IPO Analysis: IKIO Lighting Limited

IPO Rating: Apply for long term

About the issue:

Incorporated in 2016, IKIO Lighting Limited is an Indian manufacturer of light-emitting diode (LED) lighting solutions. The company is coming out with its initial public offering (IPO) of equity shares with a face value of Rs 10 per equity share. The price band of the issue has been fixed at Rs 270 to Rs 285 per equity share. The issue size is Rs 607 crore at a higher price band.

The IPO opening date is June 6, 2023, and it will be closing on June 8, 2023. The issue is likely to be listed on the exchange on June 16, 2023. The IPO market lot size is 52 Shares and in multiple thereof. A retail-individual investor can apply up to a maximum of 13 lots (676 shares or Rs 192,660) at the upper price band.

Objects of the Issue

The Company proposes to utilize the Net Proceeds towards funding the following objects:

1. Repayment/prepayment, in full or part, of certain borrowings availed by the company and its Subsidiaries on a consolidated basis.
2. Investment in the wholly owned Subsidiary, IKIO Solutions Private Limited, for setting up a new facility at Noida, Uttar Pradesh.
3. General corporate purposes.

Promoter holding

The pre-issue shareholding is 100 per cent, post the IPO the promoter stake will be 72.46 per cent.

About the company:

IKIO Lighting Ltd (ILL) is a manufacturer of light-emitting diode (LED) lighting products based in India. The company provides low-energy LED products to assist India in meeting its sustainability targets. The company is largely an original design manufacturer (ODM), designing, developing, manufacturing, and supplying products to customers who then resell them under their own names. ILL also collaborates with customers to develop, manufacture, and supply products designed by them.

Its products are categorized as (i) LED lighting; (ii) refrigeration lights; (iii) ABS (acrylonitrile butadiene styrene) piping; and (iv) other products. The premium LED lighting offerings from ILL include lighting, fittings, fixtures, accessories, and components. Its refrigeration light segment supplies lighting solutions (lights, drivers, and controls) to commercial refrigeration equipment suppliers. It also produces ABS pipe, an alternative to polyvinyl chloride ("PVC") piping that is largely used by ILL's US customers for plumbing applications in the recreational vehicles ("RVs") that they fit out.

ILL also manufactures and assembles other products such as client-designed fan regulators, light strips, moulding, and other components and spares. Its products and equipment are used in a wide range of industries and products, including residential, industrial, and commercial lighting. Its largest customer is Signify Innovations India Limited, formerly Philips Electronics India Limited, which has a 50% market share in India's functional decorative lighting category (including LED spotlights, LED downlights, and cove lights) and a 10% market share in India's true-blue decorative lighting segment (including chandeliers, wall lights, pendants, and outdoor lights) according to Frost & Sullivan in Fiscal 2022.

Aside from Philips Electronics, it has a diverse customer base across all product segments, industries, and geographies, including Western Refrigeration Private Limited, Panasonic Life Solutions India Private Limited, and Novateur Electrical & Digital Systems Private Limited. ILL has a strong track record of customer retention.

Seven of the top ten customers had been with ILL for more than three years. Furthermore, it is expanding its international customer base, primarily in the United States. The company has four manufacturing facilities, one in Uttarakhand's SIDCUL Haridwar industrial park and three in the National Capital Region's Noida.

Financial

On the financial performance front, for the last three fiscals, ATL has (on a consolidated basis) posted a revenue/net profit of Rs 221.83 crore /Rs 21.41 crore (FY20), Rs 214.57 crore/Rs 28.81 crore (FY21), and Rs 334 crore/Rs 50.52 crore (FY22).

Valuation and Outlook

If we annualize nine months of FY23 earnings and attribute it to the post-IPO paid-up capital of the company, the issue is priced at a P/E of around 32.2x.  In terms of P/BV, the issue is priced at 4.80x based on its post-IPO NAV of Rs 59.38 per share and a P/BV of 13.15 based on its NAV of Rs 21.67 as of December 31, 2022 (at the upper price band). When we measure market cap to sales, the issue is available almost five times.

There are no exact comparable companies currently listed, however, if we consider the business model of electronic manufacturing for OEMs or others, there are some companies such as Dixon, and Amber among others that have the same business model. Compared to these companies this issue is available at a lower valuation with superior margins and return ratios. Hence, we recommend subscribing to the issue with a long-term prospect.