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08 March, 2021 13:01 IST
Mehta Equities review on Stove Kraft IPO
Source: IRIS | 25 Jan, 2021, 02.39PM
Rating: NAN / 5 stars.
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Kitchen appliances maker Stove Kraft opend its Rs 4,130 million maiden public issue for subscription on January 25 and the same will close on January 28. The price band for the offer has been fixed at Rs 384-385 per share.

Commenting on the Stove Kraft IPO, Prashanth Tapse, AVP Research Head, Mehta Equities said, "We believe the growth in kitchen appliances in India is huge and expected to grow by CAGR ~12% largely driven by the high growth in the large kitchen appliances segment where products of Stove Kraft like freestanding hobs and cooktops are well positioned with leadership market share."

"Before making an informed decision in this IPO we need to understand Stove Kraft IPO is going public mainly through "offer for sale" and such IPOs are expected to receive less demand during IPO from quality investors as investors remain less optimistic as fund proceeds from the shares sold would go into the pocket of the existing shareholders (Sequoia Capital India Growth) and less towards company future growth. Hence considering this it is generally predicted that such IPO generate low returns," Tapse said.

"In addition to above fact we are also concerned on sustainable business growth ahead of cutthroat competition in all the segments of Kitchen appliance despite the fact that the company has reported good numbers in the first six months. Other point investors has to consider is that the IPO reservation for retail is only 10% Vs 35% in majority of the IPO Books due to net worth being negative in the last 3 financial years because Stove Kraft has suffered one time losses (Rs 1,100 million) in 2016 from TN govt contact," he added.

"On valuations parse at upper price band (Rs 385/-), the issue is asking for market cap Rs 12,530 million with PE 16x times (annualised FY21e) vs. industry average P/E at 42x, which seems offer is at discount to peers valuations due to its low ROCE (2.51%) justifying the discount offer. Hence considering all the above factors and considering the risk in current volatile equity markets a moderate to low risk investors can give a miss to the offer while high risk investors can 'Subscribe' for listing gains," recommended the research head.

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