The public offer of Stove Kraft, a kitchen solutions company, has subscribed 98.6 percent on the first day of bidding, January 25. The issue received bids for 58.38 lakh equity shares against offer size of 58.94 lakh shares, the subscription data available on the exchanges showed.
The offer size has been reduced after the company raised Rs 185 crore from anchor investors on last Friday, a day before the issue opening.
The subscription at Retail investors desk has been full as their reserved portion subscribed 5.37 times, while the portion set aside for non-institutional investors was subscribed 4.73 percent, but qualified institutional buyers have not started putting their bids yet.
The maiden public offer, which will close on January 28, consists a fresh issue of Rs 95 crore and an offer for sale of 86.50 lakh equity shares by promoters and investors (Sequoia Capital). The fresh issue proceeds will be utilised for repayment of debts.
The price band for the issue has been fixed at Rs 384-385 per share. "On valuations per se, at upper price band, the issue is asking for market cap Rs 1,253 crore with PE 16x times (annualised FY21) versus industry average P/E at 42x, which seems offer is at discount to peers valuations due to its low ROCE (2.51 percent) justifying the discount offer," said Prashanth Tapse, AVP Research at Mehta Equities said.
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He believes the growth in kitchen appliances in India is huge and expected to grow by CAGR around 12 percent largely driven by the high growth in the large kitchen appliances segment where products of Stove Kraft like freestanding hobs and cooktops are well positioned with leadership market share.
Stove Kraft is engaged in the manufacture and retail of a wide and diverse suite of kitchen solutions under Pigeon and Gilma brands, and proposed to commence manufacturing of kitchen solutions under the BLACK + DECKER brand, covering the entire range of value, semi-premium and premium kitchen solutions, respectively.
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Before making an informed decision in this IPO, "we need to understand Stove Kraft IPO is going public mainly through 'offer for sale' and such IPOs are expected to receive less demand during IPO from quality investors as investors remain less optimistic as fund proceeds from the shares sold would go into the pocket of the existing shareholders (Sequoia Capital India Growth) and less towards company future growth. Hence considering this it is generally predicted that such IPO generate low returns," he said.
In addition to above fact, Tapse is also concerned on sustainable business growth ahead of cut-throat competition in all the segments of Kitchen appliance despite the fact that the company has reported good numbers in the first six months.
Stove Kraft's revenue grew at a CAGR of 13 percent during FY18-20. The company had a low operating margin profile over FY18-FY20 with EBITDA margin in range of 2-5 percent. In H1FY21, the company reported improved performance with EBITDA margin of 13.7 percent (against 5.9 percent in H1FY20) and net profit of Rs 28.8 crore (against Rs 4.4 crore in H1FY20) on account of significant reduction in operating expenses.
"Another point a investors has to consider is that the IPO reservation for retail is only 10 percent against 35 percent in majority of the IPO books due to net worth being negative in the last 3 financial years as Stove Kraft has suffered one time losses (around Rs 110 crore) in 2016 from TN government contact," said Tapse.
Considering the risk in current volatile equity markets a moderate to low risk investors can give a miss to the offer while high risk investors can subscribe for listing gains, he advised.