Stove Kraft IPO: All You Need To Know

The Global Kitchen Appliances Market is expected to grow to $240 Billion in 2022. The kitchen appliances market is dynamic in nature, with rampant innovations that suit consumer preferences. Stove Kraft, an Indian company, has been a part of the growth since its inception by its founder Rajendra Gandhi in 1999 in Banglore. Stove Kraft specializes in kitchen appliances, consumer durables, and light electrical appliances. The IPO was subscribed 98% on Day 1. The offer size was reduced after the company raised ₹185 crores from anchor investors, one night before the IPO. Let us start looking into the company.

About The Company

• Stove Kraft Private Limited was incorporated on June 28, 1999, in Bengaluru, Karnataka. Stove Kraft’s products mostly include kitchen appliances. It has its products divided into three segments based on price range. 
  • Value For Money Brand - Pigeon
  • Medium-Range Brand - Gilma
  • Premium Brand - Black+Decker.

• The company has its major presence in Southern India, in the states of Karnataka, Tamil Nadu, Kerala, Andhra Pradesh, and Telangana. It had two manufacturing facilities at the time of IPO, one each in Bengaluru, Karnataka with a production capacity of 38.4 million units, and Baddi, Himachal Pradesh with a production capacity of 2.8 million units.  

• The Bengaluru  Facility is an integrated facility comprising 12  manufacturing units,  tailored to manufacture cookware, cooktops,  pressure cookers,  mixer grinders,  non-stick cookware, LED  bulbs, floor mops, handy vegetable chopper, IR thermometer, and induction cooktops. 

• The company is backed by the American venture-capital fund Sequoia Capital’s Indian arm.

Financial Overview

	Half Year Ended(6 Months)	Annual Results
	30-Sep-20	30-Sep-19	31-Mar-20	31-Mar-19	31-Mar-18
Assets	4,984.99	4,934.77	4,712.91	4,257.26	3,936.42
Liabilities	5,284.42	5,522.82	5312.45	4894.55	5735.30
Revenue	3,288.36	3,155.07	6,698.61	6,409.38	5,289.52
Profit After Tax	287.76	43.89	31.70	7.36	(120.18)

• The company's revenue has grown at a CAGR of 10.7% in the last three years. While the company was in a loss for 4 years, between 2014 and 2018, a sudden jump in Profit After Tax(PAT) is seen between 30-Sep-19 and 30-Sep-20 in half-yearly results. This is because of the reduction in cost in travel and conveyance along with the advertisement. These costs were reduced during the COVID-19 lockdown period and are not sustainable in the long run.

• The company operates on a significant amount of debt(Rs 1,194.73 crore) which has accumulated over the years. The company’s current liabilities or short term borrowings have increased consistently over 4 years. The company also has debentures held by Sequoia Capital India(SCI) and its other entities, which will be converted to equity after the IPO. 

• The Value For Money brand Pigeon contributed 90% to the company’s revenue stream followed by Gilma and Black + Decker.

• The total assets of the company grew at a CAGR of 11.45%. 

Favorable Factors

• Stove Kraft’s products segment generally targets audiences aged 20 and above i.e. young individuals who are ‘settling down’ and buying these utensils to cook. India has a significantly young population.

• The company is a market leader in cooktops and free-standing cooking hobs, covering almost 25% in those segments. The company plans to expand in other product segments as well. 

• Pradhan Mantri Ujjwala Yojana (PMUY)- a scheme where the Government provides free clean cooking gas to those below the poverty line. This scheme might pump the sales and demand for kitchen appliances. 

• Pradhan Mantri Sahaj Bijli Har Ghar Yojna- A scheme for rural electrification which fuels potential in electrical kitchen appliances and other items that the company sells.

• The rise in disposable income per family is another factor that may give rise to medium and premium range products of the company.

Risk Factors

• The company irks of not so good profitability as given in the financial overview. The company’s high profits in the last quarter are owed to reduced costs in travelling and branding. This reduction in cost may not be sustainable.

• The company sources its material from third parties with whom it does not have a long term contract. This does not fix a price guarantee for the company. The company also excessively depends on third-parties for its supply, distribution, and retailing.

• Steel prices have been skyrocketing recently. This has pushed up the production cost for the company, which is eating into profit margins for the company as well as the sales.

• The company’s sales are concentrated in southern India. The company’s sales are subject to fluctuations in regional economic conditions. The company faces tough competition from market players like TTK Prestige, Bajaj, Faber, etc.

• The company’s products are durable for a long time, the chances of having repeat consumers are less. 

• The company has faced negative cash flows in the past, which means that it was spending more than what was coming in. A continued negative cash flow in the company can cause a cash crunch. 

IPO Details In A Nutshell

Issue Open	Jan 25, 2021
Issue Close	Jan 28, 2021
IPO Price	Rs 384 - Rs 385
Face Value	Rs 10
IPO Size	Rs 412.63 crores
Listing At	BSE, NSE
IPO Lot Size	38

Conclusion

The company’s IPO might be oddly timed, just around India’s Annual Budget Session and also when the steel prices are highly inflated. High steel prices might impact the sales of the company as well as the profits. With rising debt, uneven cash flows, and unsteady profits, the financials of the company do not speak brightly of it. The company’s Price to Earnings(PE) ratio of 366 as compared to Industry PE of 123.8 shows that the company might be overvalued in comparison to its peers.  The company has a negative Working Capital and a negative Return on Capital Employed, this means that the company isn’t utilizing its resources efficiently. 

On the bright side, the company might have had an IPO to make structural changes and clear its debt. This might give the company a reboot that it needs and expand its horizons geographically and economically. In the future, the company’s decision-making shall decide where the company goes.

We would not be recommending this IPO as financials do not seem interesting. To know more about the company’s future prospects, check out their Red Herring Prospectus(RHP) over here.