In s titu tio n a l E q u itie s
Initiating Coverage
Bloomberg: STOVEKRA IN
Stove Kraft Limited
Reaping the benefits of “value for money” brand
We initiate coverage on Stove Kraft Limited (SKL) with a BUY rating and target price (TP) of
Rs900. We have assigned 26x to FY23E EPS. SKL, a kitchen and home appliance player, has
transformed itself into a “value-for-money” branded player over the years by reducing its
exposure to the co-branded business. A volume leader in Gas Stove category and among the
top-3 players in Pressure Cooker/Non-stick Cookware, it is the preferred brand of choice when
a consumer is shifting from the unorganized branded play to an organized branded play. SKL
has grown faster than competition in the last 7 years. Although gross margin is lower than
competitors, EBITDA margin is comparable with peers. It enjoys industry-best working capital
profile, which is likely to improve further. We believe that distribution expansion, new product
launches and exports will continue to result in higher-than-market growth for SKL in the
medium term. Pandemic year (FY21) helped SKL in rationalizing its cost base while a new
normal in profitability has been attained with rising scale, in our view. We forecast EBITDA
margin will sustain in future with growing backward integration and in-house manufacturing.
We expect SKL to report revenue/earnings CAGR of 22%/21% over FY21-FY24E.
Attractive brand positioning: We have observed that branded players like TTK Prestige/Hawkins
cater more to the premium segment of the market whereas SKL’s Pigeon brand (~93% of total FY21
sales) is well-known for its “value-for-money” image. Pigeon’s products offer quality at attractive price-
points in a high fragmented market. At the current price-points, Pigeon’s direct competitors are largely
from the unorganized segment/small players. Therefore, it is a ‘brand of choice’ when a consumer
moves from unorganized to organized branded play.
SKL can outperform industry growth in our view: As per industry estimates, kitchen categories are
slated to grow by ~8-15% given the favorable growth drivers and government policy support. We
expect SKL to outperform industry growth, thanks to its “value-for-money” brand image, distribution
expansion and new product launches. Distribution expansion will be a key catalyst for growth going
forward, particularly in Western/Northern regions. E-commerce/General trade (~80% of total sales)
will continue to drive strong growth. SKL has a strong foothold on the major e-commerce platforms
with its “value-for-money” offerings. In FY21, majority of incremental growth came from the e-
commerce channel as general trade was shut in the lockdown period. Fast-growing, white-label
exports in the non-stick cookware category will also be a growth driver in the medium term.
“New normal” in profitability achieved in the pandemic year: With 28% topline growth in FY21
and revenue base of Rs8.59bn, SKL reported 13% EBITDA margin (vs ~5% in FY20), as operating
leverage/cost rationalization initiatives helped boost overall EBITDA margin. With a higher proportion
of fixed cost and new cost base, 12-13% EBITDA margin is sustainable.
Outlook and valuation: We expect SKL to register 22% revenue CAGR, 21% EBITDA CAGR and
21% PAT CAGR over FY21-FY24E. We expect EBITDA margin of 13.0% in FY24 (vs 13.1% in FY21).
SKL has reduced its gross debt to only Rs150mn (vs Rs3.38bn at the end of March 2020), with the
help of IPO proceeds and conversion of convertible debt to equity. We expect the working capital
situation (currently at 27 days) to further improve with inventory rationalization and vendor financing.
We expect FCF generation of Rs2.9bn over FY22-FY24E (vs Rs328mn loss over FY19-FY21). SKL is
currently trading at 20.6x FY23E EPS. Our valuation multiple of 26x reflects 35% discount to TTK
Prestige, which we believe is reasonable given its strong ROCE profile, industry-best working capital,
volume leadership across product categories and ”value-for-money” brand positioning.
NBIE Values your patronage- Vote for The
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BUY
Sector: Consumer Durables
CMP: Rs715
Target Price: Rs900
Upside: 26%
Mayank Bhandari
Research Analyst
mayank.bhandari@nirmalbang.com
+91-9945758662
Key Data
Current Shares O/S (mn)
32.6
Mkt Cap (Rsbn/US$mn)
24/322
52 Wk H / L (Rs)
787/400
Daily Vol. (3M NSE Avg.)
282,861
Shareholding (%)
4QFY21
3QFY21
2QFY21
Promoter
54.3
54.4
54.4
Public
45.7
45.6
45.6
Others
-
-
-
One -Year Indexed Stock Performance
70
90
110
130
150
170
190
210
Feb-21
Mar-21
Apr-21
May-21
Jun-21
Jul-21
STOVE KRAFT LTD
Nifty 50
Price Performance (%)
1 M
6 M
1 Yr
Stove Kraft
23.6
-
-
Nifty Index
(0.7)
7.7
45.3
Source: Bloomberg
Y/E March (Rsmn)
FY20
FY21
FY22E
FY23E
FY24E
Net revenues
6,699
8,590
10,631
12,986
15,428
EBITDA
338
1,128
1,329
1,623
2,006
PAT
25
812
1,007
1,133
1,451
EPS (Rs)
1.0
24.9
30.9
34.8
44.5
EPS growth (%)
72.3
2362.8
24.0
12.5
28.1
EBITDA margin (%)
5.0
13.1
12.5
12.5
13.0
P/E (x)
706.7
28.7
23.1
20.6
16.1
P/BV (x)
(30.1)
7.7
5.8
4.6
3.6
EV/EBITDA (x)
78.2
20.8
17.0
13.4
10.3
RoCE (%)
8.4
31.7
29.7
29.9
30.0
RoE (%)
(4.2)
66.5
28.7
25.0
25.3
Source: Company, Nirmal Bang Institutional Equities Research
13 July 2021
In s titu tio n a l E q u itie s
2
Stove Kraft Limited
A leading “value for money” brand
Diversified product offerings in kitchen and home solutions
SKL is engaged in manufacturing and retailing of a wide range of diverse suite of kitchen solutions. It also
manufactures home solutions, including consumer lighting. As per industry reports, it is a dominant player in
Pressure Cooker and market leader in the sale of free standing Hobs and Cooktops. In FY21, it derived ~22%
of revenue from Pressure Cooker, ~18.5% from Non-stick Cookware followed by 10.9% from Gas Cook Top.
Small appliances contributed ~28.5% to total revenue (FY21). The company follows a multi-brand approach to
capture the entire value chain. It covers the entire range of value, semi-premium and premium kitchen
solutions through Pigeon, Gilma and BLACK+DECKER brands, respectively.
Exhibit 1: Product/Brand profile
Brand
Products
Pigeon
Cookware–Pressure cooker, wonder cast cookware, non-stick cookware, electric rice cookers and titanium hard anodized cookware
Cooktops and other kitchen solutions –Hobs, glass cooktops, stainless steel cooktops, induction cooktops and chimneys
Small appliances –Mixer grinders, rice cookers, electric kettles, toasters, sandwich makers, knives, steam irons, juicers, food steamers, air fryers/electric
grills.
Other products –LED bulbs, battens, downlights, emergency lamps, water bottles & flasks, aluminum ladders, cloth dryers, water heaters, dustbins and
mops
Gilma
LPG stoves, massage apparatus, water heaters, chimney hobs, cooktops kitchen sinks.
BLACK
+
DECKER
Small appliances –Food processors, juicers, hand blenders, hand mixers, mini choppers, oven toaster grills, rice cookers, coffee makers, toasters,
sandwich makers and kettles
Other products –Steam irons, dry irons, water heaters and oil fin radiators.
Exhibit 2: Product-wise revenue break-down (FY21)
Exhibit 3: Brand-wise revenue break-down (FY21)
Source: Company, Nirmal Bang Institutional Equities Research
Source: Company, Nirmal Bang Institutional Equities Research
Co-branding initiatives help establish strong outreach and brand recall
In 2014, the company used to have three business segments, comprising co-branding arrangements with oil
companies, government business and branded business. It exited the government business in 2013 itself.
The co-branded business also decreased to Rs180mn in FY21 from Rs2.5bn in FY14. As a result of its co-
branding initiatives over the eight years with LPG companies such as Indian Oil Corporation Limited and
Hindustan Petroleum Corporation Limited to utilize their sale and distribution channels, the Pigeon brand has
enjoyed a wide customer outreach and continues to have a high brand recall value.
In s titu tio n a l E q u itie s
3
Stove Kraft Limited
The margin on the co-branded business was not in line with the branded business. Overall, the business has
transformed in terms of business-mix, which has resulted in improved gross margin for SKL. Gross margin
has improved from 26% in FY14 to 35% in FY21. Control on the business has also improved, with increasing
proportion of the branded business.
Exhibit 4: Co-branded business has come down…
Exhibit 5: which reflects in gross margin increase
0
1000
2000
3000
4000
5000
6000
7000
8000
2014
2020
Branded vs Co-Branded Business Revenues
Co-branded business revenue (Rsmn)
Branded business (Rs mn)
0.2
5.2
10.2
15.2
20.2
25.2
30.2
35.2
40.2
0
1000
2000
3000
4000
5000
6000
7000
8000
9000
10000
2014
2015
2016
2017
2018
2019
2020
2021
Revenue & Gross Margin trend
Revenue (Rsmn, LHS)
Gross margin (RHS)
(Rs.Mn)
(%)
Source: Company, Nirmal Bang Institutional Equities Research
Source: Company, Nirmal Bang Institutional Equities Research
Exhibit 6: Volume leader in cooking stove, emerging player in cookware/pressure cooker
Product Categories:
Market Size: Retail
Volume- 2020('000
Units)
Market Size: Retail
Value-2020(Rs.
Mn)
Market Leader
Company (2020)
Market Share of
Market Leader(%)-
2020
Market Share of
Stove Kraft Ltd(%)-
2020
Large Cooking Appliances
14,209
1,10,958
1
Cook Tops
1,751
25,606
Stove Kraft Ltd.
25.0%
25.0%
2
Free-Standing Hobs
10,432
55,276
Stove Kraft Ltd.
20.3%
20.3%
3
Built in Hobs
284
4,732
Faber
23.0%
4.8%
4
Cooker Hoods
1,742
25,344
Faber
23.0%
3.8%
Non-Stick Cookware
1
Non-Stick Cookware
7,117
9,646
TTK Prestige
58.2%
18.9%
Small Cooking Appliances
52,613
86,098
1
Pressure Cooker
31,697
17,728
TTK Prestige
48.2%
11.4%
2
Electric Kettle
757
1,482
Bajaj
23.8%
21.1%
3
Electric Rice Cooker
2,186
4,421
Panasonic
35.0%
4.7%
4
Coffee Maker
327
1,238
Bajaj
29.1%
6.6%
5
Juice Extractor
249
970
Bajaj
25.7%
3.8%
6
Mixer Grinder
13,860
44,352
Bajaj
21.1%
2.7%
7
Blender
1,229
3,623
Phillips
44.6%
0.5%
8
Food Processor
2,309
12,283
Phillips
25.6%
-
Source: Industry, Nirmal Bang Institutional Equities Research
In s titu tio n a l E q u itie s
4
Stove Kraft Limited
In the Kitchen Appliances market, the organized brands are ~60% of the total market. Over the years, the
share of unorganized players has been gradually falling as there has been a shift in the consumers’
preference to reliable branded products. The share of unorganized players is higher in Cookware compared to
Pressure Cookers. For the rest of the product categories, the market structure is fragmented and the share
and the role of regional brands/unorganized players continue to be significant. In general, there is a clutter of
regional brands/unorganized players at the entry-level price points.
SKL is a volume leader in Cook-tops/Free-standing Hobs with 25%/20.3% market share. Cooktops are
essentially Cooking Stoves. In the Pressure Cooker category, it is ranked 3
rd
in terms of retail volume with an
11.4% market share (TTK Prestige: 48% and Hawkins: 35%). In the Non-stick Cookware also, the company is
ranked 3
rd
in retail volume with an 18.9% market share (TTK Prestige: 58%, Wonderchef: 22%).
In a fragmented market, Pigeon offers “value-for-money”
Having attained leadership position in Gas Stoves and being an emerging player in Cookware/Pressure
Cooker, we believe that Pigeon’s brand recall is very high despite facing strong competition at the entry-level
price points. We have performed detailed channel checks to understand the “value-for-money” positioning
strategy and pricing strategy in each product category. Our findings suggest that SKL’s “value-for-money”
positioning is strong in product categories like Pressure Cooker/Gas Stove etc. We notice that the company
sells pressure cookers at almost close to the lowest price points. Gas stoves are also sold at attractive price
points. Major brands like TTK Prestige/Hawkins have focused on technological innovations to upgrade their
customers. Therefore, Pigeon remains a preferred choice for aspirational customers in “semi-urban” and
“rural” parts of the country.
However, in other categories like Small Appliances/Mixer Grinders, the “value-for-money” positioning is
relatively weaker as most of the brands sell at similar price points. Overall, we believe that Pigeon is a
preferred choice of brand at the entry level price points across product categories.
We also performed product quality checks across 12 cities in South India. We understand that there are some
issues related to quality in mixer grinder/induction cooktop/emergency lights. However, there is no major
complaint across product categories. Normally, 4-5% of products sold report quality issues across all brands.
Pigeon’s product quality is good and service is also good.
Exhibit 7: Pigeon’s products are priced at varying discount to premium brands
Product
Pigeon’s price
Competition’s Pricing
3Liter Aluminum Pressure
Cooker
Rs670
Prestige (Rs1,135), Butterfly (Rs749), Greenchef (Rs549), Solomo
(Rs829), Hawkins (Rs923)
2 burner gas stove (Steel)
Rs2,149
Butterfly (2,900), Greenchef (Rs2,100), Orange (Rs2,200), Surya
(Rs2,200), Priya-gold (Rs2,000) and Sun flame (Rs2,600), Prestige
(Rs2,600)
Mixer Grinder
>Rs1,571
Butterfly (Rs2,200), Preeti (2,250), Prestige (Rs2,400)
Hand Blender
>Rs929
Kent (Rs1,149), Kutchina (Rs999)
Induction Cooktop
>Rs1,399
Prestige (Rs1,650)
Oven Toaster Grill
>Rs3,499
Bajaj (Rs3,699), Agaro (Rs3,699)
Rice Cooker
>Rs2,095
Butterfly (Rs2,500), Prestige (Rs2,800)
Electric Kettle
>Rs625
Prestige (Rs680)
Stainless steel water bottle
>Rs853
Ranges from Rs900-Rs1400
Plastic chopper
>Rs249
Ranges from Rs300-500
Aluminum Flat Tawa
>519
Ranges from Rs500-1000
Source: Nirmal Bang Institutional Equities Research, e-commerce websites like Amazon, Flipkart
In s titu tio n a l E q u itie s
5
Stove Kraft Limited
Exhibit 8: A “value-for-money” positioning across product categories
Product
“Value for money” positioning
Comment on competition
Pressure cooker
“Value-for-money” positioning is very strong. 3L
aluminum pressure cooker is available starting
Rs650.
With higher technology differentiation, Prestige/Hawkins
sells a significant premium to local/unorganized/smaller
brands. Pigeon sells at near lowest price points
Induction cooktop
“Value-for-money” positioning is relatively
weaker . Product is available starting Rs1,399
Competition is relatively less but competition offers
product at largely similar price-points or 15-20% higher
than Pigeon’s price.
Gas cooktop
“Value-for-money” positioning is very strong as
it is the volume leader in market. 2 burner gas
stove is available starting Rs2,000
Competitive intensity is very high as there are a number
of brands from unorganized segment offering product at
similar price-point as that of Pigeon’s. Even Prestige
offers at entry-level price in this category
Nonstick cookware
“Value-for-money” positioning is relatively
weaker. Aluminum flat tawa starts at Rs500
We notice that Pigeon is also trying to bring technology
differentiation in this product category. Competition is
already aggressive in terms of technology differentiation.
Products are available at similar price points from a
larger number of players
Mixer grinder/Small
appliance
“Value-for-money” positioning is relatively
weaker.
Several brands are available. Pigeon’s products are
priced at 15-20% lower than competitor’s.
Source: Nirmal Bang Institutional Equities Research
Exhibit 9: City-wise product quality check
City
Comment
Bengaluru
Our interactions with multiple retailers suggest that product related complaints are higher for Prestige as
the quantity sold is higher. Normally, 4-5% of products sold report quality issue across all brands.
Chennai
Pressure cooker comes with 5 years warranty and Gas stove comes with 2 years warranty. For Pigeon,
majority of complaints come in Mixer Grinder and Induction cooktop.
Coimbatore
Except in Mixer Grinder, no major complaint reported. Most of the complaints are motor related.
Tiruchirappalli (Trichy)
No major complaint in any product category. Service is good
Vellore
Except in Induction cooktop, no complaint in any product . Service is good.
Salem
Product related complaints in induction cooktop/Mixer grinder.
Mysore
A retailer said no complaint in any product in last 4 years. Service requirement was low
Mangalore
Pigeon’s products are better in quality in comparison to local/smaller brands. Very minimal complaints.
Kozhikode
A retailer highlighted that it gets higher complaint in Pigeon’s products than in Hawkings/TTK Prestige
Kottayam
Except in emergency light and mixer grinder, no complaint in any other product. Toll free number is used to
address the complaint
Kochi
No major complaint in any product category. Service is good
Vijaywada
Although Prestige’s product quality is best but Pigeon product quality is also good. No major complaints
received.
Source: Nirmal Bang Institutional Equities Research
In s titu tio n a l E q u itie s
6
Stove Kraft Limited
Favorable growth drivers in place with government policy support
Rising urbanization, increasing disposable incomes & e-commerce penetration
SKL is likely to benefit from favorable macro drivers in place for the Indian consumer appliances market,
which includes a burgeoning middle-class population, rising disposable incomes of Indian households and
easy access to credit, which drives a growing purchasing power.
Increase in the overall per capita income has resulted in the rise of per capita disposable income in the
country. It is expected to grow at a CAGR of 7% until 2025. Tier-II and Tier-III cities will be the upcoming high
disposable-income cities with greater purchasing power parity, high internet penetration and increasingly
brand-conscious young population. Rise in urbanization in India has also led to its people having more
additional disposable incomes compared to earlier, which in turn translates into greater opportunity for overall
retail spending in India. And with food accounting for the biggest share in the Indian consumers’ expenditure
pie, it is more and more evident that the Kitchen Appliances and Cookware market would be a direct
beneficiary of the growing trend of urbanization.
A growing middle class population is also leading to changing consumer behavior. According to NCAER
(National Council of Applied Economic Research), India's middle-class population was 267mn (53mn
households) in 2016. Further ahead, by 2025-26, the number of middle-class households in India is likely to
more than double from the 2015-16 level to 547mn individuals (or 113.8mn households), representing ~37%
of India’s population. Recent research has indicated that rural consumers are particularly aspiring or striving
to purchase high quality branded products for their day-to-day living. Consequently, Consumer Appliances
manufacturers in India are optimistic about growth of the country's rural consumer market, which is expected
to be faster than urban consumer market.
Exhibit 10: Per capita Gross National disposable income (USD)
Exhibit 11: Food has biggest share of consumer spending (%)
0
500
1000
1500
2000
2500
3000
3500
2017
2020
2022F
2025F
0
10
20
30
40
50
60
Food
Housing
Health
Transport
Education
Clothing
Durables
Others
Average Percentage Expenditure by Households in India, 2017
All India
Urban
Source: Industry, Nirmal Bang Institutional Equities Research
Source: Industry, Nirmal Bang Institutional Equities Research
Exhibit 12: Rising share of middle class population
1%
2%
5%
13%
20%
37%
0%
5%
10%
15%
20%
25%
30%
35%
40%
0
100
200
300
400
500
600
1985
1995
2005
2010
2015
2025F
Poplulation of Middle Income Class(Mn)
Share of Middle-income in Total Population(%)
Source: Industry, Nirmal Bang Institutional Equities Research
In s titu tio n a l E q u itie s
7
Stove Kraft Limited
E-commerce provides a huge selling platform for Consumer Appliance manufacturers. With the mushrooming
of e-commerce platforms like Amazon, Flipkart, Paytm and Snapdeal in India, the online channel is evolving
as the fastest growing channel for the sales of kitchen/home appliances. This is largely driven by increasing
internet & smartphone penetration, heavy discounting of products and availability of options to choose from.
Top brands in the market have separate online sales & marketing strategy for the sale of their kitchen
appliances. SKL derives 33% of its total revenue from the e-commerce channel. The E-commerce market in
India is expected to reach US$200bn by 2025, with Consumer Electronics as the top segment, contributing
36% to the online retail market.
Exhibit 13: E-commerce landscape in India
0
50
100
150
200
250
2016
2017
2018F
2019F
2020F
2022F
2025F
E-Commerce Landscape: Market Size and forecast for India, 2016 -2025F
(US $ Bn)
CAGR 33%
Source: Industry, Nirmal Bang Institutional Equities Research
Favorable government policy
We believe that the government’s favorable policies will provide further thrust to the overall growth of Kitchen
Appliance industry. This includes implementation of GST, Make-in-India, Foreign Direct Investment (FDI),
rising rural electrification and Pradhan Mantri Ujjwala Yojana (PMUY). Implementation of GST has led to a
transformational shift from the ‘unorganized’ to ‘organized’ sector in Indian manufacturing industries.
Exhibit 14: Favorable government policy
Government
policy/initiative
Description
Goods and
Services (GST) tax
As per current GST structure, the lower tax brackets of ‘5%’, ‘12%’ and ‘18%’ are the standard rates for commonly used Indian kitchen items.
The highest tax slab of 28% will be applicable to items, which were earlier taxed at 30-31% (excise duty plus VAT). GST places Large Domestic
Appliances and Consumer durables category in the highest tax slab of 28%
‘Make in India’
initiative
Electronics Manufacturing clusters: Subsidies on infrastructure cost to set up special manufacturing zones.
Modified Special Incentive Package Scheme: Subsidy for investments in capital expenditure of 20% for investments in Special Economic
Zones and 25% in non-special economic zones
Investment allowances and deductions: Investment allowance (additional depreciation) at the rate of 15% to electronics manufacturing
companies investing >Rs250mn in plants/machinery. This benefit was available for three years, i.e. for investments made up to March 31, 2017
Foreign Direct
investment (FDI) in
India
To fulfil its objective of reducing dependence on imports by 2020, the Govt. of India has allowed 100% FDI in the electronics hardware
manufacturing sector through the automatic route and 51% FDI in Multi-brand retail. Under the automatic route in the ESDM (Electronic System
Design & Manufacturing) sector, 100% FDI is allowed, with Special preference to foreign companies setting up manufacturing units in India. This
proved to be a key attraction for foreign investors, and also enabled consumer appliance manufacturers, especially those in the Kitchen
Appliances industry.
Rural
electrification
Majority of kitchen appliances – both large and small types, are electricity driven; The Indian Government’s continued push for rural electrification
(Deendayal Upadhyaya Gram Jyoti Yojana/ Pradhan Mantri Sahaj Bijli Har Ghar Yojna) could benefit a host of consumer durables and
electronics makers, mainly Food preparation and other Kitchen Appliances.
‘Pradhan Mantri
Ujjwala Yojana
(PMUY)
India Government’s aim to provide clean cooking fuel to families that are below poverty line. Under this scheme the Indian Government initially
made a target to provide 50mn LPG connections to under privileged women. Stove Kraft Limited, has partnered with oil and gas companies such
as Indian Oil, HPCL and BPCL, as a co-branding initiative and provides cooktops with new gas connection for any of these oil and Gas
companies
Source: Nirmal Bang Institutional Equities Research
In s titu tio n a l E q u itie s
8
Stove Kraft Limited
Industry growth at 11% CAGR from FY20-25E
Exhibit 15: Kitchen appliance industry to grow in value at 11% CAGR over FY20-25E
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
Cook Tops
Free
Standing
Hobs
Built in Hobs
Cooker
Hoods
Non-Stick
Cookware
Small
Cooking
appliances
Overall
Volume Growth FY20-25E(%)
Volume Growth FY20-25E(%)
Source: Industry, Nirmal Bang Institutional Equities Research
Overall, the Kitchen Appliance industry is expected to grow in value terms at 11% CAGR (~8% volume) over
FY20-FY25E. The large appliances category (cooker hoods, cooking hobs, cooktop etc) is expected to grow
in value at 12.5% CAGR (8.7% volume CAGR) whereas the small cooking appliances category (pressure
cooker, electric kettle, rice cooker and mixer grinder etc) is expected to grow in value at 8% CAGR (7%
volume CAGR). Over FY15-FY20, the Large Cooking Appliance category grew at 9% CAGR (6% volume
CAGR). The Non-stick Cookware category is expected to grow in value at 17% CAGR (~10% volume
CAGR).
Exhibit 16 : Key drivers of kitchen appliance industry
Key driver
Description
Lifestyle
Stylizing of cookware in order to transform the product from a functional kitchen tool to making it a part of an
aspirational lifestyle, especially for affluent, urban consumers
Need for space utilization
Emergence of “modular kitchen” as a concept with compact designs and portable cookware especially for
small homes, apartments and traveling purposes
Change in cooking approach
Cooking is no more restricted to women. Man is also playing role of cook and its equally accepted in society
Health and environment concerns
Indians are looking for healthier options not only in their choice of food but also in their choice of kitchen
appliances. Today, People question the safety of non-stick coatings in cookware.
Technological advancement
Technological evolution is transforming the supply of products such as hoods or hobs, which become more
and more hi-tech and connected.
Growth of E-commerce and easy financing options
E-commerce companies offer a range of kitchen appliances with easy financing, like low EMI and discounts to
generate more sales, which also contribute toward increased demand. As per industry expert’s views, Modern
Retail chains such as Big Bazar, Croma, Reliance Digital, etc. significantly contribute toward increasing
product awareness of modern consumer appliances among consumers, thereby boosting the demand for
kitchen appliances in India
Mass Media
Consumers are now more aware of cookware through reality programs and cooking shows on Television.
Increasing number of cooking based shows on television is also encouraging people to buy food preparation
appliances and to try out new recipes
Influence of Social Media
To take this approach at the global level, social media also played a very important role. In this technological
savvy world, people have started experimenting and with the help of media taking it viral
Property developers and builders as influencers
Developers are providing built-in kitchens/modular kitchen. The concept of hiring a third party Kitchen
designer is also on the rise especially in urban pockets
Increase in premium residential constructions
Share of premium residential construction was 7% in 2010, has increased to 10% in 2015 giving rise to higher
adoption of modern kitchen appliances
Source: Industry, Nirmal Bang Institutional Equities Research
In s titu tio n a l E q u itie s
9
Stove Kraft Limited
Distribution expansion/new product launches/exports to drive growth
General trade/E-commerce channels drive ~80% of sales
Exhibit 17: E-commerce accounts for ~34% of total sales
44%
34%
13%
9%
General trade
E-commerce
Exports
Modern Retail
Source: Company, Nirmal Bang Institutional Equities Research
SKL derives ~44% of total sales from general trade, followed by 34% from the e-commerce channel. It derives
13% of sales from exports and 9% of sales from modern retail. Sales contribution from e-commerce has
increased significantly in the last three years. The Kitchen Appliance industry has seen regional and small
players reaching out to pan-India level through the e-commerce channel. Further, during 1HFY21, supply
chain constraints of large players provided an opportunity to regional brands/smaller players to fulfill demand
that outstripped supply through the e-commerce channel.
SKL’s manufacturing facilities are well connected with strategically located 9 C&F agents. Additionally, it has
651 distributors in 27 states and 5 union territories of India. The C&F agents and distributors are, in turn,
connected with a dealer network, comprising over 45,500+ retail outlets, which are driven through a sales
force of 566 personnel. The company’s products are also available in retail chains such as Metro Cash &
Carry India. It has also partnered with e-commerce retailers such as Amazon and Flipkart to sell Pigeon
branded products on their platforms. SKL has also tied up with Udaan.com to sell its products. Gilma branded
products are sold exclusively through 65 Gilma branded stores located across 28 cities and towns in four
states.
There is scope for distribution expansion of the Pigeon brand, particularly in North/West/East of the country.
Of the total 45,000 retail touch points, Pigeon accounts for ~33,000, LED ~11,000 and Black & Decker
~1,000. Total addressable touch points in Pigeon are 1,00,000. Out of the total 33,000 touch points for
Pigeon, 45% are from South and 36% are from West. North/East have ~15% of total touch points (~2,500
each). Management expects 20% growth in touch-points in Western India in the next few years. It will add
~1,000-1,500 touch-points in East/North India every year. Due to its strong reach in Southern markets through
general trade, it derives 55% of its revenue from South India.
Black & Decker and LED are being sold currently only in nine states and six states. Growth in LED is possible
through geographical expansion beyond six states. SKL has super distributors for the LED business (not C&F
agents). It is also planning to take its Gilma brand across the country (pan-India).
SKL has implemented a secondary sales software called BIZOM, which enables the company to track and
capture secondary momentum of its field sales executives and servicing engineers in real time. After-sales
service is provided through a dedicated centralized CRM, a large team of in-house service personnel to cater
to the requirements of customers. DMS (Distributor Management System) helps SKL to track secondary and
tertiary sales and maintain inventory levels with the distributors.
In s titu tio n a l E q u itie s
10
Stove Kraft Limited
White label exports will continue to grow faster than overall business
SKL exports Non-stick Cookware to 14 countries. It is the largest exporter of Non-stick Cookware. Good
quality and cost competitiveness has led to strong growth in exports in the last few years (>70% YoY). Out of
the total export contribution of 10% to revenue, 7-8% is through OEM exports. In North America/Mexico, it is
working with large retailers like Walmart/JC Penny/Belk/Big Lots. There is not much competition in exports
from India in the Non-stick Cookware category. SKL has built a very strong relationship with all retailers and is
looking at having its own brand/distribution in future. Management is focusing on building export opportunities
with manufacturing and technological competence, constant innovation and increased customer acceptance.
It does not expect the export business to exceed 20% of total revenue in future.
New product introduction to aid overall growth
SKL seeks to expand its product portfolio across categories to cater to the evolving requirements of a large
customer base and cover newer segments. In 2016, it diversified the Pigeon brand by launching LED
products. In 2019, it commenced manufacturing of LED products at its Bengaluru facility. Very recently, the
company has launched or upgraded a new range of Home & Kitchen Appliances for the Onam festival, which
includes Mixer Grinder/Wet Grinder, Pressure Cooker, Cast lron Cookware, Sleek Glass Cooktop 2, 3 and 4
Burner, Double Walled Kettle, Hand Blender, Hand Mixer, Induction Stove, Desk Lamp, Turbo Food
Processor, Shears and Cutting Board.
Few innovative product launches
Super stormed advanced Infinity Glass cooktop Super cooker
Upcoming launches
Turbo Chopper Personal Blender Pro Chopper
Feather touch mixer grinder
In s titu tio n a l E q u itie s
11
Stove Kraft Limited
Branding/Advertisement will be a key focus area going forward
SKL seek to continue to enhance brand awareness and customer loyalty through promotion and marketing
efforts such as increased advertising in print & social media, retail branding, product branding, hyperlocal
activities, factory visits for trade partners, in-shop displays, merchandising kiosks, live demo stands,
substantially increasing its digital presence and engagements, generating contemporary educational content
and engaging in brand associations. It has also maintained an in-house team of 15 personnel, which
continuously engages with various publications, TV channels and other media sources to co-ordinate its
marketing efforts.
Wide range of branding and marketing
Social media advertisement
A number of promotional videos are available on Youtube
In s titu tio n a l E q u itie s
12
Stove Kraft Limited
Exhibit 18: Ad spend will be 3-4% of sales going forward
0%
1%
2%
3%
4%
5%
-
50
100
150
200
250
300
350
2018
2019
2020
2021
Ad and promotion spend (Rs mn)
as % of sales (RHS)
Source: Company, Nirmal Bang Institutional Equities Research
Management has guided that ad spend will be maintained at 3-4% of sales going forward. We notice that
SKL’s ad spend is little lower than other key branded players. SKL’s FY20 ad spend was ~5% of sales
(Hawkins: 5%, TTK Prestige: 6% and Butterfly Gandhimathi: ~9%). However, we believe that SKL is slated to
benefit from its continued focus on branding & advertisement as it provides an edge over the
unorganized/smaller players. Unorganized/smaller players form a large part of the market in the Kitchen
Appliance category. In the pandemic year (FY21), we have seen cuts in ad spend by SKL’s competitors also.
SKL spent Rs190mn (~2% of sales) in comparison to 5% in FY20. Hawkins spent 3% of sales (vs 5% in
FY20) and TTK Prestige spent 5% of sales (vs 6% in FY20). Only Butterfly Gandhimathi saw its ad spend
increase to 11% of total sales (vs 9% of sales in FY20).
Exhibit 19: Ad spend as % of sales for key industry players (FY20-FY21)
3%
2%
5%
11%
5%
5%
6%
9%
0%
2%
4%
6%
8%
10%
12%
Hawkins
Stove Kraft
TTK Prestige
Butterfly Gandhimathi
As spend as % of sales
FY21
FY20
Source: Company, Nirmal Bang Institutional Equities Research
In s titu tio n a l E q u itie s
13
Stove Kraft Limited
“New normal” in profitability achieved in pandemic year
Increasing in-house manufacturing and backward integration margin accretive
SKL manufactures its Pigeon and Gilma branded products at its well-equipped and highly backward
integrated manufacturing facilities at Bangaluru (Karnataka) and Baddi (Himachal Pradesh), which enables
the company to control and monitor quality and cost. Its Bangaluru facility is spread over ~46 acres and over
30 acres of land is still available for future expansion. It has an installed annual production capacity of 38.4mn
units with the capability to manufacture products like Pressure Cookers, Non-Stick Cookware, LPG Stove,
Mixer Grinder, LED Bulbs, Electric Iron and Induction Cooktops. The company’s Baddi facility has an installed
capacity of 2.8mn units per annum with the capability to manufacture products such as LPG Stove and Inner
Lid Pressure Cooker.
SKL undertakes manufacturing of its products combined with its raw material sourcing, packaging,
transportation practices and quality control, which enables it to derive higher margins from the sale of a
product. It has one of the few facilities in India to have a fully automated roller coating line for the manufacture
of Non-stick Cookware. It has the ability to manufacture components such as Bakelite Handle, Sheet Metal
Components, Moulded parts, Die Cast parts, Mould Dyes and Fixtures in-house for the manufacturing of its
products. Backward integration of its manufacturing facilities has reduced dependence on third-party suppliers
and OEMs for such components. It has reduced the proportion of traded products to 19% of total sales (vs
31% in FY18) over the past few years. It will continue to expand its presence in the existing product
categories by increasing the emphasis on manufacturing a greater proportion of its products and reducing
reliance on traded products. It entered the LED segment in 2016 as retailers, increasing its manufacturing
capacity for LED products and reduced dependence on traded products.
.
Exhibit 20: Trading sales as % of sales has come down
Exhibit 21: Cost control in FY21
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
2014
2015
2016
2017
Trading sales (as % of sales)
10%
11%
11%
12%
9%
17%
19%
16%
17%
12%
0%
2%
4%
6%
8%
10%
12%
14%
0%
5%
10%
15%
20%
25%
2017
2018
2019
2020
2021
Employee cost as % of sales
Other expense as % of Sales
EBITDA margin(%) (RHS)
Source: Company, Nirmal Bang Institutional Equities Research
Source: Company, Nirmal Bang Institutional Equities Research
SKL has recently put up an automated line for manufacturing glass plates in the Non-stick Cookware
category. Currently, 100% of glass plates are imported from China. It has already invested in plastic
moulding in FY21. Overall, the company is focusing on increasing indigenization and backward integration,
which will be margin accretive in future.
Cost rationalization efforts to result in stable 12-13% EBITDA margin going
forward
Management has guided for 12-13% EBITDA margin going forward. In FY21, the company saw its EBITDA
margin jump to 13.1% vs 5.1% in FY20. This was largely attributed to cost-control measures as well as the
impact of operating leverage kicking in. Employee cost declined by 2% in FY21 as the company focused on
streamlining its workforce. Moreover, advertisement spend was only Rs190mn in FY21 vs Rs320mn in FY20.
While some expenses will come back in FY22 (like advertising expenses, transport cost) etc, operating
leverage will continue to support margin due to higher fixed cost base.
Our analysis of major cost items in “other expenses” section shows that SKL has re-based its cost base in
FY21. Key heads of “other expenses” like freight cost, sales commission, travelling expenses either
In s titu tio n a l E q u itie s
14
Stove Kraft Limited
Exhibit 22: Key cost items under “other expenses”
Cost item under “Other
expense”
FY20 (Rs mn)
FY21 (Rs mn)
Comment
Freight and forwarding
241
260
SKL has rationalized the freight cost with 1) in-house
fleet of trucks for transportation 2) Efficiency in truck-
load achieved with rising scale. It expects freight cost
will be less than 3% of sales going forward.
Sales commission
91
97.5
As cobranded business is coming down, sales
commission is slated to go-down further.
Business promotion and adv.
316
190
Management expects ad spend will be 3-4% of total
sales going forward.
Travelling and conveyance
100
37.5
Travelling cost will get normalized going forward
Job work charges
68
-
Power and Fuel
70
-
Power cost will come down as the company is setting
up renewable plant (rooftop and wind) of 3.5-4MW.
After the plant is operational, 80% of power will be
supplied captively. Power cost will come down to
Rs2.5 from Rs7.5, currently.
Others
237
-
-
Total
1,122
1,073
Source: Company, Nirmal Bang Institutional Equities Research
saw a decline in FY21 or remained stable against revenue growth of 28%. We believe that SKL has re-based
its cost structure in FY21. Therefore, it will be able to maintain its current margin profile going forward as well.
Except Hawkins, we notice that employee expenses category is largely in the range of 8-9% of sales. SKL
has the lowest other expense as % sales among all the competitors, thanks to prudent advertisement spend
and transport cost. Butterfly Gandhimathi’s other expenses is very high mainly due to higher ad spend and
transport cost. Butterfly spends ~6% of sales on transport expenses whereas SKL spends only 3% of sales
on transport expense. Hawkins spends ~7% of sales on transport expenses whereas TTK Prestige spends
4% of sales on it. In terms of advertisement spend, Butterfly Gandhimathi spends ~9% of sales (FY20) on it
whereas TTK Prestige/Hawkins spend 6%/5%. In FY20, SKL spent Rs319mn on advertisement spend (~5%
of sales).
. Exhibit 23: SKL has lowest other exp as % sales (FY21)
Exhibit 24: Transport expense is lowest in industry (FY21)
17%
12%
18%
24%
13%
9%
8%
9%
0%
5%
10%
15%
20%
25%
Hawkins
Stove Kraft
TTK Prestige
Butterfly Gandhimathi
Other expense % of sales
Employee exp as % of sales
7%
3%
4%
6%
0%
1%
2%
3%
4%
5%
6%
7%
8%
Hawkins
Stove Kraft
TTK Prestige
Butterfly Gandhimathi
Transport expense as % sales (FY21)
Source: Company, Nirmal Bang Institutional Equities Research
Source: Company, Nirmal Bang Institutional Equities Research
In s titu tio n a l E q u itie s
15
Stove Kraft Limited
Financial analysis
22% revenue CAGR likely over FY21-FY24E
Over FY14-FY21, SKL has registered revenue CAGR of 15%, significantly outpacing competition (TTK: 9%,
Butterfly: 8% and Hawkins: 9%). We expect it to grow its sales at 22% CAGR over FY21-24E. We are
factoring in faster volume growth in Pressure Cooker/Non-stick Cookware in comparison to other categories.
Non-stick Cookware will grow at a higher pace than overall growth as exports (white label) will contribute to its
growth. We factor in 20-25% volume growth in Pressure Cooker, 25-30% volume growth in Non-stick
Cookware and 15% volume growth in Cooktop (LPG and Induction). We also factor in 13-15% growth in the
LED business and 13-20% growth in the Small Appliance business.
Exhibit 25: Revenue to post 22% CAGR over FY21-FY24E
Exhibit 26: Sales CAGR (FY14-FY21)
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
18,000
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21
FY22E
FY23E
FY24E
Revenue (Rs.Mn)
CAGR=23%
0%
2%
4%
6%
8%
10%
12%
14%
16%
Hawkins
Stove Kraft
TTK Prestige
Butterfly Gandhimathi
Sales CAGR(FY14-21)
Source: Company, Nirmal Bang Institutional Equities Research
Source: Company, Nirmal Bang Institutional Equities Research
12-13% margin in FY22-FY24E, PBT CAGR of 33% over FY21-24E
SKL’s gross margin profile (FY21: ~35%) is lower than its key competitors (Hawkins: ~44%, TTK Prestige:
~42% and Butterfly: ~42%). However, EBITDA margin (FY21: ~13.1%) is comparable to its key competitors
(Hawkins: ~14.4%, TTK Prestige: ~15.5% and Butterfly: ~9.3%). We expect SKL to be able to maintain its
margin in the range of 12-13% going forward, thanks to cost rationalization (employee and other cost)
initiatives in the pandemic year FY21. We expect negligible interest cost going forward as the company is
largely debt free now. We expect PBT CAGR of 33% over FY21-FY24E. As we expect effective tax rate of
25% FY23 onwards, we expect overall PAT CAGR at 21% over FY21-FY24E.
Exhibit 27: Gross margin of key industry players (FY21)
Exhibit 28: EBITDA margin of key industry players (FY21)
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
Hawkins
Stove Kraft
TTK Prestige
Butterfly Gandhimathi
Gross margin (%)
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
Hawkins
Stove Kraft
TTK Prestige
Butterfly
Gandhimathi
EBITDA Margin (%)
Source: Company, Nirmal Bang Institutional Equities Research
Source: Company, Nirmal Bang Institutional Equities Research
In s titu tio n a l E q u itie s
16
Stove Kraft Limited
Exhibit 29: EBITDA to grow at 21% CAGR over FY20-FY24E
Exhibit 30: PAT to grow at 21% CAGR over FY21E- FY24E
-500
0
500
1000
1500
2000
2500
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21
FY22E
FY23E
FY24E
EBITDA (Rs.Mn)
CAGR=21%
(400)
(200)
0
200
400
600
800
1,000
1,200
1,400
1,600
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21
FY22E
FY23E
FY24E
PAT (Rs.Mn)
CAGR=21%
Source: Company, Nirmal Bang Institutional Equities Research
Source: Company, Nirmal Bang Institutional Equities Research
Working capital to improve going forward; return ratios will be maintained
SKL enjoys industry-best working capital. Currently, SKL’s working capital days stand at 27 (FY21) with
inventory days at 66 days, debtors at 36 days and creditors at 75 days. TTK prestige’s working capital days
is the highest at 83 days followed by Butterfly (37 days) and Hawkins (28 days). SKL’s debtor days is optimal
due to channel financing and bill discounting. As per the management, 95% of SKL’s sales through general
trade are based on channel financing. Even on e-commerce platforms like Flipkart and Amazon, it uses bill
discounting. In modern retail, payment terms are favorable (D-Mart pays within 7 days). On the inventory
side, it expects further rationalization as the company is consolidating its network of C&F agents post the
implementation of GST. Before GST implementation, it was mandatory to keep one C&F agent in each state.
On the payables side, higher vendor financing will result in lower payable days going forward, as per the
management. Overall, management expects working capital days to improve going forward due to increasing
inventory turns and vendor financing. There is little scope for improvement in the receivables situation. We
expect working capital days to improve to 16-17 days in FY23-FY24E (vs 28 days in FY21). As % of sales,
ex-cash working capital will be maintained at 5% in future.
Exhibit 31: Working capital days of key industry players
28
27
83
37
0
10
20
30
40
50
60
70
80
90
Hawkins
Stove Kraft
TTK Prestige
Butterfly Gandhimathi
Creditor days
Debtor days
Inventory days
Working capital days
Source: Company, Nirmal Bang Institutional Equities Research
In s titu tio n a l E q u itie s
17
Stove Kraft Limited
In FY21, RoCE/RoE increased to 32%/67%, thanks to a improvement in its margin profile. In FY19-20, RoCE
stood at ~9%. We expect the company’s return ratios to largely be maintained going forward as SKL will
largely maintain its profitability profile with a strong topline growth. We expect RoCE/RoE of 29%/25% in
FY24E. We notice that SKL has a better RoCE profile than Butterfly Gandhimathi (~21%) and TTK Prestige
(~20%). Hawkins enjoys the highest RoCE at ~50%.
Strong cash flow generation going forward; asset turnover to rise
With healthy revenue growth, strong operating margin, increasing profitability and improvement in the
working capital cycle, SKL is expected to generate operating cash flow of Rs4.0bn over FY22-FY24E. In the
last 8 years (FY14-FY21), the company has generated operating cash flow of Rs1.97bn. SKL will do capex of
~Rs350mn annually for the next 2-3 years. We expect SKL to generate positive free cash flow of Rs2.9bn
over FY22-FY24E (vs Rs328mn loss over FY19-FY21).
SKL’s fixed asset turnover has increased from 2.5x in FY15 to 3.7x in FY21. SKL’s capex rose to Rs633mn
in FY21 compared to an average of Rs128mn every year over FY15-FY20. With resumption of growth, we
expect the fixed asset turnover to rise to 4.6x in FY24E. At 100% capacity utilization currently, the company
can generate ~Rs10-12bn of sales. Incremental Rs1bn of capex can generate ~Rs3.5-4bn of sales. As SKL
does not have any debt, current debt-equity ratio is modest at 0.2x in FY21, which we expect to reduce
further to 0.1x in FY22E.
Exhibit 32: Trend in cash conversion cycle
Exhibit 33: Trend in ex-cash net working capital
0
20
40
60
80
100
120
140
160
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21
FY22E
FY23E
FY24E
Cash Conversion Cycle (Days)
Debtor days
Inventory days
Creditors days
-2%
0%
2%
4%
6%
8%
10%
12%
-100
0
100
200
300
400
500
600
700
800
900
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21
FY22E
FY23E
FY24E
Ex-Cash Net Working Capital
Ex-cash net working cap (Rs.Mn)
as % of sales
Source: Company, Nirmal Bang Institutional Equities Research
Source: Company, Nirmal Bang Institutional Equities Research
Exhibit 34: Trend in return rations
Exhibit 35: RoCE profile of key industry players
-60.0
-40.0
-20.0
0.0
20.0
40.0
60.0
80.0
FY15
FY16
FY17
FY18
FY19
FY20
FY21
FY22E
FY23E
FY24E
RoCE(%)
RoE(%)
RoIC(%)
0
10
20
30
40
50
60
Hawkins
Stove Kraft
TTK Prestige
Butterfly Gandhimathi
ROCE(FY21)
Source: Company, Nirmal Bang Institutional Equities Research
Source: Company, Nirmal Bang Institutional Equities Research
In s titu tio n a l E q u itie s
18
Stove Kraft Limited
Exhibit 36: Trend in Operating Cash Flow and Free Cash Flow
(1,000)
(500)
0
500
1,000
1,500
2,000
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21
FY22E
FY23E
FY24E
Free Cash Flow
Cash Flow from Operstions
Source: Company, Nirmal Bang Institutional Equities Research
Exhibit 37: Gross block and fixed asset turnover
Exhibit 38: Fixed asset turnover of key industry players (FY21)
2.8
2.5
2.2
3.1
3.2
3.2
3.0
3.7
4.0
4.3
4.6
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
0
500
1000
1500
2000
2500
3000
3500
4000
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21
FY22E
FY23E
FY24E
Gross Block(Rs. Mn)
Fixed asset turnover ratio (x)
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
Hawkins
Stove Kraft
TTK Prestige
Butterfly Gandhimathi
Fixed asset turnover (FY21)
Source: Company, Nirmal Bang Institutional Equities Research
Source: Company, Nirmal Bang Institutional Equities Research
In s titu tio n a l E q u itie s
19
Stove Kraft Limited
Outlook and valuation
We believe SKL can grow at a faster pace than industry, thanks to distribution expansion and its “value-for-
money” brand image. Exports and new product launches will also contribute positively to overall growth. We
expect sales CAGR of 22% over FY21-FY24E. While we expect margin to largely be maintained ~12-13%
going forward, PBT will grow at 33% CAGR over FY21-FY24E.
SKL has grown faster than its key competitors in the last 7 years. SKL enjoys strong RoCE of 29%, higher
than some of the key industry players like Butterfly and TTK Prestige. Although the company has lower gross
margin than its competitors, its EBITDA margin profile is comparable. We agree that industry leaders like
TTK Prestige should command a valuation premium due to strong branding, product innovation, robust
distribution network and premium positioning. Therefore, we assign 26x to SKL, 35% discount to TTK
Prestige (40x FY23E consensus EPS). We derive a TP of Rs900. Our TP gives an upside of 26% from the
current market price. The stock is currently trading at 21x FY23E EPS. We initiate coverage on SKL with a
BUY rating. “Value-for-money” brand image, volume leadership in key categories and distribution expansion
will continue to support SKL’s valuation.
Exhibit 39: Valuation table
P/E(x)
P/Bv(x)
ROE(%)
Company name
FY21
FY22E
FY23E
FY21
FY22E
FY23E
FY21
Bajaj Electricals
64.2
47.9
30.5
7.4
6.6
5.7
11.4
Blue Star
82.4
48.8
31.9
9.3
8.8
7.8
12.0
Crompton consumer
46.0
45.4
37.9
14.7
13.0
11.4
36.3
Dixon Tech
169.6
79.6
53.3
36.2
26.3
18.6
21.7
Havells India
62.7
55.3
45.5
12.6
10.9
9.4
22.0
IFB Industries
69.7
29.3
22.6
6.1
5.0
4.1
9.1
Johnson Controls Hitachi - IN
182.9
56.4
36.1
8.4
7.4
6.3
4.6
Orient Electric
55.0
48.2
36.5
14.4
12.1
10.0
29.4
Polycab India
33.0
31.8
26.7
6.1
5.3
4.5
18.5
Stove Kraft
28.7
23.1
20.6
7.7
5.8
4.6
66.5
V-Guard Industries
55.5
48.1
36.7
9.1
8.0
6.8
18.1
Voltas
64.2
51.5
36.3
6.8
6.2
5.5
11.3
Whirlpool of India
80.3
47.6
36.9
9.9
8.5
7.1
13.0
Source: BSE, Company, Nirmal Bang Institutional Equities Research
In s titu tio n a l E q u itie s
20
Stove Kraft Limited
Quarterly result analysis
Exhibit 40: Stove Kraft’s 4QFY21 quarterly performance
Y/E March (Rsmn)
4QFY21
4QFY20
YoY %
FY21
FY20
YoY %
Revenue from Operations
2,354
1,540
53
8,590
6,699
28
Cost of Materials Consumed
1,377
749
4,424
3,232
Purchase of stock-in-trade
183
187
1,252
1,288
Changes in Inventories
(18)
128
(94)
(101)
Gross Profit
813
476
71
3,007
2,280
32
GP %
34.5
30.9
35
34
Employee Benefits Expense
258
216
806
820
Other Expenses
303
277
1,073
1,122
EBITDA
252
(17)
NA
1,128
338
234
EBITDA %
10.7
(1.10)
13.1
5
Other Income
8
2
15
21
D&A Expense
36
33
142
121
EBIT
224
(48)
1,000
237
Finance Costs
32
56
188
209
PBT
192
(104)
812
28
Total Tax Expense
0
0
0
0
Profit for the year
192
(104)
NA
812
28
2758
PAT %
8.2
(6.8)
9.5
0.4
Source: Company
SKL reported sales of Rs2.3bn in 4QFY21, up 53% YoY on the back of strong volume growth, better product
mix and cost rationalization.
In Pressure cooker, volume grew by 90% to 0.8mn (FY21: 2.59mn, +19% YoY). In Gas cooktop, volume
grew by 11% to 0.18mn (FY21: 0.7mn, -18% YoY). In Induction cooktop, volume grew 52% YoY at 0.25mn
(FY21: 0.81mn, +21% YoY). In non-stick cookware, volume grew 39% YoY at 0.89mn (FY21: 3.38mn, +43%
YoY). In LED, volume grew 241% YoY (FY21: 8.2mn, +136% YoY). In Small appliances, volume de-grew 5%
YoY at 2.78mn (FY21: 12.2mn, +6% YoY)
Gross profit margin improved by 360bps to 34.5% YoY in the same period.
EBITDA for the quarter jumped to Rs252mn vs. EBITDA loss of Rs17mn in 4QFY20.
The company reported net profit of Rs192mn in 4QFY21 as against a net loss of Rs104mn in 4QFY20.
The company’s working capital improved from 37 days in March 2020 to 27 days in March 2021.
Net debt reduced to Rs150mn vs Rs3.38 at the end of March 2020.
In s titu tio n a l E q u itie s
21
Stove Kraft Limited
Company Background
Incorporated in 1999 by Rajendra Gandhi, Stove Kraft Ltd is engaged in the manufacture, trade as well as retail of a
wide and diverse suite of kitchen and home solutions. Its kitchen solutions comprise cookware and cooking appliances
across brands. Its home solutions comprise various household utilities, including consumer lighting. The company
markets its products under the flagship brands of Pigeon (pressure cookers, non-stick cookware, LPG gas stoves,
induction cooktops and LED products), Gilma (chimneys, hobs and cooktops) and licensed ‘Black & Decker’ brand. It’s
flagship brands, Pigeon and Gilma, have enjoyed a market presence of over 15 years and command a high brand recall
among customers for quality and value for money. The company has been able to leverage the distribution network of
its Pigeon branded products by launching LED products and in 2019 commenced manufacturing of LED products.
At Bengaluru, the company has an installed annual production capacity of 38.4mn units, with the capability to
manufacture pressure cookers, non-stick cookware (roller coated and spray coated), LPG stoves, mixer grinders, LED
bulbs, iron and induction cooktops categories. Similarly, its Baddi Facility in Himachal Pradesh, has an installed capacity
of 2.8mn units per annum, with the capability to manufacture products such as LPG stoves and inner lid cooker. For
certain product categories and sub-categories, which do not enjoy economies of scale in India, the company engages in
sourcing from third-party OEMs.
Additionally, SKL has 651 distributors in 27 states and 5 union territories across India. The company’s C&F agents and
distributors are connected with a dealer network comprising over 45,475 retail outlets. In general trade, ~55% of sales
come from South India. However, the company is now bridging the gap in Non-south regions through e-commerce and
modern trade channels. Internationally, SKL’s products are exported to 14 countries, including UAE, Qatar, Bahrain,
Kuwait, Tanzania, Uganda, Nepal, Sri Lanka, Bangladesh, Oman, Ghana, USA, Mexico and Saudi Arabia. The
company also undertakes original equipment manufacturing for retail chains in the USA under their brands.
Exhibit 41: Key management personnel
Name
Profile
Mr. Rajendra Gandhi,
Managing Director
Mr. Rajendra Gandhi is the founder, promoter and Managing Director of the company. He is a first generation entrepreneur with over 21
years of experience in the kitchen appliances and home utility products industry. He has been on the Board since 1999. He is involved in
the day to day affairs of the Company.
Mr. Rajiv Mehta, Director &
CEO
Mr. Rajiv Mehta is a Whole Time Director designated as the Chief Executive Officer of the company. He holds a bachelor’s degree in
chemical engineering from University of Mumbai and master’s degree in science from University of Pennsylvania, and in business
administration from INSEAD. He has previously served as the CEO of Arvind Limited and MD of Puma Sports India Private Limited. He
has also been a director of Fourseven Services Private Limited.
Mr. Rohit Mago, CEO-Baddi
Mr. Rohit Mago is the Chief Executive Officer of Company’s manufacturing unit located at Baddi. He holds a master’s degree in business
administration from Rani Durgavati Vishwavidyalya, and a post-graduate certificate in retail management from XLRI Jamshedpur. He
has over 18 years of experience in various industries. Prior to joining SKL, he worked with Hindustan Petroleum Corporation Limited for
14 years. Mr. Rohit Mago joined SKL on October 10, 2017.
Mr. Shashidhar SK, CFO &
CS
Shashidhar SK is the Chief Financial Officer, Company Secretary and Compliance Officer of the company. He has over 25 years of
experience in the corporate finance and corporate secretarial field. He joined the company on July 2, 2018. He holds a bachelor’s
degree in commerce from Bangalore University. He is a Chartered Global Management Accountant (CGMA) and Fellow Chartered
Management Accountant (FCMA) as certified by the Chartered Institute of Management Accountants (“CIMA”). Additionally, he is also a
Fellow member of the Institute of Company Secretaries of India and a Fellow of the Institute of Cost Accountants of India.
Mr. Sentilal Kumar, Head-
Mfg
Senthil Kumar R. is the Head - Manufacturing. He holds a bachelor’s degree in engineering from University of Madras. He has over 30
years of experience in manufacturing. Prior to joining SKL, he worked with BPL Limited. Senthil Kumar R. joined on April 1, 2011.
Ms. Neha Gandhi, Executive
Director
Ms. Neha Gandhi is an Executive Director of the Company. She holds a bachelor’s degree in business administration from Christ
University, Bengaluru and has completed a post graduate certificate programme in sales and marketing management from MICA
(formerly Mudra Institute of Communications, Ahmedabad). She has served as a graduate trainee at Viacom 18 Media Private Limited.
In s titu tio n a l E q u itie s
22
Stove Kraft Limited
Exhibit 42: Plant locations
Plant location
State
Key products
Bengaluru
Karnataka
cookware, cooktops, pressure cookers, mixer grinders, non-stick cookware, LED
bulbs, floor mops, handy vegetable chopper, IR thermometer and induction cooktops.
Baddi
Himachal
Pradesh
LPG Stove, Induction Cooktop, Inner Lid Cooker
Source: Company, Nirmal Bang Institutional Equities Research
Exhibit 43: Key shareholders
Shareholding pattern
Promoter & promoter group
54.56
Mutual funds
6.75
Nippon Life
4.45
Sundaram AMC
1.08
Mirae Asset Management
1.18
Foreign portfolio investors
8.22
Goldman Sachs
2.94
Ashoka
1.69
Insurance companies
1.6
Bajaj Allianz Insurance
1.12
Alternate Investment Funds
1.18
Non-institutions (including retail)
27.89
Source: BSE, Nirmal Bang Institutional Equities Research
Key risks
Significant slowdown in consumer spending can adversely impact the demand and it might affect
the Stovekraft’s revenue.
An unforeseen rise in competitive intensity, especially from value brands, could impact the growth
prospects/margins for the company.
Any disruption in manufacturing plants could adversely impact the production.
Rise in key raw material prices could adversely impact the profitability, if not passed on to the
consumers
The brand license agreement of BLACK + DECKER contains certain onerous provisions and a
failure to comply with certain provisions could result in adverse consequences including an event of
default
The trademark for marquee brand ‘Pigeon’ is the subject matter of litigation, and there can be no
assurance that the company will be able to protect the trademark in the future
In s titu tio n a l E q u itie s
23
Stove Kraft Limited
Financials
Exhibit 1: Exhibit 44: Income statement
Y/E March (Rsmn)
FY20
FY21
FY22E
FY23E
FY24E
Net Sales
6,699
8,590
10,631
12,986
15,428
% growth
4.5
28.2
23.8
22.1
18.8
Raw material cost
4,419
5,582
6,910
8,376
9,874
Staff cost
820
806
957
1,169
1,389
Other overheads
1,122
1,073
1,435
1,818
2,160
Total Expenditure
6,361
7,462
9,302
11,363
13,422
EBITDA
338
1,128
1,329
1,623
2,006
% growth
12.2
234.2
17.8
22.1
23.6
EBITDA margin (%)
5.0
13.1
12.5
12.5
13.0
Other income
21
15
37
95
157
Interest
209
188
35
18
18
Depreciation
121
142
173
191
210
Exceptional items
0
0
0
0
0
Profit Before Tax
28
812
1,158
1,510
1,935
Tax
3
0
150
378
484
Net Profit
25
812
1,007
1,133
1,451
PAT margin
0.4
9.5
9.5
8.7
9.4
EPS (Rs)
1.0
24.9
30.9
34.8
44.5
% growth
72.3
2,362.8
24.0
12.5
28.1
Source: Company, Nirmal Bang Institutional Equities Research
Exhibit 2: Exhibit 46: Balance sheet
Y/E March (Rsmn)
FY20
FY21
FY22E
FY23E
FY24E
Share capital
247
326
326
326
326
Reserves
(834)
2,701
3,675
4,743
6,097
Net worth
(587)
3,027
4,001
5,069
6,422
Total Loans
3,269
504
250
250
250
Deferred Tax Liability Net
-
-
-
-
-
Liabilities
2,681
3,530
4,251
5,319
6,672
Gross Block
2,233
2,318
2,668
3,018
3,368
Depreciation
299
142
316
507
716
Net Block
1,934
2,176
2,353
2,512
2,652
Capital work-in-progress
42
191
191
191
191
Goodwill on consolidation of subs
36
32
32
32
32
Investments
59
53
53
53
53
Inventories
1,166
1,560
1,515
1,601
1,902
Debtors
1,030
847
1,049
1,245
1,479
Cash
186
373
953
1,743
2,808
Other Current assets
264
476
532
756
878
Total Current assets
2,646
3,256
4,048
5,346
7,067
Creditors
1,511
1,766
1,893
2,295
2,705
Other current liabilities &
provisions
526
412
532
519
617
Total current liabilities
2,037
2,178
2,425
2,814
3,322
Net current assets
609
1,079
1,623
2,531
3,745
Total Assets
2,681
3,530
4,251
5,319
6,672
Source: Company, Nirmal Bang Institutional Equities Research
Exhibit 3: Exhibit 45: Cash flow
Y/E March (Rsmn)
FY20
FY21
FY22E
FY23E
FY24E
EBIT
216
986
1,155
1,432
1,796
(Inc)/Dec in working capital
(173)
(282)
35
(118)
(149)
Cash flow from operations
43
704
1,190
1,315
1,647
Other income
21
15
37
95
157
Depreciation
121
142
173
191
210
Tax paid (-)
(3)
-
(150)
(378)
(484)
Minority Interest
-
-
-
-
-
Net cash from operations
182
861
1,251
1,223
1,530
Capital expenditure (-)
(299)
(533)
(350)
(350)
(350)
Net cash after capex
(116)
328
901
873
1,180
Interest paid (-)
(209)
(188)
(35)
(18)
(18)
Dividends paid (-)
-
-
(33)
(65)
(98)
Inc./(dec.) in total borrowings
169
(2,765)
(254)
-
-
(Inc.)/Dec. in investments
79
6
-
-
-
Cash from Financial
Activities
39
(2,868)
(322)
(83)
(115)
Others
(4)
2,802
0
0
-0
Opening cash
278
186
373
953
1,743
Closing cash
186
373
953
1,743
2,808
Source: Company, Nirmal Bang Institutional Equities Research
Exhibit 4: Exhibit 47: Key ratios
Y/E March
FY20
FY21
FY22E
FY23E
FY24E
Per share (Rs)
EPS
1.0
24.9
30.9
34.8
44.5
Book value
(23.7)
92.9
122.8
155.5
197.1
Valuation (x)
P/E
706.7
28.7
23.1
20.6
16.1
P/BV
(30.1)
7.7
5.8
4.6
3.6
EV/EBITDA
78.2
20.8
17.0
13.4
10.3
EV/sales
3.9
2.7
2.1
1.7
1.3
Return ratios (%)
RoCE
8.4
31.7
29.7
29.9
30.0
RoE
(4.2)
66.5
28.7
25.0
25.3
RoIC
9.6
35.6
36.4
42.3
49.0
Profitability ratios (%)
EBITDA margin
5.0
13.1
12.5
12.5
13.0
EBIT margin
3.2
11.5
10.9
11.0
11.6
PAT margin
0.4
9.5
9.5
8.7
9.4
Turnover ratios
Total asset turnover ratio (x)
2.5
2.4
2.5
2.4
2.3
Fixed asset turnover ratio (x)
3.0
3.7
4.0
4.3
4.6
Debtor days
56
36
36
35
35
Inventory days
64
66
52
45
45
Creditor days
125
115
100
100
100
Solvency ratio (x)
Debt-Equity
(5.6)
0.2
0.1
0.0
0.0
Source: Company, Nirmal Bang Institutional Equities Research
In s titu tio n a l E q u itie s
24
Stove Kraft Limited
DISCLOSURES
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In s titu tio n a l E q u itie s
25
Stove Kraft Limited
Disclaimer
Stock Ratings Absolute Returns
BUY > 15%
ACCUMULATE -5% to15%
SELL < -5%
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