Will StoveKraft ever rule your kitchens? A primer on the stock

“I’m excited to announce the Company is consistently adding company owned and company operated retail stores for the Pigeon brand. During the quarter, we have successfully added 12 additional stores in Bengaluru taking the total count to 31 stores till 31-Dec-22 with new stores opened in AP, Telangana markets.”

– Mr Rajendra Gandhi, Managing Director, Media release – Q3FY23

Stock Data:

Ticker	STOVEKRAFT
Exchange	BSE
Industry	Consumer Durables

Price Performance:

Last 5 days	0.93%
YTD	-29.28%
Last 1 year	-42.4%

Company Description:

Incorporated in 1999 by Mr. Rajendra Gandhi, Stovekraft manufactures a wide range of kitchen solutions under Pigeon (value), Gilma (semi-premium) brands and acts as an exclusive partner for kitchen appliances of the BLACK + DECKER (premium) brand. The products comprise cookware and cooking appliances, while the home solutions consist of various household utilities, including the recently introduced LED bulbs, oximeters, etc.

Product Portfolio: 

The company’s product portfolio consists of Cookware, Cooktops and other kitchen solutions, Small appliances like Mixer grinders, Chimney, Water heaters, LPG Stoves, juicers, hand blenders, coffee makers, toasters, other products like Steam irons, dry irons, LED bulbs Battens Downlights, and few more

Brand:

The company has developed a healthy market position, particularly in South India with well-known brands such as Pigeon, Gilma, and Black + Decker.

Manufacturing facility:

It has manufacturing units in Bangalore and at Baddi, Himachal Pradesh. It commenced manufacturing LED products at its Bengaluru Facility in 2019. It has a nationwide distribution network of 400 distributors, 40,000 retailers and is present on e-commerce platforms like Flipkart and Amazon which contributed to 25% of revenues in FY2020. 

“Our manufacturing facilities are located in Bengaluru (Karnataka) and Baddi (Himachal Pradesh). Both facilities have a high level of backward integration, and our manufacturing process is not dependent on third-party suppliers and OEMs.”

The Bengaluru facility is spread across more than ~43 acres, out of which 25 acres is available for future expansion. It is also one of the few facilities in India to have a fully automated roller coating line for the manufacture of non-stick cookware. Both our manufacturing facilities are ISO 9001:2015 certified for implementing quality management systems.

Stove Kraft relies on third-party OEMs for the sourcing of some of its products, which are not manufactured by it in India. For certain product categories and sub-categories which do not enjoy economies of scale in India, Stove Kraft engages in sourcing from third party OEMs outside India. For sourced products, they have a dedicated team to undertake inspection and ensure that such products are built to suit their specifications in terms of design and quality.

Distribution Network:

The company has a widespread, well-connected distribution network with a presence across multiple retail channels and a dedicated after-sales network. It can use this distribution network to distribute any type of home appliances quickly and can gain market share but the challenge is to do it profitably and reduce debt. The Company has expanded its distribution reach to over 79,000 retail outlets. Its distribution network includes 9 C&F agents and over 700 distributors. It has 31,000 touch points across 18 states which will provide distribution synergies for electrical products. 

Stovekraft sells Pigeon and Black & Decker products through a network of distributors and dealers whereas the Gilma products are sold through its own franchisees. Company announced the opening of its first owned and operated retail store in Frazer town of Bengaluru. Stove Kraft said the store will offer an entire range of products including cookware, cooktops, small appliances and LED products sold under the Pigeon brand. Company is consistently adding company owned and company operated retail stores for the Pigeon brand. During the quarter, we have successfully added 12 additional stores in Bengaluru taking the total count to 31 stores till 31-Dec-22 with new stores opened in AP, Telangana markets. Small Cooking Appliances are also almost exclusively sold through Store-Based retailing. In 2020, 97.4% of total retail volume sales were registered through Store-based retailing, and the remaining 2.6% only was sold through Non Store based retailing.

Customers and Exports:

Company exports Pigeon products to 12 countries and acts as a vendor to principals like Walmart Inc in the USA and Mexico. The company’s total revenue consisted of two customers from whom 31.94% (19.45% and 12.49% respectively) of total revenue was earned.

Acquisition of Skava Electric Private Limited:

Stovekraft is acquiring the business of Skava Electric Pvt Ltd on a slump sale basis. With this acquisition, it will foray into the business of manufacturing low-voltage switchgear solutions like electrical switches, sockets, distribution boards, switchboards, MCBs, bulb holders, etc. It is a natural extension of the existing product offering of Pigeon LED.

IPO:

The company came out with an IPO in January FY21 with a partial exit to the investor and raised funds to reduce its debt levels. The compulsory convertible debentures subscribed by Sequoia Capital are entirely converted to equity before the IPO. Post-IPO, Sequoia Capital continues to hold 12.45% of shares in the company.

Focus:

The company’s strategy remains to expand channels and products. It will continue to invest in adding additional plants for new products and backward integrate components in order to get greater cost and quality advantage.

Financials:

What we like:

1. A one stop shop for well recognized, award winning portfolio of kitchen solutions brands: 

SKL has grown from a single brand small LPG stove manufacturing company to become one of India’s leading manufacturers of kitchen appliances, with revenue from operations of INR.325 Crores for the six December quarter of FY23. Its brand portfolio, comprising the Pigeon, Gilma and BLACK + DECKER brands caters to the value, semi-premium and premium customer segments in the kitchen solutions industry, and allows its customers to engage with the brand specifically designed for their budget and lifestyle. Its award winning Pigeon brand is well established in the Indian kitchen appliances industry. As a result of its co branding initiatives of over eight years with LPG companies such as Indian Oil Company 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.

2. Widespread, well connected distribution network:

The integration of SKL’s supply chain and distribution network with its manufacturing facilities provides it with a competitive advantage over other players in the Indian kitchen appliances industry. Its manufacturing facilities in Bengaluru and Baddi are well connected with nine strategically located C&F agents. Additionally, it has 700 distributors in 27 states and five union territories of India as of April 17, 2023. The C&F agents and distributors are, in turn, connected with a dealer network of over 79,000 retail outlets, which are driven through a sales force of 600+ personnel as on September 30, 2020. In addition to independent third-party retail stores, it has also partnered with major Indian retailers for the sale of its products, and for Fiscal 2020, its products are available in retail chains such as Metro Cash And Carry India Private Limited. SKL has also partnered with e-commerce retailers such as Flipkart India Private Limited for the sale of its Pigeon branded products on their portals. Further, it supplies its products to retail chains in the United States of America and Mexico and it also undertakes original equipment manufacturing for retail chains in the United States of America under its brands. 

3. Strong manufacturing capability with efficient backward integration:

The scale at which SKL undertakes the manufacture of its products, combined with its raw material sourcing, packaging, transportation practices and quality control, enables it to derive higher margins from the sale of its products. The Bangalore facility is among the few facilities in India to have a fully automated roller coating line for the manufacture of non-stick cookwares. Its manufacturing facilities are backward integrated. The backward integration of its manufacturing facilities has reduced its dependence on third party suppliers and OEMs for such components.

4. Consistent focus on quality and innovation:

Quality is a prerequisite for a positive consumer experience and long-term brand loyalty. This philosophy has formed the foundation of the expansion and diversification of its product portfolio since its inception. Its focus on quality is maintained at all stages – right from the sourcing of raw materials, which is undertaken from manufacturers to the product  development and manufacturing stage, which is subject to a rigorous review and monitoring process undertaken at its Bengaluru Facility. For products which are sourced by SKL from third party OEMs, it has a dedicated sourcing team and quality assurance team based out of China, which closely monitors the quality of such products.

5. Professional management with successful track record:

Stovekraft is a professionally managed company with a track record of corporate governance and robust internal controls. Its strong corporate culture that originates from the founder of the Company, Rajendra Gandhi, who is a first generation entrepreneur with over 21 years of experience in the kitchen appliances and home appliances industry. It has a qualified and competent leadership team. While core functions are centralized, it has focused management teams as well as shared management teams which manage the different brand portfolios, and its product heads have significant expertise in their respective product categories. In addition to the experience of the senior management and staff, it benefits significantly from the youth and dynamism of its workforce, which comprises of a majority of young professionals

Factors to consider:

1. In general, kitchen appliances is a very competitive field since the products are low on technological sophistication and do not require heavy capital investment. Hence margins are low and companies need to constantly innovate and bring out newer and newer products into the market. Companies also need to spend a lot on advertising, promotions and brand building.

2. The primary raw materials for the company are steel and aluminum, and is to that extent exposed to commodity price risk. Cost of Goods Sold comprises around 65% of revenues for the last 12 months.

3. Under its brand license agreement with Black & Decker, the company is required to achieve a certain minimum number of sales, failing which B & D may terminate the agreement. However, details of how much these sales are is not clear.

Industry Analysis and Conclusion:

The global kitchen appliances market can be segmented based on product structure into two categories – ‘Large/Major appliances’ which include refrigerator, dishwasher, microwaves, cooktops, ovens, hobs, and kitchen chimneys; and ‘Small/Minor appliances’ which include food processors, mixer grinders, blenders and juicers, coffee machines, kettles, grills and fryers.

The global household cooking appliance market was valued at US $261.22 billion in 2020. The Indian household appliances market is valued at US $68.75 billion in 2022 with per capita revenue of US$ 48.88. The market’s largest segment is large appliances with US $45 billion share. The small kitchen appliances segment was valued at US $13.18 billion in 2022.

The primary market for small kitchen appliances is largely unorganized and dominated by local players and low-cost imports. The Indian electrical kitchen appliances market was valued at US $5.7 billion in 2021 and is expected to grow at 6.7% CAGR of 6.66% during 2022-2027 to reach US $8.3 billion by 2027. India’s cooktops market stood at INR 25.6 billion in 2020, and is expected to grow at a CAGR of 15.5%, in retail value terms, to reach INR 52.6 billion by the end of 2025.

In India, the kitchen appliances industry has traditionally been skewed toward unorganized players while a handful of organized players have dominated major regions and key urban markets. Urban markets account for a major share of total revenues in the consumer durables sector in India whereas rural markets have only now begun to contribute recently. The key ‘Large’ and ‘Small’ cooking appliances categories, the current market value is estimated at about INR 148.5 billion, which is set to reach INR 238.0 billion by end 2022, growing at a CAGR of about 9.9%.

The Indian LED lighting market reached a value of US $2.8 Billion in 2021. Looking forward, IMARC Group expects the market to reach US$ 9.7 Billion by 2027, exhibiting a CAGR of 23.31% during 2022-2027. The Global Electric Switches Market Size was over USD 13 billion in size in 2021. The market size of Indian Electric Switches was estimated to be INR 56,394.79 million in 2022.

The global modular kitchen market reached a value of US$ 34.4 Billion in 2021. The market expects to reach US$ 46.2 Billion by 2027. India’s modular kitchen market size was valued at USD 0.023 billion in 2021 and is expected to reach USD 0.03 billion by 2029. Commenting on the growth opportunity of the modular kitchen industry, AK Goel, MD, Hettich India, said, “The modular kitchen business is a fragmented market with an estimated size of about Rs 2,500 crores. There are a few large players, however, the largest one will have a turnover well under 150 crores.”

Juergen Wolf, MD, Häfele India Pvt Ltd, said, “Imports account for 30 percent of the modular kitchen market (dominated by Italy-55 per cent; Germany-25 per cent). And retail sales dominate the modular kitchen market in India accounting for 73 per cent of the total market size, while project sales constitute the rest of the 27 per cent.