Sai Silks (Kalamandir) Ltd

NSE:KALAMANDIR

Q2-2026 Earnings Call

[Operator]

Ladies and gentlemen, good day, and welcome to Sai Silks Kalamandir Limited Q2 FY 2025-'26 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded.

I now hand the conference over to Mr. Bharadwaj, Senior Vice President from Sai Silks Kalamandir Limited. Thank you, and over to you, sir.

[Rachamadugu Bharadwaj, executive]

Thank you. Good morning, everyone. On behalf of Sai Silks Kalamandir Limited, I welcome you all to our Q2 FY '25-'26 and half yearly FY '25-'26 Earnings Conference Call. I'm joined today by Mr. K.V.L.N. Sarm, our Chief Financial Officer.

To start off, I would like to give you an overview of the market. The ethnic retail market witnessed a healthy traction of strong wedding dates pipeline in Q2 FY '26. This particular quarter has benefited from occasion and festive demand, which has contributed to a stronger consumer demand, converting a stronger footfalls to our stores.

The consumer sentiment also remained upbeat with notable growth across these categories. Shoppers started making bulk purchases with gifting also becoming a major sales driver. There has been a rise in digital recovery, where consumers and customers [Technical Difficulty].

[Operator]

I'm sorry to interrupt you sir, but your line is -- your voice is breaking. So I'll reconnect you quickly [Technical Difficulty]. Ladies and gentlemen, thank you for your patience. We have the line from the management reconnected. Please go ahead, sir.

[Rachamadugu Bharadwaj, executive]

Thank you, Boomika. So I'll quickly start the opening remarks again. Apologies on that. So good morning, everyone. On behalf of SSKL, I welcome you all to Q2 FY '25-'26 and half yearly FY '25-'26 Earnings Conference Call. I'm joined today by Mr. K.V.L.N. Sarma, our Chief Financial Officer.

Let me start off by giving you an overview on the market. In this particular quarter, ethnic retail market witnessed healthy traction. The quarter benefited from a favorable wedding [ trends ] and the early onset of festivities, both of which contributed to a stronger consumer demand. Consumer sentiment also remained upbeat with notable growth coming across wedding wear and occasion wear categories, where SSKL operates the most.

Shoppers also started making bulk purchases with gifting becoming a major sales driver. In this particular quarter, we've also seen increased footfalls across all our stores and formats.

There has also been a rise in digital discovery, where consumers are increasingly starting their shopping journey online even if they make the final purchase in stores. Retailers are also doubling down on their unified online/offline presence.

With respect to SSKL's business update, over the last 2 years, we have added close to 1.5 lakh square feet of new retail space as part of our expansion strategy. These stores are currently at varying stages of maturity and steadily ramping up their performance quarter-on-quarter.

The wedding and festive collections especially witnessed strong traction across our 4 states of South Indian market and therefore, has given increased footfall, reflecting consistent consumer loyalty and sentiment and engagements.

We are also closely listening to our market trends and enhancing our digital presence across multiple social platforms to make our brand more accessible. These initiatives are enabling easier product discovery and fostering stronger and more meaningful engagement with our customers and to have a unified shopping experience of what they see on social media towards what they can actually find it in our stores.

During the first half of the year, we added approximately 33,000 square feet of retail space through 6 new store openings, and we have no store closures. We further strengthened our retail network by converting a few of our existing stores into our Valli format stores, bringing the total number of Valli format store count to 7 stores.

Valli format, as discussed, is designed to cater to the evolving consumer preferences, while staying true and core to our product offering, which is quality sarees at affordable prices. Today, our retail presence spans to 7.5 lakh square feet of retail area with 74 stores spread across 22 cities in 4 states, which reflects a strong and continued commitment to our regional growth and accessibility.

With respect to our Q2 financial performance, our revenue stood at INR 444 crores compared to INR 347 crores last year, a growth of about 28%. Our EBITDA stood at 16.21% compared to 15.95%, an increase of about 26 basis points compared to last year quarter 2. We achieved a PAT of INR 40 crores this quarter compared to INR 23.75 crores last year of Q2. The same-store sales growth also for this quarter stood at 17.5%.

For the half year FY '25-'26, our revenue stood at INR 823 crores compared to INR 614 crores last year, marking a growth of about 34%. EBITDA for H1 stood at 15.68% compared to 12%, a significant increase of about 368 basis points. Our PAT for H1 stood at INR 70 crores compared to INR 26 crores last year, marking a significant increase of about 430 basis points. Our SSG for the half year stood at [ 21.5% ].

Looking ahead, we remain very optimistic about the second half of the year, supported by the major festive season and the wedding calendar. Quarter 3 and quarter 4 traditionally has a healthy contribution, and we are well prepared with curated festive collections, localized marketing campaigns and inventory planning.

Our focus remains on sustainable growth, balancing expansion with profitability and deepening our engagement through product innovation and digital integration and spanning our presence one city at a time, one state at a time.

We are now happy to take your questions.

[Operator]

[Operator Instructions] The first question comes from the line of [ Nitin Jain from Fair Value Investment Advisors ].

[Unknown Analyst]

Congratulations on a very good quarter. I have a few questions, sir. So most of the stores that the company has added in the first half of this year are of Valli sales, which is a comparatively lower-margin format. So how do we see this impacting our margins going forward? And also, how do we plan to utilize the remaining IPO funds that we have? If you can answer it, I have a few more questions.

[Rachamadugu Bharadwaj, executive]

Sure. See, Valli Silks has a unique product positioning, unique brand positioning, I would say. This format is envisioned to the changing consumer preferences, which is a lot of our consumers are now finding easier accessible forms to shop, where the digital presence is very stronger. So Valli Silks has actually envisioned to have a digital-first shopping experience, where they're able to identify the products and see the products much before even they walk into our stores.

And we do have a Valli store back in 2022, '23. We had one such experimental store, which was actually mentioned in our DRHP as well. This store was in Rajahmundry . So we have been collecting the data from this particular format ever since and has been yielding a good consumer response.

So we are -- what we have done is like in quarter 1 last year, I think we have also made some commentary that we will be doubling down on our Valli Silks format. And this format, I think we have opened about like 4 stores this quarter, as you rightly said. And we also have converted 3 of our existing stores to Valli store format, taking the total store count to 7.

With our experience in this particular quarter with these 7 stores, we have been getting a very good traction with respect to the overall product positioning as well as the consumer acceptance as well. So I mean, these stores are relatively quicker to expand, which is like a small 3000 square feet, 3,500 square feet is the average square feet of Valli store. It's quicker to expand.

We are able to reduce our CapEx costs by about 20%, 25%. The inventory requirement is also a little bit leaner than the other formats. So this format has been customized and curated to see a rapid expansion growth.

Now while temporarily, this particular format commands a lesser margin, on a longer perspective, we should be able to bring the margins up. But at this point of time, we are very early in the market and the primary objective for us too is to get the brands penetrated deep into consumers.

So until that time happens, maybe a couple of quarters, we should be aware of a lower -- comparatively lower margin. But on a broader perspective, I think this format can command easy penetration to multiple markets and geographies. So -- so that's the overall plan for Valli right now.

[Konduri Venkata Lakshmi Sarma, executive]

And in addition to that, I wish to clarify, I'm Sarma here. I wish to clarify that the [ Varma Lakshmi] (sic) [ Vara Mahalakshmi] expansion has not been put on hold only during this festival season because this Valli format can be brought to operations within 20, 25 days, we are focused on it.

Already, there are about 2 Valli -- 2 [ Varma Lakshmi's ] (sic) [ Vara Mahalakshmi] are in capital work in progress and another 3 are there. In fact, against the 25 stores that we stated in DRHP for [ Varma Lakshmi ] (sic) [ Vara Mahalakshmi ] format, 19 are operational and 2 are on work in progress. And we are trying to complete the balance also.

Varma Lakshmi (sic) [ Vara Mahalakshmi ] from the IPO funds will be completed as per the schedule only. In fact in the RHP, we have also mentioned that we will put up another 5 Kalamandir stores, small format stores. Since Valli is on Kalamandir format only, only 5 stores are being funded from IPO funds. And any additional Valli format stores that we are bringing in, depending on the business requirement at this point of time will be through internal resources.

So we can say that beyond the 5, the Valli formats will be in addition to the expansion envisaged in our IPO objectives. I hope I am clear.

[Unknown Analyst]

Right. That's very helpful, sir. So -- and just a couple more questions. What are your thoughts on asset-light expansion? And by that, I mean, what are you thinking about franchising out stores? And my last question is on payables. If I compare them to the March ' 25 numbers, they have increased quite significantly. So if you could provide some color on this.

[Konduri Venkata Lakshmi Sarma, executive]

I will explain the payable part first. As you must have seen, because of the festival season, of course, any time even in earlier years also, September, we will be having a lot of stock because of festivals like Dasara, Diwali, and also the wedding season that would be coming in during that period.

It will be immediately after that Pitru Paksha during later part of September, August and the early part of September. So there will be huge purchases to meet these requirements of -- for both Dasara, Diwali and the marriage season. So September inventory vis-a-vis September purchases would always be high.

And since Diwali was also there, then the purchases have been made and the bills have not become due. So as on 30th September, we have purchased substantial quantities and the bills will be paid by the due dates.

So when we come back to the original -- by the annual closing, the creditors levels will substantially come down or suitably come down. And this is because at that one particular point of time, when there is huge purchases and there was no -- the bills were not due at this point of time, you are seeing a higher figure on that.

[Rachamadugu Bharadwaj, executive]

With respect to the asset-light expansion mode, I think if you're referring to Valli as a format, I think this format is relatively much newer. It's just like an infant stage. We are focused on at least like seeing a couple of quarters before we build an actual business model out of it. At this point of time, we are not looking at any franchisee-based expansion.

[Operator]

The next question comes from the line of Rahul Jain from Credence Wealth.

[Rahul Jain, analyst]

So first of all, sir, at the outset, congratulations on a good set of numbers and good set of numbers, including the P&L as well as the good cash flows. Sir, my questions are with regards to the gross margin. We have maintained our gross margins around 42%. And based on now the increased contribution coming from Vara Mahalakshmi, where we opened stores in the last year in Tamil Nadu and those -- the productivity of those stores must be improving further from about [indiscernible], which you mentioned in quarter 1 con call. So do we expect some improvement on the gross margin given the increased contribution from Vara Mahalakshmi store format going ahead?

[Konduri Venkata Lakshmi Sarma, executive]

Yes. See, now we are concentrating on the productivity aspect. Second quarter, we realized that the productivity has improved to approximately INR 35,000 per square feet on the expanded capacity. So the objective, as you know, is in the range of about INR 45,000 to INR 50,000. So perhaps in the third quarter or by the end of fourth quarter, we should be reaching the objective of achieving the optimal productivity.

And then when once the client profile is fully established, we are able to achieve the productivity aspects suitable to the format, then we shall slowly improve the margin profile on that. Currently, since the stores are on a maturity basis, taking a higher margin at this point of time may affect productivity aspect. So we are planning to continue with around [ 42 ] plus or minus kind of a margin profile for the current quarter -- current year and focus more on the productivity aspect.

[Rahul Jain, analyst]

Sir, in the current quarter, the other expenses have seen a sharp increase to almost INR 61 crores. So is there some kind of -- this is related to additional stores? Or is it related to higher amount of marketing investment given the festive season? How do we look at this number of other expenses of INR 61 crores?

[Konduri Venkata Lakshmi Sarma, executive]

Business promotion expenses have increased by approximately INR 6 crores to INR 7 crores basically the vouchers.

[Rachamadugu Bharadwaj, executive]

Yes, customer vouchers.

[Konduri Venkata Lakshmi Sarma, executive]

Customer vouchers, et cetera. And we have seen an increased output out of KLM. In fact, KLM has done around INR 125 crores this quarter against INR 100 crores last year. So KLM is slowly coming back to the -- on to the rails. And this -- the only perhaps the additional thing that has come is this encashment of vouchers during this quarter. That is to the extent of around INR 7 crores, I think.

[Rahul Jain, analyst]

Okay. The benefit of which should come in the next 2 quarters or so.

[Konduri Venkata Lakshmi Sarma, executive]

Correct.

[Rahul Jain, analyst]

Last question, sir, on the sales side. The first half sales have been -- if you take the last 4 quarter numbers, so the first half itself gives us almost 15% growth for the full year. So our initial target of 15% growth for the current year, given the first half sales is already done. So given the good festive -- sorry, given the good wedding season ahead, can we expect that overall sales target for the current year should be higher than -- much higher than that 15% target?

[Konduri Venkata Lakshmi Sarma, executive]

Definitely, it should be more than 15%. But last year, third quarter was a big quarter, the highest quarter for us thus far. So there may not be an increase to the extent of 20% or so during third quarter. Fourth quarter maybe.

On a broader perspective, in the last year, in the second half, we did about INR 850 crores. We should be doing in the range of about INR 925 crores or so, which will -- on a total scale, total company level, it should come to approximately INR 1,750 crores or so. And that will end up around -- anywhere between 18% to 20% on an overall growth.

And last year second half, we did a net profit of INR 80 crores of course, removing that onetime income tax part. Operationally, we did about INR 80 crores of turnover net profit last year. So even if we repeat the same thing, then you know the figure.

[Rahul Jain, analyst]

Sure. That's quite helpful. So that means on both profits and top line, you would be much higher than the earlier guided 15% and INR 140 crores.

[Konduri Venkata Lakshmi Sarma, executive]

Correct.

[Operator]

The next question comes from the line of Arpit Shah from Stallion Asset.

[Arpit Shah, analyst]

I have a couple of questions. I'll just list out all my questions first. I just wanted to understand the Vara Mahalakshmi, what is the steady-state unit economics looking like over there? It's clearly been the growth engine for us for the last couple of years. Just wanted to understand what is our capital efficiency over there.

And Valli -- Valli Silks, which we have started, which is a new format for us. I just wanted to understand our strategy over there, why the pivot is happening now? What is the differentiation between Kalamandir and Mandir compared to Valli and what kind of unit numbers we are targeting in this format?

And even on the debt and working capital side, we had a very tight control this quarter. working capital, you already explained some part of it. I wanted to understand how we're looking at that given the year -- given the -- on FY '26 end, how we should be looking at that number? We're almost debt-free now, at least this quarter, which has gone by.

And you also gave some color around the second half. I do understand that Q3 last year was a big year, where Dasara and Diwali was clubbed in 1 quarter. But how should we look at this quarter, quarter 3, where Dasara has already happened and Diwali has happened just last month? What kind of trajectory we should be looking at in terms of revenues and margin this quarter because last quarter was a bit [indiscernible] should we start looking in building in about, let's say, INR 500 crores, INR 550 crores of revenues this quarter.

And on FY '27, if I could just put an highlight over there, if I just plug in the numbers that you have guided in the couple of past quarters, what -- like are you confident of hitting that INR 200 crore mark in terms of profit for FY '27? And how reasonable that estimate looks like because the execution momentum is really, really good for the last couple of quarters? And how should we build on to that? Those are my questions.

[Rachamadugu Bharadwaj, executive]

Sure. Arpit, I'll try to answer a couple of your questions here. If I probably miss out, you can let me know. See, in terms of the overall Vara Mahalakshmi, the capital allotment rise, generally for CapEx requirements for Vara Mahalakshmi is around INR 5,500 per square feet. Now when you compare that with the Valli format, we are anywhere around INR 3,750 to INR 4,000. So almost 20%, 25% of capital -- reduced capital is what requires for a Valli format.

And in terms of the square footage also, Vara Mahalakshmi is a capital -- working capital heavy model, where a larger amount of inventory requires and goes on to Vara Mahalakshmi compared to Valli.

Now with this particular format, Valli, at this point of time, we are in the very -- probably we are looking at 1 full quarter of -- I mean, of operations. And even in one full quarter, it is -- I mean it is heavily dependent on this boosted testing and wedding calendar that has come. So probably if there is 1 or 2 more quarters of full operations, probably I can be able to comment you more on the kind of working capital requirements.

But on the capital expenditure side, I think 20%, 25% of reduced capital expenditure and Valli in the inventory format-wise, at this point of time, to give you a guidance, we'll be in the same range as Kalamandir. So that's the differentiation between Vara Mahalakshmi and Valli.

Now to your question of how is it different from Kalamandir, brand Mandir, Valli -- I mean, Vara Mahalakshmi, I'll give you a full like 4, 5 brand difference here. So Valli is that particular format, which is going to be digital first.

Now in terms of product-wise, the kind of products that are there in Valli are heavily focused on power loom categories and entry-level price points of silk sarees. So majority of our product offering, we don't heavily focus on handloom as a category.

Since this particular format also has ethnic wears contribution, I think 20% of our collections will range above that INR 7,000 to INR 30,000 price range. Otherwise, majority of our product offering is less than INR 4,000. So that's the kind of price point, product offering and the brand positioning that we have for Valli.

Now when you compare to a Kalamandir store, Kalamandir stores are positioned more like a family stores, where there's menswear, kids wear, everything put together. And to a certain extent, yes, there is menswear contribution, but it has that heritage of like last 20 years as a family store. So now Valli is that young new dynamic format, which is focused on the today ways of doing business, which is digital first. That's the vision behind Valli format.

With respect to -- I mean, I hope I was clear on the overall Valli brand positioning. And I meant to -- as I mentioned in the earlier also, I think this format is not a very new format that we are going aggressively. We have already opened one store back in the past, and we have been collecting some data points. And now we believe that this is the right time for us to expand further into not just Tier 1 stores, but in Tier 2, Tier 3 as well, it's easy to expand.

[Arpit Shah, analyst]

So Vara Mahalakshmi, you are targeting about INR 20,000 inventory per square feet. And the early numbers would be like INR 12,000, INR 15,000 inventory per square feet?

[Rachamadugu Bharadwaj, executive]

So currently, as I did mention, I think it's too early for me to give a model. But yes, you can take a comparison of a Kalamandir kind of a metrics with respect to Valli's inventory. But on Vara Mahalakshmi, you're right, I think INR 20,000 a square feet is the kind of inventory requirement for Vara Mahalakshmi.

So with respect to -- you're right on quarter 3, quarter 4, generally, historically, second half contributes higher than the first half contribution. So the same is what we should be able to anticipate this year, just that we have a little bit of season change that has happened. Barring that, we should -- I mean, if there are no -- I don't anticipate any surprises in terms of wedding dates also, there is a healthy pipeline of wedding dates. So there should not be any such external factors that stops us.

I mean, especially last couple of days has been a little bad with the rains, especially in the Karnataka and Andhra market. But I think it's still a manageable problem. It's not huge. I mean it's mentioned that there is a cyclone that's going to come up in the next 1, 2, 3, 4 days heavily affecting Andhra area. So apart from these factors, overall from the business standpoint of view, it still stands to be healthy.

And to your last question of what will be our PAT guidance for FY '27, I think this year-end, we are probably giving you a guidance on the overall PAT number. But for the year later, we will still be focused to expand our retail square feet presence by about 8% to 10% of total retail square feet addition.

And obviously, since we will be adding more Vara Mahalakshmi stores and more of those -- Valli stores and Vara Mahalakshmi stores both, the profitability generally should be a little bit higher because of the operational efficiencies kicking in.

And these stores, I would want to mention that the additional stores that are coming, there is a good number of -- pipeline number of stores coming in the existing 4, 5 states also. So the nature it works is that because it comes from the existing warehouse, the operational efficiency should be able to technically kick in.

I don't want to probably comment on the exact INR 200 crores kind of a number, but you should be able to see a good number. I mean, a PAT percentage number of about 8.5% to 9% kind of a PAT number overall for the next year.

[Operator]

The next question comes from the line of [ Shailesh Shinde from Millennium Finance ]. There is no reply from the line of Mr. Shailesh. I will next promote Param Vora from Trinetra Asset Managers.

[Param Vora, analyst]

Congratulations for a great set of numbers. So what I wanted to ask was regarding the aging inventory in your warehouse or stores. So do you usually write down the slowing moving SKUs or you keep the price intact?

[Rachamadugu Bharadwaj, executive]

So overall, with respect to aging, we do have a healthy tracker of the kind of aging that we have. And historically, we have been operating of about 10% to 12% of the overall inventory, where the age is above 1 year. But the nature of the business model, as we keep talking about is it doesn't just wear out of opportunity to [ set right ]. It's like one -- majority of our product offering is saree, so it's one size fits all kind of a product. So even after 3 years, 4 years, there is still a very good probability for it being sold.

Now the way we do it is through multiple methodologies like we give a better incentive, we rotate the stock between stores and a couple of these business level enhancements we do. And that in itself is -- covers most -- and most of the problem, where and the products fly off our shelf when you incentivize the team rightly.

But on a yearly basis, I think what we actually do is like because we need to provide a positioning it for the end of the year, where the inventory crosses more than 3 years or 4 years, we have a formula that is guided by the banks. With that, we demark that particular [ proportionate] and we adjust it to the gross margin.

But technically, we do not throw away these products or anywhere and these products are still in our stores and has a good probability to sell. So the ideology behind this is to go behind every last single product, make any value additions if required and upsell the products in multiple stores and formats.

[Param Vora, analyst]

Okay. And my next question is regarding the expansion in product portfolio. So you are already into women ethnic wear. So do you plan to expand men ethnic wear and kids, ethnic wear?

[Rachamadugu Bharadwaj, executive]

So yes, I think currently, we are still focused on the women wear only. Womenswear industry is 5x more than the menswear segment. So at this point of time, we don't want to diversify heavily into that. However, the diversity -- I mean, in terms of menswear and kids wear to your question, to a certain extent in KLM contribution of menswear, ethnic wear contribution is decent enough in the KLM story.

But on the overall aspect, if we have to diversify, probably we should be able to start pinning down and focusing more on the women's ready-made category, which is kurtas and kurtis. So that will be the category that where we should be focused more on doubling down. But for menswear and kidswear probably not yet.

[Operator]

The next question comes from the line of Akhil Parekh from B&K Securities.

[Akhil Parekh, analyst]

My first question is, Sarma sir has guided roughly INR 925 crores, INR 950 crores of top line for the second half, which implies growth of 8% to 10% for the second half. So is it -- is the number more on the conservative side? Or is this based on the footfall that we are seeing in the month of October? That's my first question.

[Konduri Venkata Lakshmi Sarma, executive]

It's broader assumption of our annual growth in the range of 18% to 20%. We have targeted annual growth into 18% to 20% based on that assumption. October anyway is going well only. There is no drawback on any sales or anything. The broader assumption is earlier we were thinking of 15%. 15% is already achieved. So on an annual basis, we are targeting anywhere between 18% to 20% on a conservative basis. The figures are basing on that.

[Akhil Parekh, analyst]

So there is a scope for -- I hope, [ upward right, that was ] basically upward growth [Technical Difficulty] . The second question on the operating leverage side, right, as we have grown at 30% and probably for the full year, we'll grow at 20%, 25%, depending on how the 3Q and 4Q pans out. Is there enough scope at 42% of gross margin level to go beyond 16% at EBITDA level?

[Konduri Venkata Lakshmi Sarma, executive]

Yes. Already this quarter, we did 16% plus EBITDA margin. And if you remember, last year, Q3, we did about 17.5% EBITDA margin. So as the [ Varma Lakshmi ] (sic) [ Vara Mahalakshmi ] format composition in the total sales is increasing, this margin will go up anyway.

On the gross margin level, we deliberately put it at 42% for this year, 42% plus or minus say [ 0.5 this, 0.5 that side ] mainly because the stores are under maturity, particularly the expanded capacity of about 125,000 is under maturity level. And for it to -- almost it reached about 70% to 75% of its productivity, say, against anticipated appropriately INR 50,000, we have reached around INR 36,000 at the second quarter.

So the first target we put is that we should reach the productivity levels comparable or expected of Tamil Nadu stores. And then slowly, we will improve our margin profile there from. By that time, the brands will be fully established in the market and then we will have the other economies of scale, et cetera, kicking in fully. And then, so next year onwards, we will focus more on improving the gross margin levels.

[Akhil Parekh, analyst]

Sir, in your SSG calculation of the 74 stores, how many stores are 1-plus year old? And how many are, say, 2 and 3-plus year old?

[Konduri Venkata Lakshmi Sarma, executive]

See, as for the purpose of SSG, we take -- we leave out the year in which the store was established, plus 1 year for the maturity. And then the next year would be the base year for comparison. Subsequent year will be the SSG format.

So when I gave you the SSG number this time, it is pertaining to 50 stores, which have qualified into this kind of -- the practice is like that for us. So at this point of time, the SSG mentioned were on 50 stores.

[Akhil Parekh, analyst]

Okay. And so is it fair to assume the remaining 24 stores of the 74 stores would be operating at a lower productivity, as you said and would get say, around INR 35,000 and then they will kind of next year probably reach INR 50,000 level.

[Konduri Venkata Lakshmi Sarma, executive]

Not all of them are operating at lower level. In fact, some of the flagship stores like our Pondy Bazaar or other stores, they are [Technical Difficulty] doing much more than that.

So it's not as though the rest of the stores are giving productivity suboptimally, it is on an average for these stores. Average of these stores now will be -- when I said INR 36,000 -- INR 35,000, it is with respect to Tamil Nadu stores, which have gone into expansion subsequent to IPO.

[Akhil Parekh, analyst]

Got it. And last question from my side on the KLM Fashion. Mr. Bharadwaj highlighted in his opening remarks or in one of the questions, I guess, he said that it is on an improving trend. If you can give more color on what's happening there. That's all from my side.

[Rachamadugu Bharadwaj, executive]

With respect to KLM, right, I think we are seeing a second good quarter of improved SSGs in overall KLM, which is supported by both change of product mix. We are trying to focus on bringing new collections and new particular segment. And the focus has shifted towards a little bit towards getting more ethnic wear component on the certain categories such as menswear, kids wear and the womenswear side. So that's still the progress.

I think we are also doing certain initiatives, where we want to change the rack system and display system. So we have been able to get a positive trend so far. However, we would want to wait and see for another couple of quarters before we start rolling this out to other stores as well.

Currently, this has been operational for -- in about like 4 to 5 stores. And if this trend continues for another quarter or 2, we should be able to start expanding and putting this on into the remaining 8 to 12 -- 8 stores as well. So sorry, remaining 13 stores as well. So that's with respect to KLM side of it.

We are actively working on reduced expenditures with respect to HR personnel costs and other expenditures as well. However, KLM is pointed towards that aspiring class value fashion. So we still have to do a certain amount of marketing expenditure and business promotion expenditure, and that's what we have seen in quarter 2.

Quarter 2 generally marks that point of time where Dasara, pre- Dasara time is where we try to attract our customers. And again, there will be a small window of opportunity during the Sankranti time for the business promotion expenditure.

But at this point of time, I think it's growing good, and we are happy that we are able to see a second quarter, continued quarter of SSG growth, and we are hoping that this trend will continue for the remaining year as well.

[Operator]

The next question comes from the line of Naitik from NV Alpha.

[Naitik Mutha, analyst]

Sir, my first question is in our business update earlier this month, you had mentioned that you're going to add 10 more stores, 6 were Vara Mahalakshmi and 4 Valli. So just wanted to confirm this -- these 10 stores we would be adding in the second half itself?

[Rachamadugu Bharadwaj, executive]

Yes. I think second half, we are poised to open around close to around 30,000 to 30,000 -- 30,000 square feet plus or minus, out of which I think there are about 5 to 6 Valli format stores and there are about 3 to 4 Vara Mahalaskhmi stores.

[Naitik Mutha, analyst]

Sir, my second question is, you mentioned earlier that 3 of the stores were converted to the Valli format. So which store formats were actually converted to Valli format.

[Rachamadugu Bharadwaj, executive]

So the reason behind converting this into Valli format, it depends on the market changing dynamics. So one of them was from Mandir store, we've moved away where we've removed the Mandir store and changed it into Valli store. And we have converted 2 Kalamandir stores to Valli stores. So that's the count. But the majority -- I mean, the thought process behind conversion is not format-wise, it's basically understanding the market dynamics and taking actions on that particular format.

[Naitik Mutha, analyst]

Sir, my next question is what sort of revenue do you expect from Valli store once it sort of matures?

[Rachamadugu Bharadwaj, executive]

I mean, it’s really difficult to comment on that because we are looking at a festive under Dasara-based quarter this quarter. And so far, the numbers are looking very healthy right now. But probably we should look at a year full of operations, and then I should be probably able to make a business model out of it.

And that's the reason why the investor presentation and everything actually covers just a store count and not a business model. Probably we should be able to start making a business model once it at least completes a couple more quarters.

[Naitik Mutha, analyst]

Sir, my next question is if you could give format-wise number of stores that we have currently? And how will it look 1 year out, say, in FY '27. So that would give us an understanding of how to look at the numbers?

[Rachamadugu Bharadwaj, executive]

Sure. I think Valli stands at 7, Kalamandir stands at 9, KLM stands at 19 and the rest are Vara Mahalakshmi in that...

[Konduri Venkata Lakshmi Sarma, executive]

3 Mandir and 36 Vara Mahalakshmi.

[Rachamadugu Bharadwaj, executive]

Yes. 3 Mandir and 36 Vara Mahalakshmi. Yes. I mean, fast forward, I think 1, 2 years, I think you should be able to see Vara Mahalakshmi stores and Valli stores contributing.

[Operator]

The next question comes from the line of [ Madhav from SKB ].

[Unknown Analyst]

So I wanted to know your thoughts on 2 aspects, one is the rent and the other one is competition. So like several other players, several other listed retailers, they have been pointing out on rising rents and increased competition. So what are your thoughts on these 2 points?

[Rachamadugu Bharadwaj, executive]

In terms of rent, yes, there is an increased rental that is happening overall. But I think in the areas, where we are operating, we are still able to maintain a decent amount of rental. But more than the actual rupee rent cost, the real sense is around making sure that the rent-to-revenue ratio is always healthy.

So we -- compared to other traditional players, which operates almost about 8% to 9% kind of a number, our rent-to-revenue ratio still stands at 4% despite the fact of our expansion into newer geographies. So that's an industry level metric that we are able to out beat remaining rest of the competition because of higher productivity levels that are happening at a store.

[Unknown Analyst]

And on the like overall competition part, like considering both like organized and unorganized players, like how is the competition? Like there is a surge? Or like how do you see -- how are you seeing...

[Rachamadugu Bharadwaj, executive]

On the competition front, there is a surge in the overall like in both listed -- I mean, both organized and unorganized players. There are a few digital-only players and digital-first players, who are trying to make some changes. But these are hardly like 1, 2, 3 kind of player, and it's not a big number at this point of time. It's still relatively small.

We have seen such trends even in the past. We have seen trends, where these small-scale players have increasingly come on board. And in that same pace, they have also consolidated as well. So there are multiple examples like that.

We are though these guys -- these new competition comes and tries to capture the market and disrupt the market temporarily. But on a broader perspective, this thing balances out because of the kind of brand power and the brand positioning that we are able to have. It's that loyalty and trust, which is what is helping us sustain year after year, irrelevant to the fact that too many competition is coming in any location.

[Unknown Analyst]

And sir, just like one more query on the rent part. So what I can understand is basically the rentals are decided like how are the terms decided, like the increased rent this concern is only on the new stores that are opened or the existing stores also because on the existing stores, I'm assuming that the rentals -- the rate at which the rent will increase, these things are like pre-decided, right, for the next several years or like how like -- can you like give some -- throw some light on this?

[Rachamadugu Bharadwaj, executive]

Got it. So Madhav, so what happens is like our negotiations generally happens between around 9 to 15 years is the kind of negotiation term that we sign up. And you are right on the part that the newer stores have a different -- I mean, a little bit increase. I wouldn't say it's very high increase. It all depends on the kind of market that you're going to, but the old stores remain with our existing negotiated terms, where we increase 15% for every 3 years. So it's still in that aspect only.

And we have had new leases that we have signed. We have renewed our leases, and there has not been any surprises on that front. It's still -- we are still able to retain the terms that we spoke about in the -- from the initial period only.

[Operator]

The next question comes from the line of Manan Shah from Moneybee Investment Advisor.

[Manan Shah, analyst]

Congratulations for good set of numbers. My question was regarding the new store openings that we are planning to do. Are these in newer cities or these will be in the existing cities, where we are already present?

[Rachamadugu Bharadwaj, executive]

It will be a combination of both. So with respect to the Valli formats, we have an opportunity in the existing store clusters as well. But Vara Mahalakshmi stores will majorly be in new cities.

[Manan Shah, analyst]

And do we still -- I mean, are looking to focus in the Southern part of India or we are looking to then expand to the adjoining Western and Eastern and Central regions as well?

[Rachamadugu Bharadwaj, executive]

So currently, as we speak, we do have plans to go beyond these 4 states. But again, it will be a small pilot and small pivot will not be a considerable change in our expansion strategy. Our majority of the expansion will still -- in the next at least 1 year, 1.5 years will still be from the existing 4 geographies only.

See, the way it works, I'll give you an example. So in -- see, the kind of stores that we were able to open for Valli in the existing, though it costs existing geographies are kind of stores, where you would not have a fancy parking, you would not have like a big street like an 80 feet square feet kind of a street. However, these are smaller and inner roads, where there is a very good spending power and very good market availability, but doesn't have the luxury of like having a big, big parking or like anything as such. So that's the kind of play that we're going with Valli Silks.

And these are 3,000 square feet, 3,500 square feet, so very quick to open. And that's the reason why the rental is a little bit marginally higher for Valli, but that's the logic behind our stores that we are expanding. But Vara Mahalakshmi stores, you're right on it, they're going beyond the existing cities. They're going outside of the existing cities.

[Manan Shah, analyst]

Understood. And these are primarily Tier 2 cities?

[Rachamadugu Bharadwaj, executive]

For Vara Mahalakshmi .

[Manan Shah, analyst]

Yes. For Vara Mahalakshmi and for Valli, currently, it's centered towards...

[Rachamadugu Bharadwaj, executive]

Valli, it's a mix of both, right? It's mix of both Tier 1, Tier 2 both.

[Manan Shah, analyst]

Okay. And the expansion that we are doing, are we like the first entrant in those markets among the organized competition? And in the existing places, where we are maybe first mover, are you seeing incremental competition coming in? And how is that impacting of [indiscernible] stores?

[Rachamadugu Bharadwaj, executive]

See, as I did mention, wherever we are going, probably we are the relevant -- relatively new player and the kind of brand power or muscle power that we are able to command better products, better margins and that kind of digital-first approach. We are trying to go all in and communicate that we are a quality brand for affordable prices that you can come and shop with us. So, so far on that side, there has not been much that is impacting the overall story.

But on the other side, in the existing stores that we are having, wherever there is a new competition that is coming up, as I did mention, there could be a temporary impact in terms of footfalls because generally, the consumers want to try out multiple stores before they end up their final purchase decision they make.

But that, again, is a common phenomenon across this industry. It keeps happening year-over-year. Some year, it's less, some year, it's more. And what we have seen is like on a -- when those stores complete like probably 1 year or 1.5 years and all that the entire euphoria will come down and obviously, the product and the positioning and the brand takes a front seat in this. And on that front, we are not worried. We have seen these cycles happen.

If you look back into our commentary, not last year, last -- before year, we have seen an increased amount of competition that came in and that has created some loss in footfalls. But on a larger picture on a branded scale, that's not something that we are worried about.

[Manan Shah, analyst]

Understood. And then on the KLM side, you had an intention of franchising this format maybe in the longer future. So where do you think you are where -- when you can start opening more KLM stores under the franchisee format?

And also, over here, what would be the mix of our own brands versus private labels? And how are we planning to move that more towards our own brands, thereby having more control over the designing and the product and so on?

[Rachamadugu Bharadwaj, executive]

So with respect to KLM, I think we have to wait a couple more quarters before we build a model around franchising. So at this point of time, I'm not able to give you a clear -- I mean, an idea on how soon we will be able to expand, but it will not happen anytime in the next couple of quarters.

On the product and [indiscernible] side, majority of our product offering is in private labels only. The reason being even in KLM, the bigger contributor of the KLM in the overall revenue still stands to be sarees only. So though there is a small component of listed -- I mean, in terms of private labels only, majority of it is happening.

And we are trying to focus on in the private label space only, we are figuring out the products, which can command a better margin. Though we anticipate the private labeling, where we wanted to slowly grow our in-house label called DESI SITAARA. I think probably next couple of quarters, we should be able to take actions on that, and that should be a bigger contributor in the overall. And DESI SITAARA is a brand that is focused on kurtas and kurtis.

[Manan Shah, analyst]

Okay. And then in terms of private labels, what is the return policy? Or is it entirely outright purchase? I mean, do you have the option of returning these products if they are slow moving or something? Or it is generally outright purchase? And how are we looking to move towards a sale or return model over there?

[Rachamadugu Bharadwaj, executive]

So majority of it is outright purchase. We do not have much in the SOR category, sale or return. But however, we are trying to focus to start implementing a little bit of sale or return. I think last quarter also, I think we have started small. The objective here is we don't want to have dump the stores with too much inventory as well. So the goal for us at this point of time is to improvise the SOR category, but so far, it's still a negligible component in the overall inventory.

[Manan Shah, analyst]

And overall on the inventory side, we were looking to gradually reach towards, say, 2.5x inventory turn versus roughly 2x. Do you see that happening over the next year? Or it will take longer to reach that sort of inventory turn?

[Konduri Venkata Lakshmi Sarma, executive]

We should be able to achieve it by the next financial year because once we reach optimum productivity on these stores and once we establish the godown, the warehouse in Tamil Nadu, then it will enable. But right now, also on a consequential basis, the inventory is coming down. Of course, September is not an indicative figure for that. September end figure is not an indicative figure for that. We are continuously bringing it down, and we should be able to achieve that 140 days kind of a thing by the end of next year.

[Operator]

Ladies and gentlemen, we will take that as the last question for today's call. I would now like to hand over the conference over to Mr. Bharadwaj for the closing comments.

[Rachamadugu Bharadwaj, executive]

Thank you. To conclude, I think Sai Silks Kalamandir continues to still deliver consistent growth, while remaining focused on our long-term strategic priorities. Thank you all to our customers, employees, stakeholders for their continued support and trust. Looking forward to connecting back with you guys in the next quarter earnings call. Thank you so much. Have a good day.

[Operator]

On behalf of Sai Silks Kalamandir Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.