Challenger brand gunning for leadership position
We initiate coverage on Stovekraft (SKL), the leading kitchen and home appliance player (brand Pigeon), with BUY and TP of Rs1,350/sh at 20x Sep-26E EV/EBITDA (56% upside). SKL is growing significantly ahead of peers (~15pps share-gain) on i) massive cost-leadership, led by deeply-entrenched manufacturing; ii) strong new product innovation capabilities and strategic ‘value for money’ positioning; and iii) improving branding/distribution expansion, including new-age channels (e-com, modern retail). It has emerged as the leader in several high-growth categories, along with rapidly improving exports positioning (largest exporter; supplies to Walmart). Potential mass-consumer demand cycle recovering after 2 tough years and SKL’s sharply enhanced manufacturing edge (gross block up 3x in 4Y, with end of capex cycle amid increasingly restricted imports) drive 15%/35% revenue/EPS CAGR over FY24-27E, with strong FCFF yield (5.6%) and balance sheet (D/E at 0.3x) by FY27E. Valuation at 13x Sep-26E EV/EBITDA (46% discount to TTK Prestige) is attractive.
Significantly outperforming peers; emerged as leader in several growth categories
SKL has sharply outperformed peers (~15pps revenue share gains over FY16-24), driven by improvement in categories like non-stick cookware, pressure cookers, and other small appliances (form ~85-90% of sales, combined); the company is also emerging as the market leader in products like induction cooktops, air fryers, and electric kettles despite being only a recent entrant here (entered electric kettles, air fryers only 3-4 years ago). Deeply entrenched manufacturing capabilities (~92% revenue from in-house manufactured products now vs 70% three years ago) with backward-integration into component manufacturing (injection molding, sheet metal, PCB manufacturing, motor manufacturing, etc) have led to multi-fold rise in the gross profit/EBITDA pool share as well.
Strong innovation supported by ‘value for money’ positioning; expanding reach
SKL’s two-pronged thrust, ie i) new product development (Exhibits 45, 46) and ii) exploratory introductions (part of the ‘3 Phase’ strategy, ie import, assemble, and localize – enables testing of market acceptance before committing investments), has driven a much faster growth than peers/industry, aided by its ‘value for money’ positioning. To add to its extensive general trade network and e-commerce/modern retail prowess (largest in its category on Amazon, Flipkart, and for D-Mart), it is also rapidly expanding its exclusive retail channel (has 191 exclusive stores since FY23; plans to add 25-30 stores per quarter, with focus on the North and East).
Huge operating leverage play; capex cycle nears its end; imports being discouraged
We believe SKL would gain significantly from operating leverage, given the i) ahead-of-industry 4-year (FY20-24) capex cycle (in turn, accentuating manufacturing edge over peers) coming to an end which could potentially double revenue on current capacities, ii) increasing restriction on imports (BIS norms), and iii) mass-consumer demand cycle now potentially improving after 2 tough years. This, along with rapid growth in exports (on expansion in product offerings and entry into the UK market vs largely US retail now), would act as robust growth tailwinds.
Valuation attractive amid strong market share gains, 35% EPS CAGR, robust FCF
We build-in 15%/25%/35% FY24-27E revenue/EBITDA/EPS CAGR. In our view, valuations at 13x Sep-26E EV/EBITDA are attractive, based on SKL’s strong EPS CAGR led by market share gains amid potential industry demand recovery, significant operating leverage, strong improvement in cash generation as capex cycle nears its end, with improving return ratios
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