Buy Stovekraft Ltd for the Target Rs 1,000 by Emkay Global Financial Services Ltd
Stovekraft (SKL) posted robust results despite 1Q being a seasonally weak quarter, with revenue up 41% yoy, led by 324% yoy growth in induction cooktops (ICT). Ex-ICT, revenue grew a healthy 12% yoy, with growth in small domestic appliances constrained by temporary capacity diversion to meet the robust ICT demand. EBITDA rose 34% yoy, while EBITDAM expanded by ~100bps qoq to 10.2% on the ~100bps qoq improvement in gross margin. SKL remains constructive on the FY27 outlook (guidance: ~15-20% growth in the medium term; ~100bps yoy margin improvement in FY27), citing strong festive season demand across 2Q/3Q, sustained momentum in induction cooktops (FY27 revenue expected at 2x yoy), multiple product launches, recovery in exports (~14-15% in 2Y vs 11% in FY26), and ramp-up of the IKEA business (potential to contribute ~5-6% of revenue). We remain positive on SKL as we believe its heavy Rs5bn capex cycle (FY22-26) is now largely behind, while existing capacities can support revenue growth with limited incremental capex (refer to Electrical appliances-led secular growth revival underway). Factoring in the strong 1Q performance and positive festive outlook (on growth/margin), we increase FY27E/28E EPS by ~9/5% and raise TP by ~11% to Rs1,000 from Rs900, basis 30x Jun-28E EPS (rolled forward); maintain BUY
Strong print despite 1Q being a seasonally weak quarter
Revenue grew 41% yoy on robust growth across segments, ex gas cooktops and small domestic appliances. EBITDA was up 34% yoy, but EBITDAM was up by 100bps qoq to 10.2% due to a 100bps qoq GM expansion. Adjusted PAT grew ~64% to Rs171mn.
Earnings call KTAs
1) 1Q stronger than expected this time around, despite it being a seasonally weak quarter for SKL owing to strong execution across products (especially induction cooktops; up 324% yoy), expanding distribution network, and operating leverage benefits.
2) On induction cooktops, SKL believes demand is well above pre-war levels; expects FY27 revenue to double yoy.
3) SKL is optimistic about demand in 2Q/3Q, (historically strongest quarters) due to festive season (well spread across both quarters this time); it believes ~15-20% mid-term revenue CAGR is achievable.
4) SKL plans multiple new product launches across cookware, induction cooktops, and small appliances during FY27, providing an additional growth lever.
5) FY26 export disruptions are now behind, and management expects exports to ramp up to ~14-15% over the next 2Y (vs 11% in FY26).
6) IKEA supplies commenced from 2QFY27, and SKL believes IKEA alone could contribute ~5-6% of overall revenue over time. Apart from IKEA, management is actively exploring opportunities with large global retailers (a major retailer in the UK).
7) SKL expects EBITDA margin to improve by ~100 bps in FY27, aided by better gross margin, operating leverage, richer product mix, and cost optimization.
8) Rise in working capital was due to planned inventory build-up ahead of the festive season (mainly induction cooktops) that has longer procurement lead times.
9) South contributes ~50% of SKL’s revenue; however, growth is faster in rest of India, particularly through GT expansion.
For More Emkay Global Financial Services Ltd Disclaimer http://www.emkayglobal.com/Uploads/disclaimer.pdf & SEBI Registration number is INH000000354
