Stove Kraft IPO analysis!

Stove Kraft is set to raise up to ₹412.65 crore via IPO which opened for subscription today. Here are the details:

About Stove Kraft

• Stove Kraft is an emerging home solutions brand and one of the leading brands for kitchen appliances in India. It is one of the dominant players for pressure cookers and a market leader in the sale of freestanding hobs and cooktops. 
• Stove Kraft is engaged in the manufacture and retail of a wide and diverse suite of kitchen solutions under the Pigeon and Gilma brands, and proposes to commence manufacturing of kitchen solutions under the BLACK + DECKER brand, covering the entire range of value, semi-premium and premium kitchen solutions.
• The Pigeon brand, which contributed to 77% of the revenue in the 1HFY21, is under litigation.

Peers

• The Indian kitchen solutions and appliances market is highly competitive. The company faces competition from various domestic and multinational companies in India.
• TTK Prestige, Hawkins Cookers, Butterfly Gandhimathi Appliances and Bajaj Electricals are the listed peers, while Franke  Faber Pvt Ltd and Sunflame Enterprises are among non-listed peers.
• The table below shows market leaders in various appliances along with the leader’s market share.  Stove Kraft is the leader in CookTops and Free-Standing Hobs.

Financials

• The company’s financials have improved over the last three fiscals. It had turned in a profit of about ₹3.17 crore in FY20, improving from a loss of ₹12 crore in FY18.
• It is interesting to see that the return ratio’s have improved remarkably in Apr-Sep 20 period. The EPS has improved from ₹1.28 to ₹11.64, as the company earned a net profit of ₹29 crore on a revenue of ₹329 crore.
• Due to Covid-19, SKL's manufacturing facilities in Bengaluru and Baddi were shut down for 42 days and 34 days, respectively during the first quarter of current fiscal, which resulted in the ceasing of manufacturing and sales activities during that period. Despite this, the company has posted a good growth in topline and bottomline.

About the issue

• Issue open: 25th - 28th Jan 2021 
• Price band: ₹384- ₹385
• Issue Size: ₹411.8 cr- ₹412.65 cr
• Issue Size: Fresh Issue of Equity shares aggregating upto  ₹95 Cr and Offer for sale of upto 8,250,000 Equity Shares.
• Reservation for QIB - 75% , Retail -10%, Non institutional Investors -15%.
• Bid lot: 38 shares, and in multiples of 28 shares
• Post issue market cap ₹1,250 Cr – 1,253 Cr

INDmoney Recommendation

For the last three financial years, SKL has posted an average EPs of Rs. - (0.21) and an average RoNW of 1.46%. At the higher end of the price band of ₹385, the issue is priced at an expensive 301 times FY20 EPS. Peers including TTK Prestige (44 times FY20 earnings), Hawkins Cookers (42 times FY20 EPS) with better return ratios and fundamentals are trading at cheaper valuations.

On the basis of Apr-Sep 20 performance, the issue comes at a PE of 33 times 1HFY21 EPS. It is to be noted that 1HFY21 performance has been exceptional, and may not be sustainable for the company in the long-run. Given high valuation, low historical return ratios and moderate fundamentals, we remain ‘Neutral’ on the prospects of the issue.