Stove Kraft, the manufacturer of kitchen appliances, has opened its Rs 412.62-crore initial public offer (IPO) for subscription on Monday. The company received a good response for its anchor book last Friday as it raised a little over Rs 185 crore from anchor investors ahead of its initial public offer.

Share Market Live

NSE

The public issue comprises a fresh issue of Rs 95 crore by the company and a Rs 317.6 crore offer for sale by promoters and investors. The OFS consists of 82.50 lakh shares by promoters and investors.

Read Here:

Stove Kraft mobilises over Rs 185 crore from anchor investors ahead of IPO

The company has set a price band of Rs 384-385 per share and at the higher end of the price band, the issue is expected to fetch Rs 412.62 crore. Investors can bid for a minimum of 38 equity shares and in multiples of 38 shares thereafter.

The company said that it will utilise its net proceeds from the fresh issue for repayment or pre-payment of certain borrowings and general corporate purposes.

Read Here: Stove Kraft IPO to open today: All you need to know

The brokerages have assigned a Neutral rating on the company’s IPO given its high valuation compared to listed peers on FY20 earnings. Brokerages are skeptical over the sustainability of the company’s improved profitability in H1FY21.

“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 H1FY21 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,” Angel Broking said.

“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’s profit in FY20 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 FY18.

The company had a low operating margin profile over FY18-FY20 with EBITDA margin in the range of 2-5 percent. In H1FY21, the company reported improved performance with EBITDA margin of 13.7 percent and net profit of Rs 28 crore on account of significant reduction in operating expenses.

ICICI Securities believes that the sustainability of improved profitability performance remains a critical factor.

Going ahead, the key risks and concerns for the company are inability to maintain and promote the brand portfolio which can impact future revenue growth and around 20 percent of revenues are generated from traded products.

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 proposes to commence manufacturing of kitchen solutions under the BLACK + DECKER brand, covering the entire range of value, semi-premium and premium kitchen solutions, respectively.

The kitchen solutions comprise of cookware and cooking appliances across their brands, and the home solutions comprise various household utilities, including consumer lighting. Pigeon branded products 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. The Gilma portfolio comprises chimneys, hobs and cooktops across price ranges and designs

Stove Kraft is increasing its manufacturing capacity with backward integration. The company has an integrated facility at Bengaluru comprising of 12 manufacturing units to manufacture pressure cookers, non-stick cookware, hard anodized cookware, mixer grinders, among other cooking appliances.

Further, it has also commenced manufacturing LED products in its Bengaluru facility. The company has recently expanded its production capacity from 19.5 million units per annum to 38.4 million units per annum.

Stovekraft’s manufacturing facilities are backward integrated with the ability to in-house manufacture components required for its products. Increased level of backward integration has enabled the company to reduce dependence on third party suppliers and OEMs for its requirements of components.