Inflame Appliances

Summarizing the analysis and questions from the above links:

History

• 2016: Company used to produce and sell under PMUY (Pradhan Mantri Ujjawala Yojna)
  • Used to have marketing agreements with OMCs - HPCL/BPCL/IOCL
  • Discontinued this business
• Management
  • Amit Kaushik - Promoter & CEO
  • 2017: Converted Partnership to Private Limited Company

Products

• Stoves/Class Cooktops = 20,000 per month
• Built-in hobs = 10,000 per month
• Chimneys/hoods = 20,000 per month (Panchkula)
  • Company seems to be scaling this massively
  • Have created 30-35 models in Panchkula R&D facility
  • Nov’21 = Doing 10,000 per month
  • Target was to do 17-18,000 per month by March 2022
    • Press release (Oct 2022: Did ~18,000 units in Sep)

Chimney = 80% of revenue

• Chimneys - market sizing

  • Market Size is ~20 lacs chimneys
    • Market is growing at 15-20%
    • 2025: Market size should be 3-3.5 mn
    • What is market share of various brands?
    • CEO: “None of the brands are doing more than 20k/month i.e. 2.5 lacs per years.” Implies market share of ~12-15% for top brands i.e. fragmented end market - good for business economics
  • India imports ~16 lac chimneys and hobs (~80% is imported, largely from China)
  • 15-20% is the transportation cost from China which can be saved - since it is a bulky product
    • Can PLI come in?
    • Can import duty be applied in future?

• Realization of Chimney

  • ASP range = 2,800 - 6,000
  • There are 3 more manufactures - all of them are brands
  • Inflame will work under ODM model

• Immediate Capacity Expansion by 2x

  • Going to total 40-45,000 / month
  • 2nd plant in Hyderabad = 20-22,000 / month
    • Govt. is offering big subsidies: Interest subsidy, power subsidy, part GST subsidy; Will recover capex in 3-3.5 years
    • Hindware and Click are two major buyer from Hyderabad plants
    • Have assurance of demand
  • Scaling up is a challenge, demand is not a challenge
  • Want to be selling 40-45k per month by Dec-2023
  • ASP = 4,500
  • Would imply ~200-225 crores annual revenue run rate for Chimney Segment
  • 1st plant is in Panchkula = 20-22,000 / month
    • 100% CU in March’2022

^ This was management’s aspiration in Nov-2021. However, it seems CU was below expectation. Need to understand why.

• Dec’22: Target to have 10-12% market share
• Future Expansion
  • Will set up 2 more plants
  • One to cater to exports, near a port - likely in Gujarat
  • One to cater to East India markets
  • Given the voluminous nature of products, geo footprint is important
  • This will also act as temporary competitive advantage against newer players
• EBITDA Margins
  • Can be 18-25%
  • CEO said can be “even higher”
  • This is a tricky assumption!!
  • Found this statement from management to be the most questionable. Can anyone share thoughts on what could be a more reasonable assumption?
  • Historical GM has been ~27% - although the business is rapidly evolving
• Issues in scaling up
  • Glass is not available, Galvanized sheets are not available
  • Skilled manpower
• Customers = Wonderchef, Hindware are key customers; others = Kaff, Prestige (?), Sunflame
  • Demonstrates product quality level has become acceptable
  • Inflame will not have a brand in Chimneys
  • Trial order from Inalsa, Flipkart, Green Line Appliance - March 2022
  • Trial order from Stovekraft - April 2022
  • ~45,000 units order from Hindware (not clarified the product mix)
• Backward integration
  • Eliminated dependency on China
  • Improved noise levels + suction power vs China products
  • Doing Chimney Glass production
• Company aspire to produce 100,000 chimneys per month (12 lac per year)! - by when?
  • This would mean 12 lacs/year
  • Whats the implied market share ?
• At ASP of 4,000 this means 40 crores/month from Chimney
• Key Brands on Amazon
  • Elica (Whirlpool owns 90% stake, rest with Italian parent); FY21 sales 310 crores, growing at 15-20% CAGR
  • Hindware - Anchor customer for Inflame
  • Inalsa
• Distribution Network
  • Company set up in states of Maharashtra, Gujarat, West Bengal, UP, Punjab, Haryana
  • Want to expand network to Pan-India
  • It is unusual for OEM/ODM companies to set up own distribution. Does anyone understand the rationale for this?

RM = buy steel from Jindal, Glass from Saint Gobain. 95% of RM is domestically sourced (earlier it was 50% domestically)

Hobs
Will take another 2-years to establish strong credentials

Long Term target
2025: Revenue growth of 50-70% CAGR
EBITDA margins of 18-25%
These are lofty numbers and we shouldn’t pay too much emphasis to such targets. Need to closely monitor the execution of Hyderabad plant and CU over the next 6-9 months.