In the last Market Commentary, we wrote the earnings season for the December quarter was on and you could expect volatility in several individual stocks.
In the week gone by, we witnessed sharp corrections in the markets and several stocks tumbled between 15% and 20%. One such stock is Stove Kraft Ltd. The company announced its quarterly results and went on a free fall.
We will get to the details of why and how but before that let’s know what does Stove Kraft do.
Stovekraft – Who’s that?
Stovekraft is one of the largest kitchen appliances manufacturer and an emerging home solutions brand in India. The company’s portfolio includes 600+ products and is present in 12 international locations. It markets the products under four brands – Pigeon, Gilma, Black+Decker, and Pigeon LED.
Established 23 years ago, Stovekraft leveraged co-branded partnerships with LPG providers like Indian Oil and Hindustan Petroleum. These strategic partnerships provided Stovekraft with a ready-made distribution network, which helped the company augment its reach. Stovekraft’s product spread across the country within the distribution network. Moreover, consumers loved its products because they were worth the price.
After becoming a household name, Stovekraft went public, riding the IPO boom in January last year. The company issued its shares at Rs. 385 and listed with a 30% premium at Rs. 445. Since the listing Stove Kraft gained over 100%. However, today the stock is down close to 50% from the all-time high of Rs. 1,133.
Revenue and Net Profit Trend
The chart above will tell you, Stovekraft’s sales are cyclical in nature. When we say cyclical we mean, the company sales zoom during the festive season and remain relatively steady through the remaining year.
Stovekraft has consistently generated more sales during the second and third quarter as this the period of a festive season in India. Though the topline has continued its upward movement, the latest earnings performance of Q3FY22 didn’t please the investors.
Stovekraft’s sales jumped only 1% compared to same quarter a year ago. While it is not a significant drop in the topline, the bottom line took a major hit. Its net profit plunged over 66% from Rs. 33.47crores in Dec 2020 to Rs. 11.11crores in Dec 2021.
You may ask if the company generates more revenues during the festive season, why the sales were relatively muted in December. The company has a convincing answer to it.
“This quarter saw a tepid growth in revenue vis-à-vis last year. This was primarily driven by higher base in FY20 since Diwali was in middle of November last year and consequently had a positive impact in the third quarter of FY20. For this year, majority of the Diwali purchases occurred before (the) third quarter and as a result, volumes were relatively muted when compared to last year,” commenting on the tepid earnings Stovekraft MD Rajendra Gandhi said.
He further clarified the reasons for a sharp decline in the net profit. “During the current quarter, the company witnessed cost pressures from raw material price increase. However, the company did not pass on this increase to end-consumers as the company was expecting this increase to reverse, which did not happen. As a result, both gross margin and EBITDA margin saw a decline when compared to last year,” he added.
Well, that is it about the fall in the share price of Stovekraft. Will it continue the downward journey or revive in the future?
Stovekraft has increased its prices in the ongoing quarter to offset the impact of rising raw material costs.
Moreover, the company intends to expand its product offerings both organically and inorganically. It is entering the branded modular kitchen, electric switches, and accessories segment through the acquisition of Metsmith and SKAVA Electric, respectively.
Will the expansion in product line-up give Stovekraft the rise it is looking for? Will these expansions support the growth of other brands in its kitty? Well, we have to wait and watch whether these changes will have a positive impact on Stovekraft.
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