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Margin headwinds remain but growth getting back on track; maintain BUY on favorable risk‐reward

Result Synopsis

STOVEKRAFT’s performance continues to be impacted by a large customer in modern retail going bankrupt and slowdown in e‐commerce channel which is still undergoing transition due to change in regulations. Exports were impacted on account of unavailability of the containers and steep hike in sea‐freight rates. On the margin front, company is taking necessary price revision to defend gross margin levels of at least 31%. The management does not see any challenges in terms of demand and expects margin to recover as company has initiated 4‐5% price increase in Q1 and commodity prices have corrected from their peak. Given the massive correction in the stock, we don’t see further downside and therefore continue to remain positive on the stock and maintain our BUY rating. We believe company should be able to grow in high‐ teens and margins are also close to the bottom. The company has been aggressively adding new distribution touchpoints which will reduce its reliance on e‐commerce in addition to entering new businesses. Considering high inflationary environment and near‐term challenges in terms of growth and margins we cut ourtarget multiple to 25x vs earlier 30x. We continue to maintain BUY as current risk‐reward has turned favorable and there is significant upside from current levels.

We have maintained our growth estimates, while moderated our margin assumption considering high inflationary pressures. We estimate a revenue CAGR of over FY22‐24E of 17.4% which is lower than management guidance of 25% revenue growth. We build in lower EBITDA/PAT CAGR of 31%/35% 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 domesticmarket coupled with increasing exports driving above‐industry growth rates for the company, with continued backward integration and working capital reduction helping sustain strong return ratios. We maintain BUY rating with TP of Rs777 valuing the company at 25x FY24E EPS.

Result Highlights

Quarter summary – Q4 performance was impacted as a large modern retailer shut shop, e‐commerce has seen slowdown on back of transition on account of change in laws and exports got delayed due to unavailability of containers.

Margins – Commodity headwinds and delayed price increase have led to gross margin contraction of 451bps yoy. EBITDA margin has contracted 477bps yoy on provisioning related to receivable from modern retailer.

Volume trends – Volume growth has been impacted across the product categories with Pressure cookers/LED/Gas cooktop/Nonstick cookware/Small Appliances declining 9%/6%/48%/20%/2% respectively. Only induction cooktop gas saw volume increase.

Distribution expansion – Company is aggressively increasing its distribution network and has added over 27,000 retail outlets in FY22.

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