After Stove Kraft announces maiden listing offer in the stock exchanges, the grey market premium jumps 26 percent. The IPO issue opens on January 25 in the price band of Rs 384-385 apiece expected to raise Rs 412.62 crores. It is the fourth IPO offer of the month, so let’s look at the various aspects of the offer before subscribing to it.
The company informed in the BSE filing that the IPO offer will contain both fresh issues and offer for sale scrips from investors and promoters. The fresh issue size is close to Rs 95 crores, and 82.50 lakh equities are available under OFS.
The company opened allocation of shares to anchor investors on January 22, 2021. It raised close to Rs 185 crores from thirty-two investors comprising Goldman Sachs India, Nippon Life India Trustee, Bajaj Allianz Life Insurance Company, and IIFL Special Opportunities Fund.
Stove Kraft share price rallied in the grey market after the news is currently trading at Rs 101 premium at Rs 486, 26 percent higher the IPO price.
Retail individual investors need to subscribe for a minimum of 38 shares and increase their bid size for up to 13 lots with 494 shares worth Rs 190,190
Seeing the recent performance of initial public offerings in the market and that the issuer has reserved only a smaller portion to retail investors, market analysts expect the issue to perform well. However, some concerns remain regarding the performance of the company.
Although the company is operative since 1999, it turned profitable only recently. During 2018, the company also reported a loss of Rs 12 crores. It operates in the highly competitive market of kitchen appliance, dominated by players like Hawkins and Prestige. Stove Kraft owns brands like Pigeon, which contributes 80 percent of company’s revenue, Gilma and selling license for the US brand Black+Decker. Its brand Piegon is currently under litigation.
The Bengaluru based company registered Piegon trademark under different classes in 2003 and 2005. In 2003 it allowed PAPL, an associate firm to produce mixer and grinder under Pigeon brand. In 2005, SKL terminated the contract suggesting it would mislead customers. Since SKL had moved to the court seeking a perpetual injunction of future infringement on their brand name. Experts believe this could play an important role in swaying investors’ sentiment regarding the IPO offer.
Secondly, the company’s performance was impacted during COVID-19. Although SKL has reported healthy business growth since the economy has returned to normal, it is yet to cover the lost ground.
Let’s take a peek at Stove Kraft Limited’s Financial details
Analysing financial statements is an integral part of fundamental analysis of an offer. IF we look at SKL’s past financials, the company has reported incremental revenue earning since lockdown restrictions are lifted. However, the impact of COVID-19 may continue to affect its performance for a while. The rise in revenue is mainly due to cost-cutting measures and curtailing of travel expenses and advertising amid COVId-19.
During H1 of FY21 profit rose to Rs 3.2 crores from Rs 0.7 crores in 2019. SKL managed CAGR of 13 percent in revenue growth between FY 2018-2020 and an EBITDA margin of 13.7 percent during H1FY21, an improvement from 5.9 percent in H1FY20.
Compared to SKL, competitors TTK Prestige and Hawkins Cookers reported an EBITDA margin of 12 percent and 15 percent respectively during FY20 and 15 and 56 percent on return on equities.
The company sells around 600 plus items covering premium and semi-premium range in kitchen appliances, LED lights, and more. Also, it has an established network of 651 distributors to cover the PAN India market and 12 distributors to export abroad.
Should You Invest?
A large portion of the company’s revenue comes from sales in South India and hence, performance of the local economy directly impacts its revenue earning. Considering all these aspects, financial experts have maintained a ‘neutral’ rating for the issue.
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