Stove Kraft IPO opens: 10 things you should know before subscribing

Initial public offering by Stove Kraft, a kitchen solutions and an emerging home solutions brand,
has opened for subscription on January 25 after receiving a stellar response from anchor investors on Friday. The public offer will close on January 28.

Shares of the company are proposed to be listed on both BSE and the National Stock Exchange. Edelweiss Financial Services and JM Financial are the book running lead managers to the offer.

Here are the key things you must know about the issue:

About the company: The company is one of the leading brands for kitchen appliances in India and is one of the dominant players for pressure cookers and amongst the market leaders in the sale of free-standing hobs and cooktops.

About the issue: The offer comprises a fresh issue of equity shares aggregating up to Rs 95 crore and an offer for sale of up to 82.50 lakh equity shares. The offer for sale comprises up to 6,90,700 shares by promoter Rajendra Gandhi; up to 59,300 shares by promoter Sunita Rajendra Gandhi; up to 14,92,080 shares by Sequoia Capital India Growth Investment Holdings and up to 6,007,920 shares by SCI Growth Investments II. At the upper end of the price band, the IPO is expected to garner Rs 412.62 crore.

Anchor allotment: A total of 48,22,290 shares have been allotted to 32 anchor investors at Rs 385 apiece, which is the upper end of the price band. At this price, the company raised Rs 185.68 crore, according to a BSE circular.

Price band: The company has fixed a price band of Rs 384-385 a share for its initial public offer and investors can bid for a minimum lot of 38 shares and multiples thereof.

Objective of the offer: Stove Kraft proposes to utilise the net proceeds from the fresh issue towards repayment or pre-payment of certain borrowings availed by the firm and for other general corporate purposes.

Book running lead managers: The book running lead managers to the offer are Edelweiss Financial Services and JM Financial.

Grey market premium: Sandip Ginodia of Abhishek Securities, who tracks grey market, said that the stock was trading at a premium of Rs 100-125 per share in the grey market on Monday.

Financials: FY18-20, Stove Kraft’s revenue grew at 13.1% CAGR to Rs 670 crore, according to Ventura Securities. Over the same period, its EBITDA grew at a CAGR of 84% to Rs 34 crore. The company converted its losses in FY18 to a profit of Rs 3 crore in FY20, however, the company’s net worth continues to be negative at Rs 30 crore in H1FY21, according to Ventura Securities.

Risk: Ventura Securities added that there are outstanding legal proceedings involving the company and it’s promoter, which are pending at different levels of adjudication. Any unfavourable decision in connection with such proceedings, individually or in the aggregate, could adversely affect the company’s reputation, business, financial condition and results of operations.

Should you subscribe: Angel Broking said that the company has priced its issue at 34.5 times PE on a trailing basis, its peers TTK Prestige and Hawkins Cookers are currently trading at 61 times and 47.5 times respectively. “On FY20 basis, the company priced its issue at 301.5 times 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. Stove Kraft’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 IPO issue,” the brokerage said.