SD Retail coming with IPO to raise Rs 64.98 crore

SD Retail

• SD Retail is coming out with an initial public offering (IPO) of 49,60,000 equity shares in a price band Rs 124-131 per equity share.
• The issue will open on September 20, 2024 and will close on September 24, 2024.
• The shares will be listed on SME Platform of NSE.
• The face value of the share is Rs 10 and is priced 12.40 times of its face value on the lower side and 13.10 times on the higher side.
• Book running lead manager to the issue is Beeline Capital Advisors.
• Compliance Officer for the issue is Sakshi Singh Chauhan.

Profile of the company

SD Retail is in the business of designing, manufacturing, outsourcing, marketing, and retailing sleepwear under the brand name “SWEET DREAMS”. SWEET DREAMS is a sleepwear-focused company offering a wide portfolio of stylish and comfortable sleepwear for the entire family, celebrating the transition from work to home life and catering to every aspect of downtime. The combination of comfort, style, and functionality places SWEET DREAMS in a unique position within a habit-forming apparel category, where its clothes are worn daily by its customers in similar time-ranges. This brand is targeted primarily at the modern Indian woman’s sleepwear requirements since she is most engaged with this category across various retail channels. In addition, it also sells sleepwear for men and kids, whose casual clothes are predominantly purchased by the women in the house. The company offers one of the widest portfolios of sleepwear products among apparel retailers in India in terms of fabrics, colours, and styles. The company’ sleepwear products includes Pyjamas, Night Sets, Nighties, T-shirts, etc. It designs its products to cater to men and women across all age groups including kids (from age 2 Year to 16 Year) and fits that are suitable to various body types and physiques. In addition, it is in adjacent categories such as loungewear, workout wear, athleisure, and work leisure pants.

The company has constructed well-established infrastructural facility and manufacturing unit that is equipped with all the necessary machines and tools that are required for a modern manufacturing unit. Machinery that is equipped in its infrastructure is operated by its highly experienced team of professionals. Backed by sound manufacturing facility, it is capable of undertaking bulk requirements of its clients and deliver within stipulated time schedule. Also, majority of its manufacturing is outsourced to the Jobworkers (on contract manufacturing basis) who manufacture products as per the design and requirement of the company. The Contract manufacturing enable it to cater bulk orders and deliver the products to its customers on time. It achieves varied price points through its two product lines: Essentials and Fashion. Its Essentials product line is characterized by limited print or design, is relatively insulated from changes in fashion trends, lower ASPs, high repeat purchases and is sold throughout the year. Its Fashion product line on the other hand is characterized by seasonal designs, low repeat purchases, higher ASPs and is sold seasonally (Autumn/Winter and Summer seasons).

Proceed is being used for:

• Capital expenditure to be incurred by the company for setting up new exclusive brand outlets (EBOs)
• Funding working capital requirement 
• General corporate purpose

Industry Overview

The India sleepwear market is anticipated to reach market size of $1303.88 Million by 2029, with progressive CAGR of 15.12% by 2024-29. The sleepwear industry in India has witnessed significant growth over the past decade. Traditionally, sleepwear in India consisted of simple and utilitarian garments, but evolving fashion trends, increasing disposable income, and a growing awareness of comfort and lifestyle have transformed this sector into a dynamic and profitable market. India's sleepwear market is characterized by a diverse range of products catering to different demographics and preferences. From traditional nightgowns and kurtas to modern pajamas, loungewear, and night suits, the industry offers a variety of options for men, women, and children. The market is driven by both domestic brands and international players, with increasing online retailing playing a crucial role in expanding reach and accessibility.

The proliferation of online shopping platforms has significantly impacted the sleepwear industry. E commerce giants like Amazon, Flipkart, and Myntra, along with niche sleepwear brands, have made it convenient for consumers to explore and purchase a wide range of sleepwear products. The digital marketplace offers extensive choices, competitive pricing, and home delivery, contributing to the industry's growth. Several Indian brands have emerged as key players in the sleepwear segment. Brands like Clovia, Zivame, and Nykd by Nykaa have carved a niche for themselves by offering diverse and quality sleepwear collections. These brands focus on understanding the preferences of Indian consumers and delivering products that cater to local tastes and climatic conditions. With increasing awareness about environmental issues and sustainable fashion, there is a growing demand for eco-friendly sleepwear. Brands are now incorporating sustainable practices in their production processes, using organic fabrics, and promoting ethical labor practices. This trend is likely to gain momentum as consumers become more conscious of their purchasing choices. Some sleepwear brands in India, like Catnap Sleepwear, focus on sustainability by using eco-friendly materials and ensuring that their products do not end up in landfills.

The sleepwear set segment in India represents a dynamic and evolving market characterized by a wide range of options tailored to suit diverse consumer preferences and lifestyles. Traditional pajama sets, comprising of matching tops and bottoms typically made from breathable fabrics like cotton or linen, continue to be a popular choice among consumers seeking comfort and functionality. These sets are perfect for bedtime routines, providing a cozy and relaxed fit that promotes a restful night's sleep. On the other hand, there's a growing trend towards contemporary loungewear sets that blur the lines between sleepwear and casual wear. These sets often feature stylish designs, trendy silhouettes, and luxurious materials such as silk or modal, making them suitable for both nighttime relaxation and daytime activities. In addition to traditional and loungewear sets, themed sleepwear sets have also gained traction in the Indian market.

Pros and strengths

Multi-channel Pan-India distribution network and newfound focus on EBOs: As of March 31, 2024, the company has established Pan-India presence through various touchpoints, which include exclusive brand outlets (EBOs), large format stores (LFS), and multi-brand outlets (MBOs). Its reach spans from major metropolitan areas to Tier-3 cities. In addition to its physical locations, it has strengthened its presence online via its website, www.sweedreams.in, and various e-commerce marketplaces. Its EBOs are its experience centers. It has a team put in place for opening EBOs that spans from deal making and negotiating to furnishing and hiring sales staff. Further, the company is having 33 running EBO’s. In addition to its EBOs, it also has a strong presence through its MBOs and LFS across all geographical zones in India.

In-house expertise in designing and developing products: The company’s designs are known for being colorful, playful, and bold. It sets itself apart from other sleepwear brands by targeting shoppers looking for something more stylish. To achieve this, it has an in-house design team, including graphic designers and illustrators. This team allows it to create a wide variety of designs for different collections and channels each season. With exposure in both domestic and international markets, its designers understand global trends and design practices.

Scalable business model: The company’s business model is order driven, and comprises of optimum utilization of its designing, manufacturing, processing and marketing facilities, developing linkages with quality raw material suppliers and achieving consequent economies of scale. This business model has proved successful and scalable for it in the last few financial years after opening of EBO’s. It can scale upward as per the requirement generated by the company. The business scale generation is basically due to the potential development possibilities of new markets both international and domestic, by adopting aggressive marketing of the product, innovation in the product range and by maintaining the consistent quality of the product. 

Risks and concerns  

Major revenue comes from offline retail distribution channels: The majority of the company’s revenue is derived from offline retail distribution channel, MBOs and EBOs. It envisages that it may continue to remain reliant on offline retail distribution channels in the near future, especially if it fails to grow revenues from online sales channels. Its online presence is through its website, www.sweetdreams.in, and various e-commerce marketplaces. The company generates 62.24%, 72.80% and 72.60% of revenue from MBOs in FY24, FY23 and FY22 respectively. It generates 6.71%, 3.69% and 3.12% of revenue from EBOs in FY24, FY23 and FY22 respectively. If the company does not increase its revenues from online sales, it may not be able to compete with its competitors having a higher percentage of revenues from online sales channels. This may have an adverse impact on its future revenue from operations, profitability and business.

Sales relation to fashion are subject to seasonal variations: As a sleepwear retailer, the company does not see much of seasonal fluctuations as it deals in all day essential products. On the other hand, its fashion would have an increase in its business before Diwali and during end of season sales. It is therefore impacted by seasonal variations in sales volumes in its fashion category products, which may cause its revenues to vary between different quarters in a Fiscal. Its results of operations and cash flows across quarters in a Fiscal may not be comparable and any such comparisons may not be meaningful or may not be indicative of its annual financial results or its results in any future quarters or periods. As a result, it will be vulnerable to demand and pricing shifts and to suboptimal selection and timing of merchandise production. If sales do not meet expectations, too much inventory may lower planned margins. Its brand image may also suffer if customers believe it is no longer able to offer the latest fashion. The occurrence of these events could adversely affect its cash flows, financial condition and business operations.

Concentration of its Job worker in specific regions: The Concentration of its Job worker in state of Gujarat, Maharashtra and Punjab may possess risk such as relying heavily on job workers can lead to dependency issues, especially if these workers are concentrated in specific regions. Any disruption in these areas (such as strikes, regulatory changes, or natural disasters) can severely impact production schedules and supply chain continuity. In addition, dependency on specific regions increases vulnerability to logistical challenges. For instance, delays in transportation or availability of raw materials can escalate if the workforce in these states is affected and inefficiencies may arise from depending on job workers in specific regions. Transportation costs, wages, and other operational expenses can fluctuate based on regional factors such as demand for labor, local economic conditions, and regulatory changes. This can impact overall cost structures and operational efficiency. Concentrating job workers in specific regions may limit the company's strategic flexibility and agility.

Outlook

S D Retail designs, manufactures, outsources, markets, and retails sleepwear under the brand name SWEET DREAMS. The company designs its products for men, women, and kids aged 2-16, offering fits suitable for various body types. The company operates on an asset-light model. It covers all aspects of its sales operations without owning any of the properties where its stores are located. This asset-light model allows for scalability and facilitates the efficient opening of Exclusive Brand Outlets (EBOs). On the concern side, the majority of its revenue from operations was derived from offline retail distribution channels. If it fails to grow its revenues from online sales, it will continue to remain dependent on offline sales channels and any attendant risks. Moreover, the company’s sales relation to fashion are subject to seasonal variations that could result in fluctuations in its results of operations.

The company is coming out with a maiden IPO of 49,60,000 equity shares of Rs 10 each. The issue has been offered in a price band of Rs 124-131 per equity share. The aggregate size of the offer is around Rs 61.50 to Rs 64.98 crore based on lower and upper price band respectively. On performance front, revenue from operations had increased by 20.34% from Rs 13508.81 lakh in Fiscal 2023 to Rs 16255.89 lakh in Fiscal 2024 was due to increase in sales of products & Export Incentive during the year. Moreover, the company reported a net profit of Rs 759.76 lakh in Fiscal 2024 as compared to a net profit of Rs 430.17 lakh in Fiscal 2023. Meanwhile, the company’s diverse product portfolio, available in various price ranges, for different genders, age groups, styles, and colors, ensures that it is well-positioned to cater to the sleepwear needs of families from different economic backgrounds and segments. This enables it to address the growing demand in this sector as incomes rise. Additionally, the sleepwear category is still in its early stages, and the lack of organized players and limited competition positions it well to capitalize on the sector’s growth.