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Steady quarter

Stove Kraft Ltd’s (SKL) 2QFY23 revenue grew by 12% YoY (in line with JMFe) led by 9% value and 3% volume growth. While e-comm sales fell by 11% YoY on a high base (+17% 3-year CAGR), general trade grew by 43% (on a low base) in 2QFY23 (+43% 3-year CAGR). Export revenue was steady, growing by 11% YoY (+38% 3-year CAGR). While gross margin expanded by 30bps YoY to 32.5%, EBITDA margin expanded by only 10bps YoY to 11.3% as SKL invested in brand building initiatives, distribution expansion and new store openings. PAT grew by 13% YoY to INR 259mn (2% below JMFe). With the demand environment fairly stable and softening RM prices, SKL remains confident of 10% volume growth while maintaining at least 11% EBITDA margin in the coming years. We value SKL at 26x Sep’24EPS to arrive at a Sep’23TP of INR 880 (earlier INR 900). Maintain BUY.

* 2QFY23 results summary: SKL’s 2QFY23 sales grew 12% YoY to INR 4.1bn (in line with JMFe) with volume growing 3%. Gross margin expanded by 30bps YoY to 32.5%. Employee expense grew 20% YoY while other expenses increased 8% YoY on account of higher A&P spend at 3.5% of sales. EBITDA margin expanded 10bps YoY to 11.3%. PBT grew 8% YoY to INR 345mn (2% below JMFe) while PAT grew by 13% YoY to INR 259mn.

* General trade leads growth; e-comm sales muted on high base: Opening up of the economy has aided demand in general trade the most with the channel recording a growth of 43% / 45% in 2QFY23/ 1HFY23. Exports grew 11% YoY but fell 24% QoQ as 1QFY23 saw fulfilment of pending orders of 4QFY22. E-comm sales fell by 11% YoY on a high base and contributed 36% of overall revenue.

* Increase in premium mix for pressure cookers; Gas cook-top revenue declines: With increased consumer preference for stainless steel cookers over aluminium cookers, Stovekraft too has seen an increase in mix in favour of stainless steel cookers. However, gas cook-top revenue was impacted during the quarter due to zero contribution from B2B business (present in base) and slower-than-expected e-comm sales.

* Targets 40 new COCO retail stores by FY23: SKL has forayed into physical retail and has so far opened 19 COCO stores in Bengaluru. These stores will offer the entire range of products, including cookware, cooktops, small appliances and LED products, sold under the brand. The company aims to open 40 stores spread across Karnataka by Mar’23.

* Tweak estimates; Maintain BUY: We marginally tweak our estimates to reflect 2QFY23 performance and commentary and value SKL at 26xSep’24 EPS to arrive at a Sep’23 TP of INR 880 (INR 900 earlier). We maintain BUY. Key Risks: Slower-than-expected recovery in demand / high competitive intensity.

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