr

9M

  • Revenue
    ₹1,063 Cr
    YoY +5%
  • SSSG
    -6%

What they filed

Q1 FY27: revenue down 1.1%, net profit down 13.3% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue347 449 399 379 444 +28%411 −8%419 +5%375 −1%
EBITDA55 79 58 57 72 +31%70 −11%61 +5%52 −9%
Net profit24 46 14 30 40 +67%38 −17%33 +136%26 −13%
How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

Segment breakdown

  • Varamahalakshmi Format
    50% Revenue Contribution (9M)4% EBITDA Margin (Store Level)
  • KLM Format
    -1% SSSG (Q3)

Capital allocation

high confidence
  • Capex 70,000 square feet
    • New Varamahalakshmi stores in Q4 FY25 18,000 square feet
    • Total new store additions from Q4 FY25 onwards 70,000 square feet
    in fourth quarter to open an addition of about 18,000 to 20,000 square feet. And probably the remaining expansion will spill over to quarter 1. As I rightly said, all these stores are Coco stores... from this point, from Q4 onwards, if you take, we should be able to add addition of about 70,000 to 80,000 square feet.
  • Debt Debt disclosed
    • Repayment Debt reduction this quarter ₹98 Cr
    • Repayment Reduction in working capital borrowings from INR230 crores to INR125 crores as of 31st December. ₹105 Cr
    our debt has come down by approximately INR98 crores. And of course, among the working capital cycle, the payable days are also decreasing because one is by way of our own strategy of making earlier payments a for-cash discounts and the other on optimizing stock levels. ... we have brought down the working capital borrowings from INR230 crores last year to INR125 crores as of 31st December. So company is moving towards a debt-free status at this point of time.

Guidance & targets

Revenue

  • SSSG (Overall) Revenue · FY25 year-end · High confidence Neutral
    by the year-end, we are expecting that we would close at a neutral level on SSSG

    — KVLN Sarma

  • SSSG (KLM) Revenue · FY25 year-end · High confidence Neutral or slightly lesser (-2% to -3%)
    the KLM should be neutral or slightly lesser, say, 2% to 3% minus on SSSG by the year-end.

    — KVLN Sarma

  • SSSG (Long-term average) Revenue · Annual average · High confidence 4-5%
    our SSG's growth were in around 4% to 5% only, average SSG growth on a year basis. I'm just talking about the full year is the kind of number that we actually end up targeting.

    — Bharadwaj

Profitability

  • Gross Margin Profitability · FY26 · High confidence 43-44%
    we should be able to achieve by the year FY '26.

    — KVLN Sarma

Capex

  • Store Expansion (Q4 FY25) Capex · Q4 FY25 · High confidence 18,000-20,000 square feet
    in fourth quarter to open an addition of about 18,000 to 20,000 square feet.

    — Bharadwaj

  • Store Expansion (Total from Q4 FY25 onwards) Capex · FY26 · High confidence 70,000-80,000 square feet
    from this point, from Q4 onwards, if you take, we should be able to add addition of about 70,000 to 80,000 square feet.

    — B. Rachamadugu

Other

  • New State Entry Other · Within next 1 year · High confidence Entry into new states (Maharashtra, Odisha)
    plan is definitely in the next 1 year, you should be able to see us entering into these newer state markets as well.

    — B. Rachamadugu

Working Capital

  • Inventory Days Working Capital · FY25 year-end · High confidence ~160 days
    by the year-end, we are hoping that we would reduce it to approximately this time by around 160 days or so.

    — KVLN Sarma

What to watch in Q4 FY25

Overall SSSG

By year-end FY25
Current -6% (9M FY25)
Target Neutral

Why it matters

Key indicator of organic growth and recovery from a weak H1, crucial for overall business health.

by the year-end, we are expecting that we would close at a neutral level on SSSG

Risks & concerns

  • Consumer Slowdown

    medium

    Management acknowledged general consumer slowdown but stated its impact is less on the ethnic and wedding wear market due to the nature of purchases.

    Both downplayed

  • Competition in specific categories (KLM)

    low

    Menswear and kidswear categories in KLM experienced degrowth due to competition, prompting strategic adjustments in procurement and merchandising.

    Management acknowledged

  • Impact of MSME payment regulations

    low

    Statutory compulsion to pay MSMEs within 45 days reduced the advantage from improving payable days for cash discounts, impacting procurement efficiencies slightly.

    Management acknowledged

Q&A highlights

8 direct
Same-store sales growth (SSSG) and strategy for men/kids wear Direct
in terms of SSGs, I think we have seen an SSG growth of about 6.8%. ... our SSG's growth were in around 4% to 5% only, average SSG growth on a year basis.

Clarifies Q3 SSSG and long-term targets, and management's rationale for focusing on women's wear, indicating no immediate plans for men/kids wear in non-KLM formats.

Asked by Rishabh Gang

Online revenue contribution and digital marketing strategy Direct
entire online contribution is not going to be more than 1.5 to 1.7 percentage. ... 90% of our revenue is coming from social media where we use live commerce, using our Facebook, YouTube and Instagram.

Provides clarity on the small but growing online presence and the company's digital marketing focus, emphasizing live commerce and content creation over pure e-commerce.

Asked by Rishabh Gang

Gross margin improvement drivers Direct
we started actively working in terms of efficiencies in terms of the procurement. So good thing is our payable cycle to our vendors has decreased... Varamahalakshmi Silks as a format has a higher gross margin compared to KLM's format.

Explains the two primary reasons for the significant gross margin expansion: procurement efficiencies and the increasing contribution of higher-margin Varamahalakshmi stores.

Asked by Aradhana Jain

Working capital management and debt reduction Direct
we have brought down the working capital borrowings from INR230 crores last year to INR125 crores as of 31st December. So company is moving towards a debt-free status at this point of time.

Highlights significant improvement in working capital and debt, indicating enhanced financial health and efficient use of IPO proceeds.

Asked by Aradhana Jain

KLM store performance and categories experiencing degrowth Direct
Q3, KLM on SSSGs have come close to neutrality. If I have to give a specific figure, the SSG was minus 1%. ... menswear and kids wear is one or two such categories that had of a degrowth, particularly per se.

Identifies specific challenges within the KLM format and management's plan to address them through procurement, merchandising, and advertising adjustments.

Asked by Aradhana Jain

New state expansion plans and timeline Direct
plan is definitely in the next 1 year, you should be able to see us entering into these newer state markets as well.

Provides a clear timeline and target states (Maharashtra, Odisha) for geographical expansion beyond current core markets, indicating future growth avenues.

Asked by Aniket Nikumb

Inventory days reduction strategy Direct
by the year-end, we are hoping that we would reduce it to approximately this time by around 160 days or so. ... in Tamil Nadu, since we are expanding in a cluster format now... movement of goods between the stores would be easier.

Details the company's efforts to optimize inventory levels and improve efficiency through cluster format expansion and just-in-time procurement.

Asked by Resha Mehta

Historical and current Varamahalakshmi revenue contribution Direct
Varamahalakshmi as a format for 9 months would be contributing to 50% of revenues. Yes, correct. ... Back then it was 40%. Now it became 50%.

Shows the increasing importance and success of the higher-margin Varamahalakshmi format in the overall revenue mix, highlighting its strategic role.

Asked by Resha Mehta

2 min read 6 chapters

Detailed narrative

Strong Q3 Performance and Recovery

Sai Silks reported robust Q3 FY25 results, with revenue growing 17.5% YoY to ₹448.6 crores, and PAT increasing by 43%. This strong performance marks a significant recovery from a weak first half, driven by auspicious wedding dates and festive seasons like Dussehra, Diwali, Christmas, and Pongal. The company also noted good traction from Tier 2 cities, contributing to the overall positive sentiment.

Margin Expansion Driven by Premiumization and Efficiency

Gross margins expanded by 190 basis points to 41.8%, and EBITDA margins improved by 235 basis points to 17.59% in Q3 FY25. This was primarily attributed to increased procurement efficiencies, including better discounting from vendors due to reduced payable cycles, and the growing contribution of the higher-margin Varamahalakshmi format, which now accounts for 50% of total revenue, up from 40% pre-IPO.

Strategic Store Expansion and Geographical Focus

The company added 3 Varamahalakshmi stores, totaling 15,700 square feet, bringing the total retail square footage to 686,000 across 67 outlets. Management plans to add 18,000-20,000 square feet in Q4 FY25, with a total of 70,000-80,000 square feet from Q4 onwards. While current focus is on Tamil Nadu, Karnataka, AP, and Telangana, Sai Silks intends to enter new states like Maharashtra and Odisha within the next year, carefully assessing demand.

Working Capital Optimization and Debt Reduction

Sai Silks demonstrated strong working capital management, reducing borrowings from ₹230 crores last year to ₹125 crores as of December 31, 2024, and generating ₹45 crores in operating cash flow for the quarter. This reduction was achieved through better turn hours, premium format generations, and optimizing stock levels. However, statutory requirements for MSME payments slightly impacted the benefit from early payment discounts.

Digital Marketing and E-commerce Strategy

The company is actively pursuing digital marketing and influencer campaigns, shifting focus from traditional print and radio advertisements. While online contribution remains small at 1.5-1.7% of total revenue, 90% of this is driven by live commerce on social media platforms like Facebook, YouTube, and Instagram. Sai Silks leverages software for saree draping on its website and focuses on creating content to showcase its wide variety of products, especially premium brands with an average selling price of ₹10,000.

KLM Format Performance and Improvement Initiatives

The Kalamandir (KLM) format's SSSG was -1% in Q3 FY25, with menswear and kidswear categories experiencing degrowth due to competition. Management is implementing initiatives to improve KLM's performance, including adjusting procurement strategy, bringing in new talent for merchandising, focusing on product-specific advertisements, and ensuring employee training. The company also discontinued promotional vouchers to maintain long-term brand value.

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