Stove Kraft IPO review: Explained by ICICI Securities

Stove Kraft IPO review: ICICI Securities says Incorporated in 1999, Stove Kraft was converted to a Public company in 2018. Stove Kraft is an established player in the kitchen solutions segment and an emerging player in the home solutions market. Stove Kraft provides a diverse suite of kitchen solutions under Pigeon and Gilma brands and has also forayed into LED based lighting products. Stove Kraft proposes to commence manufacturing of kitchen solutions under the BLACK & DECKER brand with a range of value, semi-premium and premium kitchen solutions.

Stove Kraft - Diversified kitchen and home appliances product portfolio 

Since its inception Stove Kraft has grown from a single brand small LPG stove manufacturing company to become one of India’s leading manufacturers of kitchen appliances. Stove Kraft brand portfolio consists of Pigeon and Gilma which are its own brands. Stove Kraft also has a Licensing agreement to manufacture and market premium small domestic appliances under the brand ‘Black and Decker’. In 2019, Stove Kraft also forayed into the manufacture of LED based lighting products and is planning to expand its presence in the segment.

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Stove Kraft - Increasing manufacturing capacity with backward integration:

Stove Kraft has an integrated facility at Bengaluru comprising 12 manufacturing units to manufacture pressure cookers, non-stick cookware, hard anodized cookware, mixer grinders, induction cooktops, LPG stove, glass cooktops, IR thermometer and handy vegetable chopper. Further, the Company has also commenced manufacturing LED products in its Bengaluru Facility.

Stove Kraft has recently expanded its production capacity from 19.5 million units per annum to 38.4 mn units per annum. Stovekraft’s manufacturing facilities are backward integrated with ability to in-house manufacture components required for its products. Increased level of backward integration has enabled Stove Kraft to reduce dependence on third party suppliers and OEMs for its requirements of components.

Stove Kraft - Key risk & concerns:

Inability to maintain and promote the brand portfolio can impact future revenue growth
Around 20% of revenues are generated from traded products

Priced at Mcap/sales of 1.9x (post issue) FY20 on upper band:

Stovekraft reported revenue CAGR of 13% over FY18-20. The company had a low operating margin profile over FY18-FY20 with EBITDA margin in range of 2-5%. In H1FY21, the company reported improved performance with EBITDA margin of 13.7% and net profit of | 28 crore on account of significant reduction in operating expenses. Sustainability of improved profitability performance remains a critical factor. At | 385, the stock is available at 1.9x FY20 Market cap/sales.

Stove Kraft IPO - Investment Rationale:

One stop shop for kitchen appliances across varied price points
Well connected distribution network with a presence across multiple retail channels
Strong manufacturing capability with efficient backward integration
Expansion of portfolio in the existing product categories
Foray into LED consumer lighting business
Focus on enhancing share of export revenues