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Distribution expansion, manufacturing excellence and new product launches to drive outperformance; reiterate BUY

We visited Stovekraft’s manufacturing facility near Bengaluru to get insights into its manufacturing capabilities, sourcing, new product development, extent of in-house manufacturing and level of backward integration. Our key takeaways are as follows i) STOVEKRA currently manufactures ~95% of product sold in-house; ii) they have completely backward integrated their manufacturing process with all the components including PCBA done in-house; iii) streamlining and centralizing sourcing of RM resulting in better quality and pricing resulting in higher gross margins; iv) Increasing automation in manufacturing process to bring down costs of production; v) focusing on new product launches with endeavor of launching 1-2 new products every quarter and vi) Increasing export revenue by adding new customers and geographies. STOVEKRA has charted out the clear-cut strategy which includes achieving manufacturing excellence, improve service experience, channel expansion, new product launches and driving down costs which enables them to launch premium category product at affordable prices. Above strategy has resulted in STOVEKRA outperforming the industry thereby gaining market share from unorganized as well as organized peers. On the margin front the company is expected to maintain gross margin at ~37%-38% with endeavor to increase ~40% in next three years, while EBITDA margin is expected to ~11%-12% in FY25 and company aims to improve it to ~14% in next 3 years. We remain optimistic on the company’s prospects and reiterate our BUY with revised PT of Rs1,101 now valuing the stock at 35x vs 32x FY27 EPS as company in past couple of quarters has outperformed the industry growth, with improvement in margin profile, we expect similar trend to continue given the strong acceptance of the company’s new product like Air-fryers, focusing on white label exports and increasing automation to bring down manufacturing costs thus improving margin. STOVEKRA constitute our top pick in the kitchen space.

* Launching of premium products at affordable prices has resulted in industry leading growth in 1HFY25: STOVEKRA’s strategy of launching new premium products like Air-fryers, electric kettle etc. at affordable prices, which is ~25% lower than the competition has resulted in strong demand for the products. Demand for the new products have been so robust that it could not meet the requirement and in turn would have lost out on some revenue. Air-fryer in the short span of time has become Rs1bn category for the company. The company will continue to focus on bringing premium products at the affordable pricing.

* Channel expansion, Exports and New product launches to drive industry leading growth: STOVEKRA has been consistently increasing its distribution count and reach with more focus towards GT and there by reducing thrust on the e-comm channel. Exports contributes ~8-10% to the revenue amounting to Rs1,250mn large part revenue derived from white labeling of cookware product to Walmart for US geography. The company is looking to add more customers and geographies to increase the exports revenue from current ~8-10% to ~15% in next couple of years. Further company is looking to launch couple of new products at affordable prices resulting every quarter to sustain double digit growth revenue in future as well.

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