IPO Analysis: Stove Kraft

IPO Rating - Avoid

About the Issue

Stove Kraft, a kitchen solution company, offering products in the category of cookware & cooking appliances is hitting the primary capital market with its initial public offer (IPO) of equity shares of the face value of Rs 10 each. The issue has opened for subscription today and will close on January 28. The price band of the offer has been fixed at Rs 384 to Rs 385 per equity share.

The IPO consists of the equity shares of the company aggregating up to Rs 412.63 crore at the upper price band, comprising of a fresh issue, aggregating up to Rs 95 crore, and an offer for sale, aggregating up to Rs 317.63 crore at the upper price band. Bids can be made for a minimum of 38 equity shares and in multiples of 38 equity shares, thereafter.

Out of fresh issue of Rs 95 crore, the company proposes to use Rs 76 crore towards repayment or pre-payment, in full or part, of certain borrowings availed by the company and balance towards general corporate purposes.

The equity shares offered in this offer are proposed to be listed at both BSE and NSE.

*at a higher price band

About the company

Stove Kraft, which was incorporated on June 28 in Bengaluru is engaged in the manufacture, trade as well as retail of a wide & diverse suite of kitchen solutions under Pigeon and Gilma brands. The company is one of the dominant players for pressure cookers and amongst the market leaders in the sale of free-standing hobs and cooktops.

Kitchen solutions business of the company comprises cookware & cooking appliances across its brands while its home solutions comprise various household utilities, including consumer lighting. The existing market presence of the Pigeon brand has been instrumental in enabling Stove Kraft to successfully enter into the home solutions vertical with products like LED products in 2016. Their tie-up with Stanley Black & Decker, Inc. and Black & Decker Corporation will enable them to penetrate the premium segment of the kitchen appliances industry.

As on September 30, 2020, Stove Kraft’s manufacturing facilities in Bengaluru (Karnataka) and Baddi (Himachal Pradesh) are well-connected with nine C&F agents. Additionally, they have 651 distributors in more than 27 states and five union territories of India. The C&F agents and distributors are, in turn, connected with a dealer network comprising over 45,475 retail outlets, which are driven through a sales force of 566 personnel. In addition to independent third-party retail stores, Stove Kraft has also partnered with major Indian retailers for the sale of their products, and for the fiscal year 2020, their products are available in retail chains such as 'Metro Cash' And 'Carry India'. They have also partnered with e-commerce retailers such as Flipkart India for the sale of their Pigeon branded products on their portals. As on September 30, 2020, Gilma brand products were sold exclusively through 65 Gilma stores located across 28 cities and towns in 4 states. Internationally, their products are exported to 14 countries including UAE, Qatar, Bahrain, Kuwait, Tanzania, Uganda, Nepal, Sri Lanka, Bangladesh, Oman, Ghana, United States of America, Mexico and Saudi Arabia. Further, Stove Kraft supply their products to retail chains in the United States of America and Mexico. Meanwhile, the company also undertake original equipment manufacturing for retail chains in the United States of America under their brands. In the fiscal year 2016, their inherent skill to scale led them to foray into a new line of business, i.e. LED products. The company started trading in LED products and in a span of 36 months, achieved a revenue of Rs 49.9 crore. This led to the company beginning the manufacturing of LED products in June 2019 and achieving total revenue of Rs 21.86 crore and Rs 33.06 crore during the six-month period ended September 30, 2020, and Fiscal 2020, respectively.

 Financials

The sales of the company for the fiscal ended March 31, 2020, were up by 4.51 per cent on a yearly basis to Rs 669.86 crore. EBITDA increased by 3.53 per cent on a yearly basis to Rs 33.79 crore for FY20. Profit after tax, which was negative Rs 12 crore for FY18, turned to profit in FY20 and posted a profit of Rs 3.53 crore for FY20.

For the six-month period ended September 2020, the sales was up by 4 per cent to Rs 328.84 crore on a yearly basis. In H1FY21, Bengaluru and HP plants were shut down for 42 days and 34 days, respectively due to the COVID-19 lockdown. Despite this, the jump in revenue was largely facilitated by 179 per cent jump in export revenue to Rs 58.87 crore, 49 per cent growth in e-commerce sales to 127.29 crore, and a 48 per cent increase in revenue of LED product to Rs 21.65 crore. PBT was up by 505 per cent to Rs 28.78 crore after accounting for lower other income and higher depreciation. Eventually, profit after tax was up by 556 per cent to Rs 28.78 crore.

Valuation and our recommendation

At the higher end of the price band of Rs 385, the issue is available at price to earnings (PE) of more than 180 times, after annualising H1FY21 profit and expanded equity. This looks on the expensive side as more established listed players are available at PE of double-digit. The issue looks even more expensive if we consider the negative book value of the company. Therefore, we suggest that you avoid the issue.