IKIO Lighting IPO opens today: Analysts upbeat over growth prospect, fair valuation

IKIO Lighting is a fully integrated original design manufacturer (ODM) in the LED lighting industry.

Most analysts tracking IKIO Lighting have a favourable view on the company’s future performance and, therefore, have come out with a ‘subscribe’ rating for its public issue. This was also aided by the belief that its pricing was fair.

The IPO opens for subscription at 10am on June 6.

The LED lighting solutions provider aims to raise Rs 606.5 crore from the public issue which consists of a fresh issue of Rs 350 crore, and an offer-for-sale of 90 lakh shares by promoters, who have 100 percent holding in the company. IKIO plans to spend the issue proceeds for repaying debts and invest in its wholly owned subsidiary IKIO Solutions to set up a facility in Uttar Pradesh.

IKIO Lighting has set the price band for the offer at Rs 270-285 per share. “At the upper band, the business is trading at a price-to-earnings (P/E) multiple of 47.8x 9MFY23 annualised EPS,” said SBI Securities in a note. “The IPO looks fairly valued across various valuation parameters when compared with its close peers. Investors can subscribe to the issue for a long term investment horizon.”

IKIO Lighting is a fully integrated original design manufacturer (ODM) in the LED lighting industry. ODMs are those that take the original specifications of another company or individual and build the design to the product specifications.

Among key strength for the Noida-based company is its robust product portfolio that includes all kinds of lighting solutions to fan regulators to acrylonitrile butadiene styrene (ABS) piping, which is used as an alternative to polyvinyl chloride (PVC) pipes in plumbing solutions. The company also has a high customer retention rate with a diverse customer base across industry sectors and geographies: The company has four manufacturing facilities in India with an ongoing plant expansion in Noida.

"We assign a 'subscribe (with caution)' rating to this IPO as the company has a diverse product basket with focus on high-margin areas and is poised to capture growth of LED market,” said Marwadi Financial Services.

The company does not have a comparable peer but its valuation can be benchmarked against electronic manufacturing services providers. IKIO’s valuation lies in the middle among peers namely Dixon
Technologies, Amber Enterprises, Syrma SGS Technology and Elin Electronics that are trading at a P/E of 92.6x, 46.8x, 57.2x, 26x, respectively.

Rajnath Yadav of Choice Broking also has a ‘subscribe’ rating on the issue as he sees its valuation at a discount to these names. He also counts strong focus on R&D, established infrastructure with backward integration and strong and consistent financial performance as strength of the company.

IKIO Lighting is mainly catering into premium lighting segments with Signify (Philips) being one of its largest clients. IKIO is also exploring export opportunities in the LED lighting/RV segments through new client additions.

Analysts point out that the company’s substantial portion of revenue comes from a single customer, Signify innovation India Limited, erstwhile Philips India – 70 percent revenue in 9MFY23 – which is a concentration risk. Any slowdown in the business of Signify will spell an omen for IKIO.

“A major market share loss of the former could curtail the latter’s offtake. Continuous customer on-boarding is critical for any contact manufacturer. Significant delay could curtail growth,” said Nirav Vasa, Research Analyst at Anand Rathi Share and Stock Brokers.

But he has kept a ‘subscribe’ rating on the stock. “Its ability to offer end-to-end solutions and its backward-integrated manufacturing have resulted in a strong business model with healthy RoEs despite operating on a smaller base than its peers, which cater mainly to the mass-market needs of leading brands.”
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The company has mobilised Rs 181.95 crore from 16 anchor investors, including Societe Generale, Quant Mutual Fund, Mirae Asset India, Goldman Sachs, and HDFC Mutual Fund.

The issue closes for subscription on June 8.

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