Stove Kraft Ltd

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About the Company

Stovekraft is an Indian company that manufactures cooking appliances under Pigeon and Gilma brands. The company was founded in 1999 and is headquartered in Bangalore, Karnataka. Among its cooking appliances are mixer grinders, pressure cookers, cooktops, toasters, chimneys and kitchen utensils.

Q4FY21 Updates

Financial Results & Highlights

Detailed Results

1. Consolidated revenues were up 53% YoY in Q4. Profit was at Rs 19 Cr vs a loss of Rs 10 Cr last year.
2. FY21 revenues were up 28% YoY while PAT was up 26 times YoY.
3. EBITDA for FY21 was up 234% YoY.
4. Volume growth (Q4 & FY21) in segments was:
   1. Pressure Cooker: Q4 up 90% YoY (FY21 up 19% YoY)
   2. Gas Tops: Q4 up 11% YoY (FY21 down 18% YoY)
   3. Induction Tops: Q4 up 52% YoY (FY21 up 21% YoY)
   4. Non-stick cookware: Q4 up 39% YoY (FY21 up 43% YoY)
   5. LED: Q4 up 241% YoY (FY21 up 136% YoY)
   6. Others: Q4 down 5% YoY (FY21 up 6% YoY)
5. Trading sales have gone down to 19% from 28% last year.
6. Working capital days reduced to 27days in March ’21 vs 37 days in March ’20.
7. RoE was at 26.8% & RoCE was at 31.9%.
8. EBITDA margin for FY21 improved to 13.1% vs 5% last year.
9. Cash & cash equivalents as of March 2021 was at Rs 29.5 Cr.
10. Net debt reduced to Rs 15 Cr from Rs 338 Cr last year with Rs 185 Cr from Conversion of CCDs to Equity, Rs 90 Cr from IPO proceeds & Rs 48 Cr from internal accruals.

Investor Conference Call Highlights

1. The company generated an operating cash flow of Rs 100 Cr.
2. The company has separate distribution networks for each of its brands.
3. The company has 651 distributors in 20 states and 5 UTs & 12 export distributors.
4. The retail reach is around 46000 outlets.
5. Pigeon brand products are also sold in Metro Cash & Carry stores.
6. Gilma brand is also sold through exclusive branded outlets which are owned and operated by franchisees. There are 65 such stores across 28 cities currently.
7. The company is looking to maintain A&P spending of 3-4% of revenues going forward.
8. It is also planning to clear the remaining net debt soon.
9. The company was at 50% capacity in May due to the 2nd wave of COVID and has contributed to only ecommerce and export demand.
10. The company is working on a cost+ model and passes on any input cost rises. The price correction is taken once each quarter. COGS is around 65% for Stovecraft overall.
11. The company hiked prices around 5-8% in Feb.
12. The company is operating near 33-34% gross margin and with near 14% EBITDA margin. The management has stated that the gross and EBITDA margin may come down temporarily if there is a sudden price rise, but it will correct as the price rises are passed on. As revenues go up, EBITDA will also rise as operating leverage comes into play.
13. Employee costs are expected to be near 8-9% of sales.
14. The company is positioning the Pigeon brand as a premium brand while the others will be positioned as mass brands.
15. The company is looking to focus on all major categories equally as they are adjacent categories and will want to make all three equal contributors to sales.
16. The management maintains that Stovecraft will be able to maintain its growth rate of near 15-20% despite the partial lockdown in May.
17. The management has also stated that as the Gilma and Black & Decker brands start contributing more, EBITDA margin will rise as these brands have higher gross margins.
18. The management has stated that the company has been outpacing industry growth in the cooktops and cookware categories.
19. The company is evenly spread across the country in modern trade and ecommerce channels.
20. In general trade, 55% is from South India and 45% is from the Rest of India. Exports account for 10% of sales. Ecommerce is 30% of sales in FY21.
21. The company has around Rs 45 Cr of carryover loss and once this is over, the company will be paying a 25% tax rate on the new earnings.
22. The growth rate of ecommerce channel will outpace the other channels. Around 10% of sales of the entire industry comes from ecommerce while Stovecraft has around 30% from ecommerce.
23. The capex for FY21, FY22 & FY23 altogether will be Rs 100 Cr.
24. Asset turnover is 3.94 for FY21. The new capex is also expected to work at a similar asset turnover.
25. The company has an order book of 130-135 Cr from exports. The management expects export contribution to rise in the future.
26. The export business generates EBITDA margins of close to 15%.
27. The company is not looking to participate in sales from govt distribution schemes like PMUY.
28. The company is looking to make the distribution even across the South & the rest of India.
29. Around 40-50% of sales come from Q2 & Q3 each and so most of the A&P spend is also done in the same quarters.
30. The company is looking to reduce dependence on China for raw materials. This is done by backward integrating and making things in-house to reduce dependence on imports.
31. The company is not looking to indulge in price competition by reducing margin and it has been able to maintain its low prices by reducing expenses through backward integration and making things in-house.
32. Currently, the company is making 81% of product volumes in-house.
33. The company is looking 3000 outlets in West and 2000 outlets in North Zone.
34. 100% of the export part is made in-house and the company is looking to expand slowly on the export side and eventually set up branded stores and distribution in places with Indian diaspora.
35. The revenue capacity from 100% utilization is expected to be around Rs 1000-1200 Cr.
36. Pigeon is accounting for 82% of sales, 9% is from the export business of which 80% is white label. The remaining 9% is from Gilma and Black+Decker.
37. The management expects demand to remain resilient despite price increases due to the RM price rise.

Analyst’s View

Stove Kraft is one of the rising players in the Indian kitchenware and appliances space. It has built a good presence in the industry through brands like Pigeon & Gilma. The company has seen a good Q4 post the IPO in Feb with 28% YoY revenue growth in FY21 and PAT of Rs 81 Cr vs Rs 3 Cr last year. The company has also seen a good contribution of almost 30% from ecommerce which is a long way above the industry average of 10%. The company is also seeing good demand from export orders with an order book of Rs 130+ Cr. But the company’s manufacturing was stalled somewhat by the 2nd wave of COVID with May manufacturing at only 50% capacity to serve ecommerce and export demand. It remains to be seen how the company will be able to face off against big-name competitors with historic brands like Hawkins & Prestige and whether it will be able to maintain its growth momentum faster than the industry by capitalizing on ecommerce. Nonetheless, given the stellar growth in FY21 and the steady but rising brand profile of its products, Stove Kraft is a good consumption small-cap stock to watch out for.