SmallCap Spotlight catches up with Bharadwaj Rachamadugu, Senior Vice President at Sai Silks (Kalamandir) Ltd. on the company’s journey so far – from having a single outlet in 2005 to becoming one of the largest women’s ethnic wear brands in India! Tune in to the conversation to know more about the company’s evolution.
Rumela Banerjee: Hi, this is Rumela Banerjee and joining me today is Bharadwaj Balaji Rachamadugu, Senior Vice President at Sai Silks. Many thanks for joining us. Let’s start by talking about, you know, Sai Silks’ journey so far, from being a single outlet in 2005 to becoming one of the largest women’s ethnic wear brands in India. What was the vision when the promoters decided to start a retail business?
Bharadwaj Balaji Rachamadugu: Okay, so the story basically dates back into 2002-2003. The idea was, it was all Mr. Prasad Chalavadi’s brainchild. So he was working in America with SAP and he was a software engineer doing good for himself, but his parents and his background has always been business and they used to come from Vijayawada.
So that’s where they’re actually from. Though he had high aspirations to do something big in life in America, at the base of it, he was always wanted to come back to India and start a business chain of his own. So he understood how these markets have been happening and during that time what happened was India was in that retail boom.
So when we had to work on which vertical of retail you want to bet on, he understood that especially in the South Indian ecosystem, in the South Indian diaspora, people spend a lot of money in terms of weddings, occasions. So the top category for wedding, when it comes to wedding and occasions, is jewellery and the second biggest category is sarees, predominantly women’s, ladies apparel. So jewellery being an asset-light model was something of a pass for him, but on the other side, apparel is something that really inspired him because SAP gave him a good amount of insight on the ERPs and how it can transform these businesses and specifically in South India, in India actually, a lot of these people are very very unorganized.
So that was the eureka moment for him or maybe he felt like that is a direction that he wanted to walk with. So he left America, he came back to India, he did his research by then and he opened his first outlet, Kalamandir, which is entirely revolving around women’s wear. Sarees is the core product profile that we had offered in Kalamandir and needless to say, this was in 2005 and we’ve got a great reception from the customers in Hyderabad.
Back then it was AP and Telengana was together, so it was in Hyderabad, our first store and we’ve got amazing reception from all of our customers and that has inspired us to grow from one store. I think we started a store size of about 3,400 square feet, it was our first store. We quickly expanded to the second, third and fourth and we’ve also expanded from AP Telangana, I mean Telangana store back then to also Karnataka and slowly started expanding furthermore.
So during our expansion process, if you have to go a little bit faster in timeline, in 2011, we also understood that there was a gap in the market, which is preferably, I mean, which is particularly in the ultra premium designer wear plus a typical traditional wedding kind of outlook. So in the ultra premium designer segment, we’ve launched a brand called Brand Mandir. This is exactly who it’s focused to, the high net worth individuals, customizations, one-of-a-kind, hand-picked, curated collection.
This is the kind of product profile that you have in a Brand Mandir and the second brand we also incorporated was Kancheepuram Varamahalakshmi. So the interesting part in the South Indian ecosystem, not just in South India, pretty much in the entire country, is people have a habit of traveling all the way to Kanchipuram to make their wedding purchase because it’s supposed to be auspicious and they feel like going into a weaver city, having that differentiated experience is what they actually chose. So we have understood that this is a very big market, especially because as I did tell you, weddings are one of the biggest expenditures when it comes to any typical household.
Most of the families go out with the saying of beg, borrow or steal to get your daughter or a son married in as flamboyant a way as possible. So what inspired us was people traveling all the way there to buy the product. So we’ve understood that the sentiment of wedding purchases is high.
So we’ve incorporated a brand called Kancheepuram Varamahalakshmi Silks, which revolves around wedding purchases. So what we’ve done is we’ve done things differently, like we’ve bought in the traditional ways of selling to metropolitan cities and replicated that experience to give a wholesome experience for the customers. So that was the birth of a third brand called Kancheepuram Varamahalakshmi.
And in this particular format, you’ll see that people generally, the customers generally don’t come and sit in high chairs and tables and shop. They come, they sit down on the floor and we have salesmen sitting on the floor, they open the sarees, they explain in a very, very traditional manner. And, what we also do is we have a goddess in the center of our store.
There is a priest who comes in during the store opening time, stays all the way till store closing time. And he blesses the customer, the bride, the groom or whoever it is who comes to purchase, do a quick puja and he gives a saree in their hands. So these are something very different what we thought of and we were successfully able to implement it.
And needless to say, we have got a great reception, a customer recall value and not just that one store. And that same we have replicated in all of our Kancheepuram Varamahalakshmi Silk stores. So that was the idea behind creating a unique experiential store that we have created with Varamahalakshmi Silks.
The whole idea behind Varamahalakshmi Silks is not to sell the product but to actually sell a wonderful experience. And if you happen to walk into our stores, I’d be more than happy to take you around that it is truly differentiated like what you can actually find in a mall or any other standalone stores is what you get it from here.
So we are, we are, we are, we have created that wonderful experience. And today we have seen a lot of people come back to us for their daughter’s wedding, and come back to us for their baby shower functions. So we have created an emotional connection with them so that whenever they think about a saree, it’s always going to be Varamahalakshmi Silks for us.
So that’s something different that we work with. Again, going back into the timeline, this was in 2011. In 2011, post launch of Varamahalakshmi Silks, we started actively walking towards expansion.
And in this expansion method, we’ve understood that the only gap in the entire spectrum was the ethnic value fashion. So that we have addressed using our fourth brand, which is KLM Fashion Mall. The KLM Fashion Mall is a concept derived from ethnic value fashion.
So when I say ethnic value fashion, again, the majority of the fashion that we offer in this particular space is again ethnic and dominated by women. So an interesting proposition of how we went about KLM is, in a typical middle class or the aspiring class of the society, majority of the purchase decisions are driven by women. So women are the people who buy for themselves.
Women buy for their kids, women mostly buy for their husbands as well. So we’ve created a different model which, which is supported a lot by ethnic wear, sarees again dominates the KLM offering. And also even in menswear, kidswear is dominated with the ethnic side of the offering.
So with that, we’ve created a one-stop-shop for the aspiring class, the middle class customers to come to us and shop for whatever they want. It’s a complete family destination that we have created. So with these four formats, we are able to cater to the entire spectrum of menswear, kidswear, and at the core, we do not want to deviate from the ethnic womenswear segment. And we stuck to that our core is still in the playing in the womenswear. But the whole aspect towards this is wedding and occasion which is the core of what the SSK’s offering was.
So with these four formats, today we are able to, we’ve now expanded from one store, we’ve expanded to about 60 stores. This is as of March 31st, 2024. And we have expanded from one state operation to four states, one city to 16 cities, a small employee count of 50 people. Today we stand an employee count of more than 5000 people. We have a customer base of 65 lakh customers. And we are only growing strong as time comes in.
And we have had an amazing journey in this span of just 19 years, we are able to compete with the industry giants who have experience or heritage of about 70-100 years. We are going strong and the Indian ecosystem or the Indian market today has changed and people in the younger generations preferring sarees call it the Modi effect, call it Indians today being very proud in the global ecosystem. We’re very happy that this is one segment that generally doesn’t get affected by external factors.
Because when it comes to weddings, it’s all about emotional and ethnic culture that we all fit in. And SSK at the core, since we offer this culture, the tradition, the ethnic component of it, our growth story is very, very strong. Today, our presence is just in these four states and we’re able to do a turnover of about 1373 crores almost.
And we are hardly present in 16 cities. So it kind of gives you a sense of how big the market is, and how we’re doing such a huge number in terms of the revenue. We still have a lot of growth, a lot of expansion down south, deep into Tamil Nadu, Kerala, Andhra, Telangana, Maharashtra, and needless to say, the West, North and East.
These are all such huge markets that we have still not even tapped into. And the growth potential for us is enormous in this space.
Rumela Banerjee: Are all of the family members still involved in the business, like full time?
Bharadwaj Balaji Rachamadugu: Yeah, so it started, the idea got started with one and Mr. Prasad and his wife, were the people who started this.
As we grew, we had all the family members, because he has two brothers and three brother-in-laws. So today it’s a group of six families, men, women, everybody has a role to play. They actually handled different parts of the business.
Again, we’ve grown one step at a time, we do not have any private equity, external funding that we have taken during the course. So whatever we have achieved, it was a slow growth, calculated growth. And during these times, we had all of the family members trying to help us handle different segments, different sections, different zones, different verticals of the business.
And, along with the family members, I must be happy to say that we have been able to get the best of the country’s talent to help us expand our network of stores domestically in the same state and the other states as well. So to your question, yes, it’s a family of about six families, and husbands and wives actually have an important role to play. And myself again, I’m the second generation person in the family, the only second generation who’s now lined up in the business core verticals as we speak.
Rumela Banerjee: So your first store Kalamandir in Hyderabad was targeted at the middle class income segment. How did the management decide to venture into the premium or even fast fashion value segment? If you could take us through the story behind that.
Bharadwaj Balaji Rachamadugu: So, typically what happens in a Kalamandir store is Kalamandir when we initially launched, we had all kinds of customers coming into our Kalamandir store.
So a customer who has a budget of about 1000 rupees versus a budget of about 1 lakh rupees, more or less everybody used to come into this one store. And as a company, you have to have a differentiated experience and customer service on how you treat this versus that. And that’s something we’ve understood.
And we’ve understood that it has to be a very, very differentiated experience, the entire product range is different. So we were not able to offer everything under the Kalamandir brand. And that was the reason why we had to split that Kalamandir format to bring it into the middle class segment.
And then we went with the high network, which is a Brand Mandir, which is curated customer sarees, like one-of-a-kind designer saris. So today, if you see a designer label, and a value fashion label has to be treated very, very differently, the moment you put everything together, it doesn’t actually gel. So the same thing is what we’ve also adapted to.
So now we have split that thought process from the customer, and we have created a wonderful experience. And, if you walk into one of our stores, you’d be able to see the difference day and night, what you can expect out of this value fashion mall store versus what you expect out of a Varamahalaxmi store is very differentiated. So the concept of having a goddess in the center of a store is very, very new, right? So that is what we’ve aced.
And what you get in a value fashion mall is typically glitzy, glamorous, with a lot of LEDs, and very, very pop colors, what you can get versus the other store, which is very traditional, you have hand painted artwork over the walls, you have even even if you walk into one of our stores, you’ll see the smell that you get in a store is like burnt camphor, like what you can get in a typical temple, or the kind of things that we do in a temple is like, you know, the kind of audio that you get in a store is like, you know, slow divine music, versus a KLM, all pop music, trendy, youth oriented music. So it’s a very, very differentiated experience. And that’s what we’ve actually done.
Each and every brand has very unique experiences, and very different product offerings, catering to different target groups. And that was why we had to split that one Kalamandir to two other formats or three other formats.
Rumela Banerjee: So what’s next for the company? Which segments or markets do you plan to expand into in the next phase of growth?
Bharadwaj Balaji Rachamadugu: So as I did tell you, our 60 stores today only come from 16 cities.
If you take Hyderabad alone, I think we have about 23 stores. If you take Karnataka, just in Bangalore, we have about 11 stores. Andhra has a distributed network.
And now we are expanding deep into Tamil Nadu. Tamil Nadu as a market is very huge. So that one state stands at the top of the entire country’s chart in terms of the consumption of saris.
So this report, we have got this report done by Technopak during our IPO. And we understood that Tamil Nadu has a huge potential, not just through the report. We also had two store presence.
So when we went back in 2011, our first store was in Bangalore. We opened one other store in Kanchipuram. So we’ve been collecting a lot of data points in our Mylapore store and in our Kanchipuram store to understand the trends about how this typical Tamil Nadu customer works.
So today, though we understand that this is a huge market, we always expanded with our cluster-based expansion approach. Because in a cluster, what happens is like the economies of administration kicks in, the economies of management, and the costs of advertisement splits. There are a lot of advantages when you go in a cluster mode.
And, we have expanded in a cluster-based expansion approach only. And today, I think, for the last two years onwards, we have put our entire focus and energies in expanding deep into Tamil Nadu. And we started that journey.
We currently have about nine stores in Tamil Nadu. And our goal is to expand about 15 to 18 more stores in Tamil Nadu, and slowly expand more into Kerala, Karnataka, and other parts of India and Telangana as well. So once this territory is something we have got a decent exposure, then we’ll start moving towards the other regions such as Maharashtra, Kolkata, Delhi, Mumbai, and things like that.
At this point of time, in the near future, for the next one and a half to two years, our focus is to go deep into Tamil Nadu and South India.
Rumela Banerjee: But don’t you think Tamil Nadu is a tough market? There are legacy players like Nalli and Pothys. How do you plan to penetrate that further?
Bharadwaj Balaji Rachamadugu: See, so to your question, we’re already there. So our history in Tamil Nadu has been 10 years. I mean, sorry. I think it’s 11 years now. Yeah, I’m sorry. 13 years now. Apologies. So in these 13 years, I think we are competing with all these names, all kinds of competition that you have actually named. Not just them, we have got unorganized, organized.
Now the new age competition is in the likes of Taneira, Avantra. All kinds of competition is what we have seen in our 13 years of experience in Tamil Nadu. Today, we are only strengthening our presence of what we had.
And, in this, one of the key things that we have been able to achieve is the brand loyalty, the brand value, the customer recall value, what a typical customer would want is what we are able to replicate. So if you see our brand, it’s called Kancheepuram Varamahalakshmi Sarees. It’s not just Varamahalakshm, it’s called Kancheepuram Varamahalakshmi.
So we are treated as a Kanchipuram brand, expanding deep into South India, not a Karnataka, not an AP or not a Telangana based brand. So we are trying to be local, irrespective of the fact that we are expanding beyond our core market of AP and Telangana. So that the entire marketing activity revolves around that, the kind of experience, Tamil speaking staff, everything is curated based on the customer preferences, not just the marketing activity, even the product profile as well.
So today, Sai Silks’ strongest USP is our data and our backend systems that we have been able to develop over the course of time. From 2011 onwards, we have taken a considerable effort in building our own systems, tools and technologies in place and today we are able to have the entire backend, call it ERP, point of sale, a layer of data intelligence, artificial intelligence, machine learning, all of these things are completely homegrown and we have customized this to the needs and the likes of our business and that is what is helping us take accurate decisions in any area we expand on, especially in Tamil Nadu. So we know what those customers’ tastes and preferential analysis we do in a very meticulous manner.
The moment when a store opens, all the way till the store matures, we carefully assess each and every store in terms of the sell throughs, what kind of product, what kind of colors are actually fast moving and therefore curate the entire collection around that particular store. So all of this is actually done in a very meticulous manner. Every single thing that we do with the company is backed by data and that’s something I’m actually proud of because we are not dependent on a group of 10 to 20 individuals.
This is pretty much the model that the other unorganized or other players actually go by. They have a concentrated team of people who’s responsible for sourcing. For us, it’s a team of about 150 people backed and supported by a very very strong backbone of technology, supported by artificial intelligence and machine learning to a great extent.
So I think I would, I can rather say I’m one of the first companies at the pan-India level who’s using technology to this extent in a very very unorganized or in a very, in an industry which is dominated by the organized, I mean unorganized players. I’m able to do this and that’s the recipe for us to rapidly expand this quickly and that’s what we are able to do in Tamil Nadu as well and that’s what we’ve been able to do in any area that we locate and any area we go to. This has been one of our strongest pillars of growth.
Rumela Banerjee: Will Varamahalakshmi continue to drive the margins performance given that it’s your premium offering?
Bharadwaj Balaji Rachamadugu: See, absolutely. So the overall four formats, Varamahalakshmi stands at the top of the chart and the moment we expand more Varamahalakshmi Silks stores, obviously the margin profile, the company level will actually rise and we also have like two, three other mechanisms internally to improvise our gross margins.
We are working consistently on our products, profiling them actively to make sure high yielding margins and high yielding products are actually sold. We are leveraging our technology and data layers to make sure our stock and inventory levels are optimally managed so that our margins and our turnarounds become better. So as we develop and as we expand more into Varamahalakshmi stores, definitely you should be able to see a margin improvement along the course.
Rumela Banerjee: So it took the company almost 10 years to cross its first 500 crore turnover milestone which was in 2016. Then another three years to hit the 1000 crore mark and now you are guiding for 22 to 25 percent revenue expansion this fiscal. What what do you think will drive this growth?
Bharadwaj Balaji Rachamadugu: See, there are two things. So if you see our growth from 2005 to 2016, it was as I did tell you, it was slow growth. We’ve grown one store at a time, carefully calculative growth. What we’ve understood is by 2019, we have seen all cycles, right? We have seen highs and lows that any business could see.
We have seen the worst of the worst such as COVID where we had to close down all the doors and we had to expect the business could open today, tomorrow, maybe in a month, maybe in six months time. And even in those years when we quickly opened our stores in a phase-wise manner based on the COVID rules, we’ve understood that in this particular industry, the demand is always there. And with that model, we started rapidly expanding into, I mean with that our model we believe is completely a tight model and our business model is rock solid and that’s the reason why we are expanding deep into the south.
So one of our largest drivers for our growth from 2016 to 2020 has been the launch of our KLM fashion mall stores. Between the periods of 2017 to 2019, we’ve opened close to about 3 lakh square feet of retail area of KLM fashion mall which is our ethnic value fashion mall format. And now what we’ve understood is with this seeing all kinds of highs and lows that the business could ever go to, now we are even more confident that we are expanding our entire focus with our best format which is our Varamahalaxmi format which has the highest margins.
And, we are going down into a market which has the highest penetration power which is the Tamil Nadu market. With all of these things, the factors and our business model is mature, our data layer is very very strong. With all of these things, now we are expanding deep into south India and we have raised money from the public through our IPO funds.
And with these funds, the projection that we had to open this year was about close to 90,000 square feet of retail area is what we wanted to add this year. And we are actively working towards sticking to that and the plan of action is to make sure we open this additional square feet and that is basically the reason why we are able to expand from a figure of 1,373 to a growth of about 20% in the next two years. And not just that, new store addition is one avenue for our growth and we are also targeting SSG-based growth.
These two things put together with a better margin profile, I think we should be able to achieve that 20% growth.
Rumela Banerjee: Okay, if you could give us some color on the retail expansion plans too, which sub-brand segments will you be focusing on?
Bharadwaj Balaji Rachamadugu: See, as we speak, the focus is entirely with Varamahalakshmi Silks format and the geographical expansion will be majorly driven through Tamil Nadu expansion. Though we are anticipating that we might open a couple of stores in the other parts of Karnataka, the major focus will be in Tamil Nadu only and with our brand Varamahalakshmi Silks. Because if you see a typical the consumption pattern of Tamil Nadu market is majorly with silk and Varamahalakshmi Silks exactly offers that core product profile that what a typical consumer in that geographical region wants and it’s a perfect synchronization. As we know, we have already added like about five stores post last year and all of these stores we are able to get good reception from our customers, the customer recall value is good, the store experience and whatever the customers want we are able to give that and this is what we will be continuing for at least for the next two to three fiscal years.
Rumela Banerjee: Let’s talk about the working capital situation. You have been buying products directly from weavers without any funding assistance. Weavers manage their own working capital, so that would imply high interest costs for you, right? How is the company planning to address that? What is the impact seen on margins because of that?
Bharadwaj Balaji Rachamadugu: So, a quick insight is we work with more than 4,000-4,500 weavers in any given year and our products are sourced from more than 100 cities. See, in this business especially driven by sarees as you rightly pointed out, there are a large number of people who we have to source from and each and every product has to be sourced from that particular cluster, that particular origin itself.
There is no one centralized manufacturing setup that this industry dominates and this is the reason why with our data that we capture based on the historical sales, what we do is that we give this feedback to our weavers and vendors across the country and we get our products manufactured based on our needs. So, we have a good control over the entire supply chain to make sure the products that we source are based on what we need. And obviously, when you are trying to work with weavers and vendor level who are not economically advanced or progressive, we do not want to give any advances or any raw materials.
So, what we rather do is that we let the weavers themselves work on their own and come to us with a final product and we pay them. And to your point, yes, absolutely right. When you go ahead and not work and finance their working capital, obviously, that will have an impact on the overall ecosystem and that is the model that we work with because there is a chance that because these raw materials or these advances or these are as good as cash.
And, because you are working with such a high number of weavers and vendors, it becomes extremely risky from the company standpoint to manage these weavers at a large scale, especially when it comes to finances. So, to mitigate that we have done two things. One is we have brought in a concept of master weaver.
So, a master weaver is nothing but a weaver himself who has 10 to 15 weavers under him and he works with us directly to make sure our production cycle and the supply chain cycle is not interrupted. Second thing is our payment cycle is in a way where we also had to capture the finance costs that the weavers and vendors actually have. So, now what the idea that currently is going on is we wanted to improvise the purchases and the working capital cycle and give the credit, I mean, pay the weavers in advance and get the cash discounts in place.
So, that is also one of the factors why I mentioned that the margins will actually improve. So, whatever we try to do, we are trying to work with our weavers in a way where we pay them in advance, make sure that the interest costs are not being pushed on the product in itself. And therefore, what happens is that we get a direct benefit to the company in terms of improvising our gross margins.
So, that is a work in progress. We have already started working towards improvising our credit cycle with our weavers and vendors and our negotiations are already in place and we are able to get some sort of a cash discount and volume discounts to a great extent. And that will actually have a direct impact on our P&L and our value chains.
Rumela Banerjee: It is going to be a year since you got listed in September. How has it been for Sai Silk since the IPO? And what should investors expect in terms of performance, growth and management over the next few years? If you could take us through some big picture goals that have been laid out for the company.
Bharadwaj Balaji Rachamadugu: So, yeah, first of all, I think we have listed September 29th.
I think it has not been a full year yet. I think we are around 8 months across. So, we will be completing one year anniversary probably by the end of September.
So, that is in terms of timeline. But overall, what we have promised the team is, promised our investors is that we will be additionally expanding our retail footprint deep into Tamil Nadu. And as I did mention in my earlier points as well, Varamahalakshmi is going to be the brand that we are actually expanding deep into South.
And currently, we are about 6.5 lakh square feet across. The idea is that this year, we should be able to add another 90,000 and a year later another 50,000. The vision that we have is though we have a great potential in North, East and West, we want to complete our South India expansion and then move it to other geographies.
In terms of capabilities, I think with our 4 brands, we are able to provide the entire spectrum of offering. And the ethos behind SSK’s entire offering is to operate in the wedding and occasion in the women’s space especially. So, that stands strong.
And with certain factors of addition of new stores, our revenues are generally going to rise. We generally do not give out a forward looking number in terms of the revenue but a 90,000 square feet addition this year is what we can expect. And a year later, we should be able to add another 10% of a retail area expansion in the year later.
And, we have gross margins that we are planning to improvise as we add more Varamahalakshmi stores plus we are working with our viewers and vendors to work our efficiencies kick in. And we have great tools and technologies in place that can help us take to where we are versus where we want to be. The good part is the entire country today is moving towards going back into your roots.
Ethnic is something that people are now very, very proud of. And we Indians are very proud to be represented or to call ourselves Indians in a global picture. All these are a few tailwinds that this industry is always going to grow.
And as I did mention, being in this industry, which is dominated by an unorganized sector, the organized players’ importance becomes larger and larger. And Sai Silks has a very, very big role to play. And we are all geared up to make sure our presence is actually loud and clear to contribute to India’s trillion dollar economy, 5 trillion dollar economy and to be the third biggest economy.
I think we will play a big and most important role and a very responsible role to contribute our little part to the country.
Rumela banerjee: Okay, with that, we’ll end the discussion here. Many thanks for joining.