Stove Kraft IPO: Here’s All You Need To Know

Stove Kraft Ltd. will launch its Rs 412-crore initial public offering on Jan. 25 as the kitchen appliance maker aims to raise funds to pare debt and shareholders part-sell stake when equity markets are at a record high.

The maiden offer comprises a fresh equity issue worth Rs 95 crore and a Rs 317.6-crore offer-for-sale by institutional investors Sequoia Capital India Investment Holdings I, SCI Growth Investments II and promoters Rajendra Gandhi and Sunita Gandhi. The price band for selling shares has been fixed at Rs 384-385 apiece, according to its red herring prospectus.

• Issue opens: Jan. 25
• Issue closes: Jan. 28
• Face value: Rs 10 apiece
• Minimum bid: 38 shares

The Bengaluru-based firm will use the entire proceeds from the fresh issue to pare debt. Edelweiss Financial Services Ltd. and JM Financial Ltd. are the book running lead managers to the issue.

The IPO comes at a time when equity markets are at all-time highs and investors have shown appetite for new companies. In 2020, 13 large companies were listed with IPOs of at least three getting subscribed more than 150 times. The public offers launched in 2021 so far have also seen robust demand.

Anchor Allocation

Stove Kraft raised Rs 185.68 crore through anchor allotment by issuing 48,22,890 equity shares at the upper end of the price band of Rs 385 apiece. 32 entities, including three domestic mutual funds, bought shares.

Shareholding Pattern

Selling Shareholders

Sequoia Capital India will offload over 70 lakh shares in the IPO and is expected to raise Rs 288.75 crore.

Business

Stove Kraft makes pressure cookers, free-standing hobs and cooktops among other appliances under the Pigeon and Gilma brands. It has the licence to sell U.S.-based Black+Decker brand in India.

The company has two manufacturing facilities in Bengaluru and Baddi, Himachal Pradesh, according to its disclosure as of September 2020. It sells through 651 distributors in 27 states and five union territories; and has 12 overseas distributors. Its bulk dealers are linked with a dealer network comprising more than 45,475 retail outlets.

The kitchen appliances maker also sells Metro Cash And Carry India Pvt. Ltd. and Flipkart, and retail chains in the U.S. and Mexico.

Brand Litigation

The Pigeon brand, which contributed 76.9% of the revenue in the first half of FY21, is under litigation.

Stove Kraft had registered the ‘PIGEON’ trademark in different classes in 2003 and 2005. In 2003, after to an oral understanding, the company allowed an associate firm PAPL to manufacture products such as mixers and grinders under the Pigeon brand.

In 2015, however, Stove Kraft terminated that arrangement and filed a suit in Bengaluru for seeking a perpetual injunction to prevent infringement of the ‘PIGEON’ trademark by PAPL.

If PAPL goes to the market with the Pigeon brand, it could be misleading, Rajendra Gandhi, chairman and managing director at Stove Kraft, told BloombergQuint. “There is no dispute on the usage of the Pigeon brand. We started PAPL in 2003. In the last five years, this has been a defunct company... [with] no business. We are shareholders in the company and want to dissolve this.”

In 2016, Stove Kraft diversified the Pigeon brand by launching LED products and in 2019, started making these products at its Bengaluru facility.

Stove Kraft Financial Performance

For the first six months of the financial year, the company reported higher operating profit and margin than a year earlier as sales increased after the lockdown restrictions were lifted.

“Of course, we had to suddenly shut down in the month of March," Gandhi said. "But post-Covid (lifting of lockdown restrictions), we are experiencing healthy growth on both the top line and bottom line."

The company is present in over 30 categories of large and small kitchen appliances across its three brands.

Key Risks

• The litigation of ‘Pigeon’ trademark is a risk.
• The continuing impact of the Covid-19 pandemic.
• Significant dependence on third parties for the distribution and sales.
• Stiff competition from competing and local brands.
• A significant portion of its sales is from south India, making it probe toi fluctuation in regional economies.