IKIO Lighting IPO: Analysis

Original design manufacturer of LED lighting solutions, IKIO Lighting has decided to come with its Initial Public Offering (IPO). The IPO will open for subscription on June 6, 2023. The company is looking to raise about Rs 607 crores through the issue. 

IKIO Lighting IPO Details

• IKIO Lighting IPO Date: 6th June - 8th June 2023
   
• IKIO Lighting IPO Price band: Rs 270 - Rs 285
   
• IKIO Lighting IPO Issue Size: Rs 607 crores (Fresh Issue of Rs 350 crore and an OFS of 90 lakh equity shares)
   
• Reservation: QIB - 50%, Retail Investors - 35% and  NII - 15% (QIB - Qualified Institutional Buyers, NII - Non - Institutional Investors)
   
• Minimum Order Quantity: 52 shares

IKIO Lighting IPO: Issue objective

IKIO Lighting expects to utilize the net proceeds from the IPO to:

• Make part or full repayment or prepayment of certain borrowings of the company.
• Set up a new facility in Noida, Uttar Pradesh.
• Other corporate general purposes.

IKIO Lighting IPO : About IKIO Lighting

• IKIO Lighting is engaged in the manufacturing of light emitting diode (LED) lighting solutions. Its aim is to provide sustainable LED products which consume less power.
   
• The company is an original design manufacturer which designs, develops, manufactures and supplies products to its customers who in turn further distribute them under their own brand names.
   
• The company has four major product segments, namely: i) LED Lighting ii) Refrigeration Lights iii) ABS (acrylonitrile butadiene styrene) piping iv) Other Products.
   
• The company’s major customers are Signify Innovations India Limited (earlier known as Philips Electronics India Limited), Western Refrigeration Private Limited, Panasonic Life Solutions India Private Limited and Novateur Electrical & Digital Systems Private Limited.
   
• For the fiscal year ended March 31, 2022, the company derived close to 92% of its revenues from LED Lighting, 0.9% from ABS Pipes and 7.51% from other segments.

IKIO Lighting IPO : Industry Overview

• IKIO Lighting remains upbeat about the prospects of the Electronics Manufacturing Services (EMS) industry. In 2021, the EMS market was pegged at $880 billion. This is expected to rise to $1,145 billion by 2026, a CAGR of 5.4%.
   
• Further, the company believes that it is well positioned to benefit from the rise in the electronics market in India from about $124 billion in FY22 to $240 billion in FY2026. This denotes a CAGR of 17.9%.
   
• Notably, the company is bullish about the growth in the Indian EMS space too. Flagship programs of the Indian Government like the National Policy on Electronics (NPE) and the Production Linked Incentive (PLI) are expected to aid the growth of the EMS space.
   
• Meanwhile, the company is also expected to benefit from the diversification of the global supply chain from China.
   

IKIO Lighting IPO: Listed Peers

The burgeoning electronic manufacturing space has attracted a lot of players to the industry. Notable global competitors of IKIO Lighting in this space include Wistron, Pegatron and Jabil among others. Moreover, its domestic listed competitors are Dixon Technologies, Amber Enterprises, Kaynes Technologies, Syrma SGS, Avalon Tech, Elin Electronics and Centum Electronics among others. Let’s have a look at the following table to get an idea about where IKIO Lighting stands vis-a-vis its competitors.
 

(as of 31st March, 2022)

IKIO Lighting IPO: Financials

• IKIO Lighting has witnessed strong revenue growth in recent years. This can be gauged from the fact that its total revenues jumped from roughly Rs 221.8 crores in FY20 to Rs 334 crores in FY22.
   
• Meanwhile, net profits also soared from Rs 21.4 crores in FY20 to Rs 50.5 crores in FY22. Although expenses increased by close to 38% from the FY20 figure of Rs 191.7 crores to the FY22 figure of Rs 264.5 crores, the strong growth in revenues for the company led to the profit growth.
   
• Margins have also witnessed a consistent improvement in recent years. While operating margins improved from 16.94% in FY20 to 23.30% in FY22, net profit margins increased from 9.65% in FY20 to 15.12% in FY22.
   
• However, a drop in key return ratios remains a concern. The Return on Capital Employed (RoCE) decreased from 37.61% in FY20 to 33.07% in FY22. Similarly, the Return on Equity declined from 59.63% in FY20 to 46.40% in FY22.

IKIO Lighting IPO: Risks

High competitive intensity: Due to the ever expanding nature of the EMS industry, more and more players are entering this market. This poses a challenge for both incumbents and the new players to hold their market shares and keep hold of their margins. This in turn also hinders the consistent revenue growth of the companies.

Concentration of customers: The company derives a significant portion of its revenue from a single customer (Signify Innovations India Limited). In fact, almost 85% of the company’s revenues are derived from its top 20 customers. Any adverse developments in the operations of these customers can hurt the prospects of IKIO Lighting significantly.

Requires constant innovation: The EMS space is in a state of constant flux. As a result, any slowdown in the R&D process by companies can lead to a loss in market share. If IKIO Lighting is somehow unable to constantly innovate, then its operations and revenue generation capabilities may be adversely affected.

This is not investment advice. Investments in the securities market are subject to market risk, read all the related documents carefully before investing. Past performance is not indicative of future returns.