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Performance better than peers; re?iterate BUY

Result Synopsis

STOVEKRAFT has delivered lowerthan expected revenue growth, howeverits performance was much better than its peers where the like of TTK prestige and Butterfly has reported revenue decline. The company is on track to achieve its guidance of strong double?digit growth for FY23. General trade has done significantly well, and it has surpassed pre?covid levels, while e? commerce is now stabilizing after remaining volatile for past 4 quarters. On the margin front company has managed to improve its gross margins, while EBITDA margin at 8% was below the management guidance. Company expects gross margin to improve as high?cost inventory has been liquidated and commodity prices have stabilized at current levels. The company has been aggressively adding new distribution touchpoints which will reduce its reliance on e?commerce in addition to entering new businesses. In 9MFY23 company has added about 42,540 touch points. STOVEKRA has opened its brand store which is company owned and company operated in Bangalore and has now taken the countto 19. Itis expecting to take store countto 40 in next 12?18 months.   We continue to maintain BUY as current risk?reward has turned favorable and there is significant upside from current levels.

We have marginally revised our revenue estimates downwards, while our margin assumption is lower than management guidance of 11% as we foresee intense competition with Butterfly getting aggressive in the market. We estimate STOKRA to deliver revenue CAGR of over FY22? 25E of 16% which is lower than management guidance of 25% revenue growth, however it is best amongst kitchen appliances company. We build in EBITDA/PAT CAGR of 27%/29% as we believe company will keep prioritizing growth and will pass on any efficiency and scale benefits to drive higher growth in addition to taxation rate normalizing. We foresee a stable growth outlook in the domestic market coupled with increasing exports driving above?industry growth rates for the company, with continued backward integration and emphasis on working capital reduction helping sustain strong return ratios. We maintain BUY rating with TP of Rs714 valuing the company at 25x FY24E EPS.

Result Highlights

* Quarter summary – Q2 revenue growth was below estimates as demand has been subdued. STOVEKRA has however deliver revenue growth, while the peers have seen revenue decline.

* Gross margins – Pricing action in previous quarters have resulted in gross margin expansion. The company will protect the Gross Margins and as per companies’ guidance they would like to expand and reach 35%.

* Volume vs value trends – Volume growth has been encouraging. STOVEKRA has seen Majority growth through volume and 1% is on account of Value.

* Distribution – Company is consistently adding company owned and other pigeon brands outlets. The company has added 42,540 touch points in 9MFY23 taking its total touch points to 1,21,725.

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