Buy Stove Kraft; target of Rs 631: YES Securities

YES Securities is bullish on Stove Kraft has recommended buy rating on the stock with a target price of Rs 631 in its research report dated July 31 2023.

Broker Research

August 03, 2023 / 08:55 IST

Buy

YES Securities' research report on Stove Kraft

STOVEKRAFT has delivered inline revenue growth, while it has surprised positively on the margin front, with gross margin surpassing management guidance of 35% during the quarter. Increased in-house production, lower commodity costs, price corrections and increased ASP’s has led to higher margin. Management is now confident of achieving its full year gross margin guidance of 35% given the strong performance of Q1 in seasonally weak quarter. Company also expects double digit revenue growth with focus on value segment and passing benefits of the increased efficiency by means of lower pricing, while maintaining gross margins at 35%. Company in its endeavor to build its retail network is continues to add company owned company operated stores with addition of 25 stores in Q1. Costs dynamics of these stores are very low and 90% of the company owned company operated stores are breaking even on an average basis in 3 months of time. The company is looking to launch new products in the market and maintain the growth rates in double digits with aspirations to clock 11% EBITDA margin in FY24. We continue to maintain BUY as current risk-reward is favorable and the stock is trading at P/E of 15.4x on FY25 earnings. Considering strong growth opportunities and growth in the value segment and management growth guidance of double digit in terms of revenue. We estimate STOKRA to deliver revenue CAGR of over FY23-25E of 15% which looks achievable given the expansion in distribution and new product launches.

Outlook

We have estimated EBITDA margin of 10% in FY24 is lower than management guidance of 11% factoring for some volatility in commodity prices. With strong growth potential and improvement in EBITDA margins, we remain positive on the stock and reiterate our BUY rating with TP of Rs 631 valuing the company at 20x FY25E EPS. We have lowered our multiple to 20x from 25x incorporating risk of management changes that have been prevalent in the past.

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