July 02, 2021

Stove Kraft Limited: Ratings upgraded to [ICRA]A- (Stable)/A2+

Summary of rating action

Previous Rated Amount Current Rated Amount

Instrument* Rating Action
(Rs. crore) (Rs. crore)
[ICRA]A- (Stable); upgraded from
Long Term – Fund based (CC) 90.00 90.00
[ICRA]BBB+(Positive)
[ICRA]A- (Stable); upgraded from
Long Term – Term Loan 30.98 30.98
[ICRA]BBB+(Positive)
[ICRA]A2+; upgraded from
Short Term – Non-fund based 35.00 35.00
[ICRA]A2
Long Term/Short-term - [ICRA]A- (Stable)/A2+; upgraded
(35.00) (35.00)
Interchangeable from [ICRA]BBB+(Positive)/A2
Total 155.98 155.98
*Instrument details are provided in Annexure-1

Rationale
The rating upgrade takes into consideration the improvement in Stove Kraft Limited’s (SKL) financial risk profile aided by
healthy revenue growth, significant expansion in profitability in and sizeable reduction in debt levels resulting in robust
improvement in debt coverage metrics in FY2021. SKL’s revenues grew by 28% in FY2021 to Rs. 859.0 crore from Rs. 669.9
crore in FY2020 on the back of expansion of sales volume with increase in home-cooking (during the pandemic-induced
lockdown) and a shift to branded products sale through E-commerce (sale of products of unorganised players not registered
in e-commerce declined in FY2021 due to reduced footfall in retail shops on the backdrop of Covid-19 Pandemic). Further, the
demand for SKL’s product is supported by continuing favourable demographics, rising number of nuclear families and the
change in consumption pattern resulting in shorter replacement cycles for pressure cooker and other cookware. Going
forward, SKL is expected to achieve a revenue growth of ~20-25% in FY2022 on the back of stable demand for cookware and
cooking appliances in the domestic market.

Further, the rating positively factors in the indigenisation strategy followed by the company leading to decline in sales
contribution from traded goods to 19% in FY2021 (as against 28% in FY2020) and in turn supporting the increased margins.
Further, the margins are supported by SKL’s ‘Cost-plus’ model wherein any increase in prices of raw material is passed on the
customers with a lag of one quarter. Overall, the operating margin of the company expanded in FY2021 to 13.3% from 5.2%
in FY2020 on the back of increase in scale of operations coupled with cost rationalisation measures to improve the efficiency
and decline in marketing and employee expense incurred by the company. However, the sustenance of the improved operating
margin will remain a key rating monitorable going forward.

The rating positively factors in the decline in SKL’s debt to Rs. 52.4 crore in FY2021 from Rs. 338.2 crore in FY2020 with the
conversion of CCDs of Rs. 184.75 crore held by Sequoia Capital India Growth Investments (SCI-GI) to equity shares in January
2021 and Rs. 95.0 crore of fresh issues of equity shares post-IPO in February 2021, which was utilised to repay debt. Further,
the company’s working capital requirement declined in FY2021 on the back of decline in debtor days with the company utilising
channel financing facilities (without recourse to SKL) to fund its receivables, resulting in significant improvement in the
company’s debt metrics. The expansion of margins leading to improved cash accruals coupled with decline in overall debt
levels leading to modest repayment in the near-term has improved the liquidity position of the company.

The rating continues to draw comfort from SKL’s healthy operational profile led by the strong presence of its flagship brand,
Pigeon, in the kitchen appliances market in South India. This is supported by sizeable manufacturing capacities built up by the
company over the last few years. The ratings draw comfort from its established pan-India multi-channel distribution network
and diversified revenues from export sales.

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 The rating is, however, constrained by SKL’s exposure to intense competition in the kitchen appliances space from other
leading national and regional players. Further, company’s profitability is vulnerable to volatility in raw material prices.
However, the ‘cost-plus’ model followed by the company mitigates the risk to a certain extent. The company’s business remains
working capital-intensive in nature leading to sizeable funding requirements. However, the SKL has implemented a channel-
funding program (without recourse to SKL) for sales done through e-commerce, OEM exports and general trade which has
resulted in accelerated collections and mitigates the risk to a certain extent.

Key rating drivers and their description

Credit strengths

Established brand and diversified product portfolio – Incorporated in 1999, SKL draws comfort from the vast experience of
its promoter and has developed its strong presence as a manufacturer of kitchen appliances such as pressure cookers, LPG
stoves, non-stick cookware, induction cook tops, etc. It has developed a healthy market position, particularly in South India
with well-known brands such as Pigeon, Gilma and Black + Decker. The company has been expanding its branded product
portfolio over the last few years and has positioned itself as a value-for-money brand with a competitive price point. The
Pigeon brand reported a sales growth of 22.3% in FY2021 to Rs. 707.0 crore from Rs. 578.0 crore in FY2020. The LED bulb
segment achieved a growth of 63.4% in FY2021 to Rs. 54.0 crore in FY2021 from Rs. 33.0 crore in FY2020 on the back of
wider acceptance of Pigeon LED brand leading to good market position in Karnataka. The company continues to invest in
brand building through media and advertisement and, with the SKL’s improved product mix and indigenization strategy, the
company has the capability to scale up at short period of time as the demand increases.

Established domestic distribution network; exports offer revenue diversity – The company has a nationwide distribution
network of 651 distributors and ~45,500 retail outlets, which has steadily expanded over the years. SKL’s other brands such
as Gilma and Black + Decker are sold through an exclusive network of distributors and retailers. Moreover, it has sizeable
sales through e-commerce platforms like Flipkart and Amazon, which contributed to 32.7% of revenues in FY2021 as
compared to 24.4% in FY2020 on the back of increased online purchasing on the backdrop of Covid-19, improved internet
penetration. The contribution of exports has been steadily increasing and in FY2021, the exports contributed 10% of total
revenue as compared to 7% contribution in FY2020. Exports achieved a growth of 70.0% in FY2021 to Rs. 88.4 crore from
Rs. 52.0 crore in FY2020 on the back of increased acceptance of SKL’s brand and its products in the international market.

Improvement in financial profile in FY2021: SKL’s operating income achieved a growth of 28% in FY2021 to Rs. 859.0 crore
from Rs. 669.9 crore in FY2020 on the back of expansion of sales volume in line with increase in home-cooking (during the
pandemic-induced lockdown) and a shift to branded products sale through E-commerce (sale of products of unorganised
players not registered in e-commerce declined in FY2021 due to reduced footfall in retail shops due to the Covid-19
Pandemic). Further, the demand for SKL’s product is supported by continuing favourable demographics, rising number of
nuclear families and the change in consumption pattern resulting in shorter replacement cycles for pressure cooker and
other cookware. The company’s operating margin expanded to 13.2% in FY2021 from 5.2% in FY2020 on the back of several
cost rationalisation measures implemented with respect to employee costs, decline in marketing and advertising expenses,
as well as other administration expenses, apart from increased indigenisation and automation in the manufacturing
processes. However, the sustenance of the improved operating margin will remain a key rating monitorable going forward.

SKL’s debt declined to Rs. 52.4 crore in FY2021 from Rs. 338.2 crore in FY2020 on the back of conversion of CCDs of Rs.
184.75 crore in January 2021, repayment of outstanding debt from Rs. 95.0 core of fresh issues of equity shares post-IPO
and decline in working capital requirement with decline in debtor days. The reduction in overall debt levels coupled with
expansion of operating margin has resulted in significant improvement in the company’s debt metrics with a healthy capital
structure with gearing of 0.2 times as on March 31, 2021 and strong coverage indicators with interest cover of 6.1 times in
FY2021 and TD/OPBITDA of 0.5 times as on March 31, 2021.

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 Credit challenges
Exposure to consumer spending trends and intense competition – SKL’s sales, profitability and cash accruals are closely linked
to the macro-economic conditions, consumer confidence and spending patterns, particularly considering the nature of its
products. Besides, its sales remain vulnerable to the consumers’ changing tastes and preferences, along with competition from
other branded players such as TTK Prestige Ltd, Hawkins Cooker Ltd and Butterfly Gandhimathi Appliances Ltd, etc, which
results in limited pricing power.

Vulnerability to fluctuating raw material prices - Aluminium and steel are the key raw material for the pressure cooker
industry and cookware industry and is a chief cost component which accounts nearly 25% of the total value of raw material.
The company’s profitability remains vulnerable to raw material price increases as the prices of aluminium steel are volatile and
subject to fluctuations arising from changes in domestic and international supply and demand, labour costs, competition,
market speculation, government regulations and periodic delays in delivery. Rapid and significant changes in such raw
materials may affect the production price and consequently the market price of these products. The company, however,
follows a ‘cost-plus’ model wherein any increase in prices of raw material is passed on the customers with a lag of one quarter.

Moderate working capital intensity – The funding requirements of SKL are primarily in the nature of working capital
borrowings. The company has to offer a credit of average two months to its channel partners and has a policy to maintain one-
month inventory of raw-materials for its manufacturing facility. While credit from suppliers aids the working capital funding,
SKL would require moderate level of working capital funding in the backdrop of high growth. However, SKL has implemented
a channel funding program (without recourse to SKL) for sales done through e-commerce, OEM exports and general trade
which has resulted in accelerated collections leading to low receivables and mitigates the risk to a certain extent.

Liquidity position: Adequate

SKL’s liquidity position remain adequate with a cash balance of Rs. 37.3 crore as on March 31, 2021 and undrawn working
capital lines of ~Rs. 11.5 crores as on April 30, 2021. The company’s average utilisation of working capital limits has remained
~81% for the 12-month period ending April 2021. The company has a modest repayment obligation of Rs. 1.71 crore in FY2022
and Rs. 5.72 crore in FY2023, and the company’s cash accruals are sufficient to service the debt obligation. The company is
planning to incur a capex of ~Rs. 35.0-40.0 crore in FY2021 and the capex will be funded from internal accruals of the company.

Rating sensitivities

Positive factors - Sustenance of the improved operating margin while registering a healthy growth will be a key positive rating
factor for the company.
Negative factors – The rating can be downgraded if the company witnesses a material decline in scale and profitability or if
there is any stretch in the working capital cycle. Moreover, higher-than-expected debt-funded capex impacting debt coverage
metrics can also trigger a downgrade. Total Debt/OPBDIT greater than 2.3 times on sustained basis may trigger a rating
downgrade.

Analytical approach

Analytical Approach Comments

Applicable Rating Methodologies Corporate Credit Rating Methodology
Parent/Group Support Not Applicable
Consolidation/Standalone For arriving at the rating, ICRA has considered the consolidated financials of SKL

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 About the company
Incorporated in 1999 by Mr. Rajendra Gandhi, SKL is involved in the manufacture and retail of a wide range of kitchen solutions
under Pigeon and Gilma brands. It acts as an exclusive partner for kitchen appliances of the BLACK + DECKER brand. SKL’s
products comprise cookware and cooking appliances across brands, while the home solutions constitute of various household
utilities, including the recently introduced LED bulbs, oxymeters, etc. The company sells its products through its dealer
distributor network, e-commerce platforms and a few exclusive brand outlets. It exports Pigeon products to 12 countries and
acts as a vendor to principals like Walmart Inc in the USA and Mexico. SKL has two manufacturing plants located in Bangalore
and Baddi, which have a capacity of 3.84 crore units spread across pressure cooker, induction cooker, LPG stoves, mixer
grinder, etc. It forayed into LED manufacturing in FY2019 from its Bangalore facility, which has a capacity of 75,000 bulbs a
day. The private equity player- Sequoia Capital–had invested Rs. 150 crores in the company during FY2010 to FY2014. ICRA
notes that SKL has come out with an initial public offering (IPO) in January FY2021 with a partial exit to the investor and raised
funds to reduce its debt levels. The compulsory convertible debentures subscribed by Sequoia Capital are entirely converted
to equity before the IPO. Post IPO, Sequoia Capital continues to hold 12.45% of shares in the company.

Key financial indicators (audited)

Blue Standalone FY2019 FY2020 FY2021
Operating Income (Rs. crore) 640.9 669.9 859.0
PAT (Rs. crore) 0.6 3.2 81.5
OPBDIT/OI (%) 5.2% 5.2% 13.3%
RoCE (%) 8.1% 9.3% 33.7%
Total Outside Liabilities/Tangible Net Worth (times) -7.8 -8.9 0.9
Total Debt/OPBDIT (times) 9.6 9.6 0.5
Interest Coverage (times) 1.9 1.7 6.1
DSCR (times) 1.4 1.1 3.8
PAT: Profit after Tax; OPBDIT: Operating Profit before Depreciation, Interest, Taxes and Amortisation; ROCE: PBIT/Avg (Total Debt + Tangible Net Worth + Deferred
Tax Liability - Capital Work in Progress); DSCR: (PBIT + Mat Credit Entitlements - Fair Value Gains through P&L - Non-cash Extraordinary Gain/Loss)/(Interest +
Repayments made during the Year)

Any other information: None

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 Rating history for past three years
Current Rating (FY2021) Chronology of Rating History for the past 3 years
Amount Date & Rating in FY2021 Date &
Amount Date & Date & Rating
Outstanding Rating in
Instrument Rated Rating in in FY2019
Type as of Mar 31,
(Rs. FY2020
2021
crore) Jul 02, 2021 Feb 09, 2021 Oct 08, 2020 Nov13, 2018
(Rs. crore)
[ICRA]BB-
Long- [ICRA]A- [ICRA]BBB+ [ICRA]BBB
1 Cash credit 90.00 - (Stable)
term (Stable) (Positive) (Stable)
withdrawn
[ICRA]BB-
Long- [ICRA]A- [ICRA]BBB+ [ICRA]BBB
2 Term Loan 30.98 22.6 (Stable)
term (Stable) (Positive) (Stable)
withdrawn

Short [ICRA]A4
3 Non Fund based 35.00 - [ICRA]A2+ [ICRA]A2 [ICRA]A3+
term withdrawn

Long
[ICRA]A- [ICRA]BBB+ [ICRA]BBB
term/
4 Interchangeable (35.00) - (Stable)/ (Positive)/ (Stable)/
short
[ICRA]A2+ [ICRA]A2 [ICRA]A3+
term

Complexity level of the rated instrument

Instrument Name Complexity Indicator

Long Term - Fund Based (CC) Simple
Long Term – Term Loan Simple
Long Term/Short Term – Interchangeable Simple
Short Term – Non Fund based Simple

The Complexity Indicator refers to the ease with which the returns associated with the rated instrument could be estimated.
It does not indicate the risk related to the timely payments on the instrument, which is rather indicated by the instrument's
credit rating. It also does not indicate the complexity associated with analysing an entity's financial, business, industry risks or
complexity related to the structural, transactional, or legal aspects. Details on the complexity levels of the instruments, is
available on ICRA’s website: www.icra.in

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 Annexure-1: Instrument details
Date of Issuance / Amount Rated Current Rating and
ISIN No Instrument Name Coupon Rate Maturity Date
Sanction (RS Crore) Outlook
Long-term Fund Based
NA NA NA NA 90.00 [ICRA]A-(Stable)
Cash Credit
NA Long-term - Term loan Jan 12, 2021 NA Jan 12, 2026 30.98 [ICRA]A-(Stable)
Short-term – Non-
NA NA NA NA 35.00 [ICRA]A2+
fund based
Long-term/ Short- [ICRA]A-(Stable)/
NA NA NA NA (35.00)
term Interchangeable [ICRA]A2+
Source: Company

Annexure-2: List of entities considered for consolidated analysis

Company Name SKL Ownership Consolidation Approach
Stove Kraft India (Partnership firm) * 99% Full Consolidation
*Stove Kraft India (Partnership firm) got dissolved in September 22, 2020.

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 ANALYST CONTACTS
Shamsher Dewan Kinjal Shah
+91 124 4545328 +91 937922486
[email protected] [email protected]

Mythri Macherla Harish Suresh

+91 9701191490 +91 8523969083
[email protected] [email protected]

RELATIONSHIP CONTACT
Jayanta Chatterjee
+91 80 4332 6401
[email protected]

MEDIA AND PUBLIC RELATIONS CONTACT

Ms. Naznin Prodhani
Tel: +91 124 4545 860
[email protected]

Helpline for business queries

+91-9354738909 (open Monday to Friday, from 9:30 am to 6 pm)
[email protected]

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