Stove Kraft, a kitchen solutions and an emerging home solutions brand, has opened its maiden public offer for subscription on January 25 after receiving good response for its anchor book last Friday.
The public issue comprises fresh issue of Rs 95 crore and an offer for sale of 82.50 lakh equity shares by promoters and investors. The company, which has already raised Rs 185 crore via anchor book, will utilise fresh issue proceeds for repayment of debts.
The price band for the offer, which will close on January 28, has been fixed at Rs 384-385 per share.
Given the high valuation compared to listed peers on FY20 earnings, lower brand value compared to listed peers and likely unsustainability in the strong profitability recorded in first half of FY21, going ahead, brokerages assigned neutral rating on the issue.
"The company has priced its issue at 34.5x PE on a trailing basis, its peers TTK Prestige and Hawkins Cookers are currently trading at 61.0x and 47.5x respectively. On FY20 basis, the company priced its issue at 301.5x PE. Due to cost cutting measures, company margins improved in the first half of FY21 which is not sustainable. Cost such as travelling, advertisement reduced in H1FY21 due to COVID-19 are going to come back once business comes back to normalcy," said Angel Broking.
Stove Kraft IPO: Here are 10 key things you must know about the issue
"The company's brand value, margins and return on capital are lower than its peers so it won't get such premium valuation like its peers, so we recommend neutral rating to the Stove Kraft IPO issue," the brokerage added.
Stove Kraft reported revenue CAGR of 13 percent over 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.
Sustainability of improved profitability performance remains a critical factor, said ICICI Direct, too.
In the financial year 2019-20, Stove Kraft's profit rose to Rs 3.2 crore from Rs 0.7 crore in FY19 and loss of Rs 12 crore in FY18. The operating revenues in FY20 rose to Rs 669.9 crore from Rs 640.9 crore in FY19 and Rs 529 crore in FY19.
In FY20, TTK Prestige and Hawkins Cookers reported return on equity at 15 percent and 56 percent, return on capital employed at 11 percent and 46 percent, and EBITDA margin at 12 percent and 15 percent respectively. Stove Kraft's return on equity was not available but return on capital employed at 9.2 percent and EBITDA margin at 5.1 percent for FY20 were lower than peers.
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 propose to commence manufacturing of kitchen solutions under the BLACK + DECKER brand, covering the entire range of value, semi-premium and premium kitchen solutions, respectively.
Its kitchen solutions comprise of cookware and cooking appliances across their brands, and their home solutions comprise various household utilities, including consumer lighting, which not only enables them to be a one stop shop for kitchen and home solutions, but also offer products at different pricing points to meet diverse customer requirements and aspirations.
During the six month periods ended September 2020 and September 2019 and for fiscal 2020, their Pigeon branded products contributed 76.90 percent, 80.86 percent and 86.20 percent to its overall sales, respectively and were amongst the leading brands in the market for certain products such as free standing hobs, cooktops, non-stick cookware, LPG, gas stoves and induction cooktops.
As of September 2020, the company had an installed annual production capacity of 3.84 crore units (which recently expanded from 1.95 crore units capacity), with the capability to manufacture products in the pressure cookers, non-stick cookware (roller coated and spray coated), LPG stoves, mixer grinders, LED bulbs, iron and induction cooktops categories.
Similarly, Baddi facility, focused on the oil company business, which includes manufacturing and co-branding of products with such companies, has an installed capacity of 28 lakh units per annum, with the capability to manufacture products such as LPG stoves and inner lid cooker.Disclaimer: The views and investment tips expressed by investment expert on Moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.