Stove Kraft Ltd (SKL) - IPO - Weak Financial Track Record - Reliance Securities

About the Company

Stove Kraft Ltd. (SKL), incorporated in 1999, primarily operates in the kitchen appliances market, which comprises of instruments or devices designed for smooth functioning of kitchen activities. It is a kitchen solution and an emerging home solution brand as well as one of the leading brands for kitchen appliances in India. SKL is engaged in the manufacturing (two manufacturing plants in Bengaluru and Baddi) and retailing of a wide and diverse suite of kitchen solutions Pigeon and Gilma brands. It also proposes to commence manufacturing of kitchen solutions under the BLACK + DECKER brand. SKL's kitchen solutions (which comprise of cookware and cooking appliances) and home solutions (which comprise of various household utilities, including consumer lighting) enable it to be a one stop shop for kitchen and home solutions. It has a strong distribution network as under the "Pigeon" brand, it has 651 distributors in 27 states and 5 UTs and under the "Gilima" brand, it has 65 stores across 4 states and 28 cities. It not only distributes its products in the Indian market but also exports them to countries like the USA, Mexico, Kenya, Qatar, Sri Lanka, Fiji, Bahrain and Kuwait.

Financials in Brief

SKL's financials have not been encouraging despite seeing remarkable improvement in margins. Its net profit stood at mere Rs32mn in FY20, which improved to Rs288mn in 1HFY21, mainly led by cost control measures and lower promotional expenditures. Further, its net worth stands negative of Rs300mn as on Sept'20. Further, its gross debt has contracted significantly Jan'21 led by conversion of CCDs. However, this is unlikely to bring in any significant improvement in earnings.

Our View: Neutral
The IPO is valued at 301x FY20 and 22x FY21E annualized earnings, which look to be at par compared to Butterfly Gandhimati and 50% discount to TTK Prestige. Notably, these peers enjoy stronger balance sheet and proven earnings record compared to SKL. Hence, IPO is valued aggressively. Despite being into operation for more than two decades and setting up strong distribution network, SKL has not delivered up to the marks. While sharp improvement in earnings in 1HFY21 bodes well, we are not certain about the sustainability of the same.

Source : Equity Bulls

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