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Kitchen solutions and emerging home solutions brand Stove Kraft Limited is set to launch its IPO on January 25, 2021 [now live on Groww!]. The IPO will remain open for subscription till January 28, 2021. The price band for each equity share has been fixed at Rs.384 to Rs.385. Cover ahead are the details on the company’s financial health, strength, weaknesses etc that can help you decide whether to invest in Stove Kraft IPO or not. Read on!

Growth Story of Stove Kraft Limited

Stove Kraft was founded by Rajendra Gandhi, a first-generation entrepreneur with over 21 years of experience in the kitchen appliances industry. The sector-specific experience and expertise of the company’s senior management have contributed significantly to its growth.  The company has an extensive distributor and dealer network across the country and commercial arrangements with retail chains to ensure that its products reach the length and breadth of India.

Stove Kraft Limited started manufacturing kerosene wick stoves in 1994. By 1997, it became the largest manufacturer of LPG stoves in India. It was finally incorporated as a company in 1999 with brands like BPL, Marlex, and Inalsa as its OEMs.

Within the next two years, the company worked hard to reposition itself in the kitchen solutions market and launched the brands, Pigeon and Gilma in 2001. By 2003, the company had set up a cooktop manufacturing unit at Baddi in Himachal Pradesh.

Once its manufacturing processes were in place, the company tied up with petroleum marketing companies to increase its presence in the country. In 2007, Stove Kraft moved to India’s largest single-location manufacturing unit in Bangalore.

The company received a private equity infusion by Sequoia Capital in 2010 and the second round of infusion in 2013. In 2014, Stove Kraft bagged major orders from huge American chain stores like Walmart, Big Lots, etc. Apart from the USA, the company has also garnered an extensive global presence across the Middle East, Kenya, Uganda, Qatar, Sri Lanka, Fiji, Bahrain, Kuwait, Oman, and Tanzania.

Financials of Stove Kraft Limited

Here is a quick look at the financial performance of Stove Kraft Limited over the last five years:

2020 2019 2018 2017 2016
Total Assets 471.29 425.72 393.64 352.31 274.13
Total Income 672.91 642.60 534.58 517.95 347.06
Total Expenses 669.38 641.37 547.14 512.14 373.70
Profit After Tax 3.17 0.74 -12.02 -18.5 -25.25
Long-Term Debt 204.82 210.02 311.31 286.75 20.9

All amounts in INR Crore

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A quick glance at the financial performance of Stove Kraft over the last five years highlights the fact that there has been significant growth in revenue. During this period, the total income of the company showed growth at a CAGR of 14.16%. The assets of the company grew at a CAGR of 11.45%. 

It is important to note here that the company’s Pigeon brand contributes to the majority portion of its revenue. As of 2019, Pigeon contributed to around 90% of Stove Kraft’s total revenue, Gilma contributed around 2.5% and Black + Decker contributed around 2.3%.

Also, if you look at the profitability of the company, until 2018, Stove Kraft was not booking profits. However, it has managed to reverse this trend since 2019. Its long-term debt has also grown at a CAGR of 57.85%. The company intends to repay a major part of its borrowings using the funds raised by the IPO. 

SWOT Analysis

The kitchen appliances market in India was around Rs.1485 crores in 2017 and is expected to cross the Rs.2300 mark by 2022. The expected growth is at a CAGR of 9.9%. The primary drivers of this growth are increased urbanization, a larger proportion of the young population, and a steady increase in consumer spending. Also, while there are many companies in the kitchen appliances industry, a few companies hold the majority market share.

Kitchen Appliance is a broad-level term and includes various things. These appliances can be categorized into two primary categories – 

  1. Large kitchen appliances like chimneys, cooktops, etc. Stove Kraft’s Pigeon brand leads the market in the cooktops product. With an expected growth at a CAGR of around 11.9%, Stove Kraft is positioned to benefit from it.
  2. Small kitchen appliances like pressure cookers, blenders, etc. This is a highly fragmented market with many players. Stove Kraft is a minor player in this segment with around 5-6% market share.

1. Strengths of Stove Kraft Limited

  • Stove Kraft Limited is a one-stop-shop for well recognized, award-winning portfolio of kitchen solutions brands with a diverse range of products across consumer preferences.
  • It has a widespread, well-connected distribution network with a presence across multiple retail channels and a dedicated after-sales network.
  • The company has strong manufacturing capabilities with efficient backward integration.
  • Stove Kraft believes that quality is a pre-requisite for a positive consumer experience and long-term brand loyalty. Hence, it focuses on quality and innovation above everything else.
  • The company boasts of its professional management with a successful track record and extensive experience in the kitchen solutions industry along with a young and dynamic workforce.

2. Weaknesses of Stove Kraft Limited

  • Being a manufacturing company, Stove Kraft has high expenses. Also, it does not have any long-term contracts with the suppliers of raw materials. Therefore, an increase in the cost of acquiring raw materials for any reason can impact its profitability.
  • The company relies heavily on third-parties for the distribution and sales of its products.
  • It has large outstanding dues. Even if the company repays the loans using the funds raised from the IPO, it may lose an opportunity to use them for further expansion and growth.

3. Opportunity to Investors – Valuation of the IPO

Let’s look at the valuation factors of Stove Kraft in comparison with its peers (for Fiscal 2020):

EPS (Diluted) P/E RoNW
Stove Kraft 1.05 2.51%
Gandhimathi Appliances 1.83 284.29 1.70%
Hawkins 137.09 42.25 51.91%
Prestige 133.13 4.93 14.12%

According to the RHP, the industry average P/E Ratio is 123.82. If we take the upper limit of the price band, i.e. Rs.385 as the market price for the sake of calculation, then the P/E Ratio would be 385/1.05 = 366.67. 

Risk Factors

  • The company sources its raw materials from third parties with whom it does not have long-term contracts or price guarantees.
  • Stove Kraft relies heavily on its brand portfolio, and its inability to successfully maintain and promote its brand portfolio may adversely affect its results of operations.
  • The company’s operations are significantly dependent on third parties for the distribution and sales of its products.
  • Stove Kraft relies on third-party OEMs for the sourcing of some of its products, which are not manufactured by it in India.
  • The company has experienced negative cash flows from operating activities in the past. Sustained negative cash flow could impact its growth and business.
  • Due to the geographic concentration of its sales in the Southern regions of India, Stove Kraft’s results of operations and financial condition are subject to fluctuations in regional economic conditions

Promoters of Stove Kraft Limited IPO

  1. Rajendra Gandhi
  2. Sunita Rajendra Gandhi

Things to keep in mind before investing in the Stove Kraft IPO

Here are some things that you need to keep in mind before investing in the Stove Kraft IPO:

  1. Stove Kraft is a medium-sized company manufacturing kitchen solutions with a wide range of products. It also has strong manufacturing capabilities.
  2. It believes in organic growth and has been growing slowly but steadily.
  3. Until 2018, the company was not profitable.
  4. Stove Kraft has outstanding dues.

Happy Investing!

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