Watchlist #2- Suditi Industries
- 3 minutes ago
- 3 min read
With Watchlist we pen down our broader thoughts on an idea that looks interesting and is worth keeping in one’s watchlist. This week’s idea is Suditi Industries.Suditi Industries manufactures fabrics and readymade garments. The company also has a retail business wherein it has in-licensed multiple brands like Nush, IndianInk etc
Why Suditi looks interesting?
Major Retail Pivot with Gini & Jony
Fund Raise to Support the Pivot
Relative Comparison with Iris Clothing
Acquisition of Gini & Jony
In Nov’24, Suditi has acquired the well known kidswear brand Gini & Jony. Gini & Jony introduced in 1980 has been one of the oldest and well known kidswear brand in India.
This is an important pivot for the company because Suditi has been trying to pivot from B2B to a branded retail business for more than a decade now, but it never had a brand with strong enough brand pull.
Now with Gini & Jony it has the needed brand to be able to deliver a successful pivot on the retail side.
Fund Raise
To support this pivot, the company has recently raised ~Rs59 crores from a bunch of investors who have strong presence in consumer business.
The size of the fund raise itself is quite meaningful given the current market cap of the company at ~Rs300 crores.
Relative Comparison with Iris Clothing
Another good part here is that kidwear as a category is still fairly unorganized and offers relatively better margins than other apparel categories.
For comparison, Iris Clothing is another listed company within the same segment. The company retails products under the brand DOREME.
Due to its backward integrated nature of own manufacturing (which is what even Suditi has) IRIS generates strong operating margins of ~20%. And at a revenue base of ~Rs150 crores trades at a market cap of ~Rs700 crores.
Issues/Risks to Consider
Risk here is primarily around the fact that it is too early to figure out whether the company will be successful in scaling up the brand and that adds a lot of uncertainty.
But our experience in the markets with such kind of pivots is that market typically gives a certain market cap in such situations even on the initial stages of pivot and beyond that level it then looks at the execution.
So, the risk:reward and the strategy to bet on such pivots is different than established businesses; one has to underwrite a certain level of uncertainty to get in early and ride the upside.
In summary, Suditi is an interesting opportunity to keep track of in terms of how the execution plays out; we have a major pivot with Gini & Jony supported by a meaningful fund raise.
The company has stated in its FY25 Annual report that it expects its branded portfolio to reach ~Rs500 crore revenue base in next 5-6 years. Even if the company is able to reach half of it, the financial profile and market cap could be meaningful for the company.
That’s all for this one; we’ll be back with a new idea next week. Meanwhile readers can access some of our more detailed research and resources here;
Shared Research 🔗- https://www.surgecapital.in/sharedresearch
Knowledge Base 🔗- https://www.surgecapital.in/knowledge-base