Stove Kraft Shares Gain As Nirmal Bang Raises Target Price
Nirmal Bang raised its price target from Rs 900 apiece to Rs 1,123, an implied return of 18.03%.
Shares of Stove Kraft Ltd. gained after Nirmal Bang raised target price for the kitchen appliance maker, citing its growth potential, brand image, distribution expansion and export penetration.
The brokerage, according to its research report dated Sept. 25, raised its price target to Rs 1,123 apiece from Rs 900, an implied return of 18.03%. It reiterated its ‘buy’ recommendation.
Stove Kraft, according to the report, is a volume leader in the gas stove category, besides being among the top three makers of pressure cooker/non-stick cookware. The company, Nirmal Bang said, has the best working capital in the industry, as well as a strong return on capital employed (30%) and Ebitda margin.
“In Q1 FY22, the strong growth over Q1 FY20 base (28% CAGR) indicates that the company is successfully reaping the benefits of its ‘value-for-money’ brand proposition,” the report said. “Moreover, Ebitda margin of 9.4% in Q1 FY22 was driven by the optimised cost base in the pandemic year.”
The brokerage expects the company’s revenue, Ebitda, and profit after tax to grow at an annualised rate of 22%, 21%, 22%, respectively, over FY21-FY24. “We expect Ebitda margin of 13.0% in FY24 (vs 13.1% in FY21). We expect the working capital situation (currently at 27 days) to improve further due to inventory rationalisation and channel financing. Our valuation multiple of 28x reflects 25% discount to TTK Prestige Ltd.”
Nirmal Bang, however, expects the valuation gap between Stove Kraft and industry leader TTK Prestige to narrow once the company shows more sustainable margin profile.
Further, the focus on e-commerce channels ensured the visibility of brands in mass/mass premium category on platforms such as Flipkart/Amazon, Nirmal Bang said. Exports and new product launches will also contribute positively to overall growth.
Stove Kraft’s freight and forwarding cost at about 3% of sales is largely comparable to consumer electricals/durables makers, the report said. The company, according to the brokerage, has the lowest other expense outgo as percentage of sales among all its direct competitors, thanks to prudent advertisement spend and transport cost.
Shares of Stove Kraft rose as much as 11% to an intraday high of Rs 1,048.15 in early trade on Tuesday. The stock has rallied more than 170% since its listing on Feb. 5. All the four analysts tracking the company recommend a ‘buy’. The Bloomberg consensus 12-month price target implies a downside of 1.7%. Trading volume on the stock was 6.3 times the 30-day average volume for this time of the day.