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00:00Hello and welcome to NDTV Profit. You are watching this SME IPO Adda and my company's
00:05focus is the retail. It's an Apple retail chain which focuses on sleepwear. Its IPO
00:11is coming on the NSE Emerge and opens on September 28, closes on September 24. Price between
00:17Rs. 124 to Rs. 131 per share. The company is raising nearly Rs. 65 crores and that gives
00:23the company a valuation of little over Rs. 245 crores at the upper end of the price band.
00:27Joining me today is Hitesh Ruparelia, who is the Chairman and Managing Director of the
00:31company. Mr. Ruparelia, thank you very much for joining us on NDTV Profit. To begin with
00:37sir, give us an idea of your business model. What does your company do and how big is the
00:42expansion plan or the fund is which you are going to use for?
00:47Very good morning, Sajid. I'm excited to talk about my company and the category. So before
00:55I start talking about Sweet Dreams as a sleepwear brand, I would talk about sleepwear as a category.
01:04Sleepwear as a category is an emerging category and the biggest competitor that we have in
01:12sleepwear is the old clothes. People are into habit of using old clothes to sleep. But with
01:19Gennext and the millennial generations, they are wanting to have an attire which is specially
01:27crafted for sleep time. So our play area starts from 8 p.m. in the evening to 8 a.m. in the
01:35morning. So we have a timeshare of about 50 to 70 percent in a family in terms of clothing
01:45them during this time. Sleepwear per se, as I said, the biggest competitor is old clothes
01:55and then there are a lot many apparel brands which also have 1, 2, 3 articles which are
02:02core sleepwear. So pajamas, t-shirts and they wear it to sleep. So this is also a large
02:11community. But there is no single brand which is focusing completely on sleepwear like Sweet
02:18Dreams. So Sweet Dreams is a gender agnostic. We are men, women and kids and we are fashion
02:25sleepwear. So we want to make your time from 8 p.m. to 8 a.m. very interesting. If you
02:37look from consumer perspective. During this 12 hours, consumers have several different
02:44emotions, the largest emotion being rest, followed by sensuousness, followed by socializing
02:55with family and friends and at times having fun doing pajama parties. So these are all
03:02the occasions where we have a wide variety of pajamas very diligently designed for each
03:10and every emotion. And these are retailed through our own exclusive brand outlets. These
03:19are retailed through shopping shops, which are there with national retailers like Shopper
03:25Stop, Mantlons. These are retailed through mom and pop stores, which are top MBOs of
03:32the country. This business was co-founded by my brother Utpal and myself. And we have
03:41been running this business for last 30 years. And very focusedly we are pushing this category
03:49for last about 20 years. We have found this category to be very interesting, especially
03:57post COVID. People have moved to these kind of clothings. And since we blend fashion with
04:06comfort, it becomes an obvious choice of clothing for a lot of families.
04:14You know, what we have seen post COVID is that the at leisure market has also expanded
04:21and exploded in that sense. Are you also getting into the at leisure market?
04:28So we have like all the brands have some articles which are catering to sleep requirements.
04:39We do have a small line of at leisure for our customers, but largely we are sleep focused
04:45and focused on the family aspect of sleepwear in the fashion domain.
04:51You are raising 65 crores, sir. Can you give us an idea of how you're going to spend this
04:57money?
04:59So as we speak, we have 34 operational stores at airports and leading malls in the country.
05:08The business model has been very well accepted by consumers and we plan to open 65 more stores
05:17in the coming by 2026 year end.
05:23And so you're going to use how much? Roughly 16 odd crores for that?
05:28Yeah. So for opening a retail store, we need two kinds of capital. One is the CapEx and
05:37second is the working capital. So as part of the CapEx, we'll be using about 16 crores
05:44for expanding our EBOs and doing the interiors and furnishing of the stores.
05:53Just to get a clarification, you know, within the EBOs, you have company operated and company
05:58owned. Then you have company owned and franchise operated and franchise owned and franchise
06:03operated. Which is a segment that you're getting into more as part of expansion?
06:08Because you're going to double your stores in the next one and a half, two years.
06:13Yes. So what we have done is we have tested this business model across FOFO, COFO and
06:20COCO models. And we have realized that the store performance across T1, T2, T3 cities,
06:31it's almost similar. So this category is universal in nature and very well accepted
06:37across all the cities. We at the moment have largest number of stores in COFO model that
06:47is company owned, franchise operated, where we co-partner with franchise for investment
06:54and also use their local presence for management of staff and operations of the store. However,
07:04going forward, we plan to do more of COCO stores because we have seen that COCO stores
07:11are highly profitable as compared to COFO stores because in a COFO store as against
07:18investment, we also share some of our profits with franchisee. So going forward, our focus
07:24is going to be on COCO store.
07:27What is the normal timeline for breakeven of a COCO store for you?
07:33So generally, 95% of our stores that we have opened so far has been breaking even from
07:40the first month itself.
07:43Okay. And you see that happening for the remaining 30 odd stores that you're going to open in
07:49the next one to two years?
07:50Yeah, the next 65 stores that we plan to open, we would have a similar trajectory because
07:56our due diligence of selecting a property is very stringent and we are getting placed
08:03at the highest visible spots and best retail space.
08:10Give me a sense of your margin profile because for FY24, it was around 8.5% and that's gone
08:17up from the previous financial year. But going into the next year as you expand into
08:24various store format and you have a capex coming up, what is the kind of margin profile
08:31that we can look at?
08:33So traditionally, since we started 20 years back or maybe 30 years back, the only channel
08:39for business available was mom and pop stores, that is general trade. Then came the modern
08:46trade, which is shopper stops of the world, followed by online players, which is online
08:51maintenance of the world, and then followed by our own EBOs. So margin wise, the EBOs
09:00are most profitable because there is no channel in between and the inventory turns working
09:06capital need is substantially lower as against the channel operations. So our margins are
09:14likely to improve as we open more and more EBOs and yeah, the margins are likely to go up.
09:24Looking at your RRSP and the price points at which you are selling the sleepwear, it
09:29varies for kids from 899 to 1799 and for women from 1299 to 3400 or 3500. You are targeting
09:38the middle, upper middle and premium segment, which is there. Do you see enough demand coming
09:44in for this at this price point and are you looking at venturing into tier 2, tier 3 cities
09:52as well?
09:54So we want to be a category leader in sleepwear and we are going to lead the category by offering
10:02fashionable sleepwear. Of course, we will have laddering of pricing. So we will have
10:09offerings which are affordable for a middle class family, but that wouldn't restrict
10:17us for taking up the price points for highly fashionable products.
10:25Give me a sense of your customers because I was looking at the customer base which you
10:30have and top 5 customers accounted for 30%. So who are these top 5 customers?
10:37So as I said, we are largely trade based company as of now. 65% of our business is coming out
10:46of general trade, which is likely to change over the next couple of years time because
10:51our current contribution from EBO is around 7% which we are likely to take up to 30% over
11:00the next 2 years. So the top 5 customers that we have seen are largely our distributors
11:07and some of the large retail chains like Shopperstop, Chunmun of the world.
11:15What about online trade? You have nearly 17% coming in from online as of now.
11:22Yes, that's right. So pre-COVID we were about 2% online contribution. Post-COVID we have
11:30improved to about 17%. That's again direct to consumer channel and our biggest partner
11:38in this is Myntra as of now.
11:43Give me a sense of your manufacturing as well because you're currently doing a lot of stuff
11:49through job work. How are you planning to expand your manufacturing base as you expand
11:55or bring in additional 65 stores?
11:58So traditionally we started as a manufacturing and marketing brand, but since last 10 years
12:06we have realized that manufacturing is not an opportunity for sweet dreams. So we have
12:13started slowly moving towards outsourcing. Today as we speak 66% of our products are
12:20outsourced and 34% of the products which are very specialized in nature are being produced
12:27in-house and going forward this trend is going to continue. We will have some bit of manufacturing
12:35in-house to have a cost control and have some product leadership, but otherwise we feel
12:42that outsourcing will be the better route for us as we move forward.
12:47My final question to you, you're adding 65 odd stores, which are the states where you're
12:51going to bring them?
12:53So our major expansion will come in North and West. However, we have opened recently
12:59three stores in South and we also plan to test market in East.
13:05Mr. Ruparilia, thank you very much for joining us today on SME IPO. Your IPO is opening on
13:11September 28, closes on 24th, price between 124 to 131. It's a 65 crore IPO and gives
13:17you a value of nearly 245 crores at the upper end of the price band. Thank you for joining
13:22us on NDTV Profit.
13:23Thank you. Thank you for having me. Thank you.