Disproportionally large equity base, fat remuneration to relatives, promoters’ negative cost of holding and tight issue pricing put the IPO in dim light!
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IKIO LIGHTING OFFER AT A GLANCE |
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| Offer Type | Book Built |
| Platform | Main Frame |
| Fresh Issue | Rs 350 Cr (1,22,80,702 equity shares) |
| Offer for Sale | 90,00,000 equity shares ( Rs 256 Cr) |
| Face Value | Rs 10 |
| Price Band | Rs 270 – 285 |
| Mkt/Bid Lot | 52 Nos. |
| Imp Market Cap | Rs 2,202 Cr |
| Imp Equity Cap | Rs 77.28 Cr |
| Implied Free Float | 27.54% |
| Lead Manager | Motilal Oswal Investment Advisors |
| Registrar | KFin Technologies |
| Listing At | BSE, NSE |
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INDICATIVE ISSUE SCHEDULE |
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| Opening : 06-Jun-2023 | Closing : 08-Jun-2023 |
| Allotment : 13-Jun-2023 | Refunding : 14-Jun-2023 |
| Demat Credit : 15-Jun-2023 | Trading : 16-Jun-2023 |
The Offer
The New Delhi-registered and Noida-headquartered, IKIO Lighting Ltd (ILL) is coming out with its maiden public issue valued more than Rs 600 Cr. The IPO consists of a fresh issue of Rs 350 Cr (about 122.8 lakh equity shares at the cap price) by the company and an offer for sale of 90 lakh shares (worth Rs 256 Cr) by the promoters. The offer is being made through the book-building route with a price band of Rs 270-285 for Rs 10 paid-up share.
Applicants should bid for a minimum lot of 52 shares and multiples thereof. The shares are proposed to be listed on the main frame of BSE & NSE on June 16, 2023. Motilal Oswal Investment Advisors is acting as manager to the offer while Karvy’s new avatar, Kfin Technologies, plays the role of registrar to the issue. The bidding opens on Tuesday, June 6 and closes on Thursday, June 8, 2023.
The company proposes to utilize the net proceeds of the fresh issue towards investment in wholly owned Subsidiary, IKIO Solutions Private Ltd, for setting up a new facility at Noida, Uttar Pradesh (Rs 212.31 Cr) and Repayment/ prepayment, in full or part, of certain borrowings availed by the Company and its Subsidiaries on consolidated basis (Rs 50 Cr). The balance amount is earmarked for general corporate purposes.
Lineage
Promoted by Hardeep Singh and his spouse Surmeet Kaur in 2016, ILL reportedly commenced operations in the same year, manufacturing refrigerator lights. The company set up its Noida facility in 2019 to carry out 100% export activity. Though the main promoter Hardeep Singh (63) has completed only Higher Secondary Education, he has more than two decades of experience in the manufacturing of television kits, electronic components and LED lighting.
ILL has two direct subsidiaries namely Fine Technologies (India) Private Ltd (FTPL) and IKIO Solutions Private Ltd (ISPL)), and two step-down subsidiaries viz. Royalux Exports Private Ltd (REPL) and Royalux Lighting Private Ltd (RLPL). FTPL is engaged in the manufacturing of fan regulators and fixtures of LED lights including powder coating of fixtures of LED lights. ISPL is carrying on the business of providing consultancy for manufacturing, fabricating, trading, designing, building, installing, buying, selling, importing, and exporting of all types of electronics goods, parts, gadgets, instruments and appliances, LED Lights, LED Fixture, LED Driver and other electronics goods and parts.
REPL was incorporated to take over the business of Royalux Exports, a proprietorship concern of Hardeep Singh and to manufacture, produce, sales, service, import, export, maintenance or otherwise deal in LED lights, solar panel, lithium batteries and other related products. Presently, REPL is engaged in manufacturing and export of LED Lights and ABS pipes. RLPL is engaged in the business of manufacturing of refrigerator LED lights and its parts/accessories and other electrical and electronics goods.
ILL’s largest customer is Signify Innovations India Ltd, erstwhile Philips Electronics India Ltd which had a 50% market share in India’s functional decorative lighting category (including LED spotlights, LED down-lights and cove lights) and a 10% market share in India’s true-blue decorative lighting segment (including chandeliers, wall lights, pendants, outdoor lights). The main promoter Hardeep Singh reportedly has a 10-year-long relationship with Signify. In addition to Signify, ILL claims to have a diversified customer base across industry sectors and geographies which include Western Refrigeration Private Ltd, Panasonic Life Solutions India Private Ltd and Novateur Electrical & Digital Systems Private Ltd.
Key Management
ILL’s management is virtually controlled by the promoters’ family members. Founder Hardeep Singh is the Chairman and Managing Director of the company. He oversees the overall functions of the company. Hardeep Singh’s spouse and co-promoter, Surmeet Kaur, is a Whole-time Director responsible for management of Human Resources.
Promoters’ son-in-law Sanjeet Singh, who has been associated with the company since February 2019, is another Whole-time Director on the Board. He reportedly oversees the overall operations of the Company. Promoters’ daughter Ishween Kaur, who has been associated with the company since March 2018, is the Chief Marketing Officer of the subsidiary (RLPL).
Stakeholders
Currently the promoters are holding the entire equity capital Rs 65 Cr. Post public issue the two promoters would collectively hold about 72.46% (56 million shares) at negative cost. Of the post-issue promoters’ holding 20% is locked-in for a period of three years and the balance 52.46% is locked for one year.
Business Track
ILL is said to be a leading manufacturer of light emitting diode (LED) lighting solutions. The company’s products are categorised as LED lighting, refrigeration lights, ABS (acrylonitrile butadiene styrene) piping and other products. ILL’s LED lighting offerings focus on the premium segment and include lighting, fittings, fixtures, accessories and components. The company provides lighting solutions (lights, drivers and controls) to commercial refrigeration equipment suppliers under its refrigeration light segment.
It also manufactures an alternative to polyvinyl chloride (PVC) piping called ABS piping that is primarily used by the US customers for plumbing applications in the recreational vehicles. In addition, ILL manufactures and assembles other products including fan regulators, light strips, moulding and other components. ILL’s equipment and systems are reportedly used in various industries and products, including residential, industrial and commercial lighting.
ILL’s largest customer is Signify Innovations India Ltd, which according to Frost & Sullivan in Fiscal 2022 had a 50% market share in India’s functional decorative lighting category (including LED spotlights, LED down-lights and cove lights) and a 10% market share in India’s true-blue decorative lighting segment (including chandeliers, wall lights, pendants, outdoor lights).
Financial Track
ILL’s financial performance in recent years is impressive. The company’s revenue has more than doubled in last three years. EBIDTA margin has remained above 18% in last four years. Bottom line has steadily grown from Rs 16.26 Cr in fiscal 2020 to Rs 34.58 Cr in first nine months of fiscal 2023. The company’s productive (fixed) assets have increased four-folds to Rs 86 Cr in fiscal 2023 from only Rs 17.20 Cr in March 2022.
On the flip side, the company’s equity capital, which was at just Rs 5 lakh in fiscal 2021, has zoomed to Rs 65 Cr in fiscal 2023 through two bumper bonus issues (499 Equity Shares for every 1 Equity Share held as on July 17, 2021 from Rs 5 lakh to Rs 25 Cr and 8 shares for every 5 shares held as on September 14, 2022 from Rs 25 Cr to Rs 65 Cr). This will further increase to over Rs 77 Cr due to the proposed fresh issue.
|
IKIO Lighting Consolidated Financials (in Cr) |
||||
| Period Ended |
Dec-22 |
Mar-22 | Mar-21 |
Mar-20 |
| Months |
9 |
12 | 12 |
12 |
| Revenue |
240.72 |
219.92 | 159.66 |
140.65 |
| Operating Profit |
49.86 |
40.17 | 30.48 |
26.34 |
| OPM% |
20.7 |
18.3 | 19.1 |
18.7 |
| Other Income |
0.80 |
0.08 | 0.05 |
0.03 |
| EBIDTA |
50.66 |
40.26 | 30.53 |
26.37 |
| EBIDTA % |
21.0 |
18.3 | 19.1 |
18.7 |
| Interest |
2.70 |
0.53 | 0.56 |
2.09 |
| Depreciation |
3.08 |
2.45 | 2.46 |
2.24 |
| Tax |
11.86 |
9.91 | 7.36 |
6.05 |
| Net Profit |
34.58 |
28.12 | 20.58 |
16.26 |
| Equity (Implied) |
77.28 |
25.00 | 0.05 |
0.05 |
| Reserves (Implied) |
399.33 |
51.44 | 48.27 |
27.6 |
| Borrowing |
136.33 |
15.83 | 4.96 |
7.78 |
| Fixed Assets |
85.80 |
17.20 | 15.40 |
15.10 |
Valuation
ILL has kept a price band of Rs 270-285 for Rs 10 paid up share which discounts the company’s current earnings more than 50 times and fixed assets about 26 times which look steep when compared to the valuation of listed peers like Elin Electronics and Calcom Vision. At the current market price, Elin is discounted 26 times its net earnings and 3 times its fixed assets. Calcom is priced 37 times its earnings and 4.2 times its assets.
Moreover, currently, the average cost of acquisition of the promoters’ holding is virtually nil which will become negative post-offer for sale by the promoters. Hence, in the absence of dividend distribution, should the promoters turn sellers in the post lock-in period, the price is unlikely to hold the IPO level.
| HOW IKIO COMPARES WITH LISTED PEERS | |||
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Financials |
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| (Amount in Cr) |
IKIO Light |
Elin Eletron |
Calcom |
| Market Cap |
2202 |
695 |
210 |
| Borrowing |
136 |
78 |
32 |
| Fixed Assets |
86 |
233 |
50 |
| Revenue |
321 |
1075 |
160 |
| Other Income |
1 |
2 |
1 |
| EBIDTA |
68 |
67 |
14 |
| Interest |
4 |
13 |
3 |
| Net Profit |
44 |
27 |
6 |
| Equity Cap |
77 |
25 |
13 |
| Reserves |
399 |
471 |
22 |
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Stock Features |
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| Current Price (Rs) |
285 |
140 |
164 |
| Face Value (Rs) |
10 |
5 |
10 |
| Book Value |
61.67 |
99.88 |
27.26 |
| Promoter Stake % |
72.46 |
32.97 |
67.17 |
| Debt/Equity |
0.3 |
0.2 |
0.9 |
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Profitability |
|||
| OPM % |
20.7 |
6.1 |
8.0 |
| Net Margin % |
13.6 |
2.5 |
3.5 |
| Cash EPS |
6.21 |
9.14 |
6.3 |
| Earnings Per Share |
5.68 |
5.4 |
4.41 |
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Growth |
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| CAGR 3Yr Sales % |
31.5 |
10.8 |
49.7 |
| CAGR 3Yr EBIDTA % |
36.8 |
6.2 |
72.3 |
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Return |
|||
| RONW % |
34.7 |
5.4 |
16.2 |
| ROCE % |
24.1 |
8.5 |
17 |
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Discounting |
|||
| Price/Earnings |
50.2 |
26.0 |
37.3 |
| Price/Cash EPS |
45.9 |
15.3 |
26.1 |
| Price/Book Value |
4.6 |
1.4 |
6.0 |
| Price/EBIDTA |
32.6 |
10.3 |
15.4 |
| Price/Revenue |
6.9 |
0.7 |
1.3 |
| Price/Fixed Assets |
25.7 |
3.0 |
4.2 |
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Distribution |
|||
| Dividend % |
0 |
20.0 |
0 |
| Yield % |
0 |
0.7 |
0 |
| Pay-out % |
0 |
18.5 |
0 |
Concerns
- The company’s prospects are largely dependent on a single customer, Signify Innovations India Ltd (erstwhile Philips India). In the nine months ended December 2022 Signify accounted for 70% of its revenue. As there are no long-term purchase commitments from the customers, if they choose not to renew their contracts, ILL’s business and results of operations will be adversely affected.
- ILL imports components from vendors in China, Hong Kong and Taiwan. Considering the geo-political tensions in general and India’s relations with China in particular, any disturbance in supply of raw materials could adversely affect the pricing and supply of ILL’s products which will have an adverse effect on the company’s business, results of operations and financial condition.
- Though the company posted impressive profits, it experienced negative cash flows from operating activities in fiscal 2022 and fiscal 2021.
- The objects of the IPO include orders for plant and machinery worth over Rs 100 Cr which has not yet been placed. This could result in cost and time over-run.
- Promoters’ son-in-law (36-year-old commerce graduate) associated with the company only since 2019 has been rewarded a remuneration of Rs 1.95 Cr in fiscal 2022 and promoters’ daughter, who had only 4 years of experience in Business Administration, was paid a remuneration of Rs 1.5 Cr during fiscal 2022.