Stanley Lifestyles IPO review (May apply)

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Review By Dilip Davda on June 15, 2024

•    The company is in the business of manufacturing and marketing luxury furniture.
•    It has 62 stores operating in 25 cities of India. 
•    After a setback in FY21, it posted steady growth in its top and bottom lines till FY23.
•    Based on FY24 annualized earnings, the issue appears aggressively priced. 
•    Well-informed/cash surplus investors may park moderate funds for long term. 

ABOUT COMPANY:
Stanley Lifestyles Ltd. (SLL) that commenced operations by providing car seat leather upholstery services for leading global automotive brands and subsequently transitioned to retailing luxury furniture in India. SLL is a super-premium and luxury furniture brand in India and among the few home-grown super-premium and luxury consumer brands in India operating at scale in terms of manufacturing as well as retail operations. (Source: RedSeer Report) 

Further, it is the fourth largest player in the home furniture segment in India in terms of revenue in Fiscal 2023. (Source: RedSeer Report) The company has the distinction of being among the first few Indian companies to venture into the super-premium and luxury furniture segment and one of the few Indian company present across various price points, i.e., super-premium, luxury and ultra-luxury segment, through its various brands. (Source: RedSeer Report) 

SLL retail its furniture products under the "Stanley" brand. Over the years, it has developed brand recognition and customer loyalty through quality products, as well as targeted marketing strategies and advertisement campaigns such as "Beautiful Living", "Design Glamour", "Luxury Unlimited" and "Bed of Dreams". It believes that customers are its ambassadors, that generate publicity for the "Stanley" brand through testimonials and endorsements and word of mouth advertising.

According to the management, as per historical data, its second half is always better than the first half. It enjoys the market place as a leader in premium upholstery segment. 

It offers customers bespoke products by leveraging the skilled craftsmanship of its employees. SLL's employees possess expertise across various processes that it deploys as part of operations which include leather marking, cutting, carpentry, sewing and stitching, metal work and polishing. As of December 31, 2023, the total number of craftsman associated with new product development division were 58 (including permanent employees and craftsmen on contractual basis). The company focuses on attention to detail while blending unique manufacturing techniques with contemporary design to deliver a truly distinctive product experience and offer luxurious offerings to customers. Almost all of its products under "Stanley Level Next" and "Stanley Boutique" brands include handcrafted elements.

As part of its new product development capabilities, the company designed and manufactured 88 new products in Fiscal 2023 and 71 new products during the nine months ended December 31, 2023. As of December 31, 2023, it had 62 stores (38 on COCO basis and 24 on FOFO basis) operating in 25 cities. As of the said date, it had 778 employees on its payroll and in addition it also deployed 693 contract labourers. 

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden combo IPO of fresh equity shares issue worth Rs. 200 cr. (approx. 5420040 shares at the upper cap), and an Offer for Sale (OFS) of 9133454 equity shares (worth Rs. 337.02 cr. at the upper cap). The company has announced a price band of Rs. 351 - Rs. 369 per equity shares of Rs. 2 each. The overall size of the issue will be approx. 14553494 shares worth Rs. 537.02 cr. The issue opens for subscription on June 21, 2024, and will close on June 25, 2024. The minimum application to be made is for 40 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE and NSE. The issue constitutes 25.53% of the post-IPO paid-up equity capital. From the net proceeds of the fresh equity issue, the company will utilize Rs. 140.16 cr. for investment in its subsidiaries. Rs. 6.66 cr. for capex on purchase of machinery/equipment etc., and the rest for general corporate purposes. 

The joint Book Running Lead Managers (BRLMs) to this issue are Axis Capital Ltd., ICICI Securities Ltd., JM Financial Ltd., and SBI Capital Markets Ltd., while KFin Technologies Ltd. is the registrar to the issue. 

Having issued initial equity shares at par, the company issued further equity shares in the price range of Rs. 39.00 - Rs. 162.32 per share (based on Rs. 2 FV), between August 2011 and August 2018. It has also issued bonus shares in the ratio of 2 for 5 in June 2023. The average cost of acquisition of shares by the promoters/selling stakeholders is Rs. 3.05, Rs. 5.73, Rs. 27.86, and Rs. 108.22 per share. 

Post-IPO, its current paid-up equity capital of Rs. 10.32 cr. will stand enhanced to Rs. 11.40 cr. Based on the upper cap of the IPO price band, the company is looking for a market cap of Rs. 2103.94 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has (on a consolidated basis) posted a total income/net profit of Rs. 201.71 cr. / Rs. 1.92 cr. (FY21), Rs. 297.76 cr. / Rs. 23.22 cr. (FY22), and Rs. 425.62 cr. / Rs. 34.98 cr. (FY23). For 9M of FY24 ended on December 31, 2023, it earned a net profit of Rs. 18.70 cr. on a total income of Rs. 322.29 cr. 

For the last three fiscals, the company has posted an average EPS of Rs. 4.60 and an average RoNW of 11.25%. The issue is priced at a P/BV of 8.03 based on its NAV of Rs. 45.97 as of December 31, 2023, and at a P/BV of 4.81 based on its post-IPO NAV of Rs. 76.68 per share (at the upper cap). 

If we attribute FY24 annualized earnings to its post-IPO fully diluted paid-up equity capital, then the asking price is at a P/E of 84.44. Based on FY23 earnings, the P/E stands at 60.10. Thus the issue is aggressively priced. 

The company reported PAT margins of 0.98% (FY21), 7.95% (FY22), 8.35% (FY23), 5.97% (9M-FY24), and RoCE margins of 5.52%, 12.90%, 16.63%, 8.63% for the referred periods, respectively. 

DIVIDEND POLICY:
The company has paid dividends for FY21 (14.50%), FY22 (94.03%), and FY23 (189.93%). It has already adopted a dividend policy in August 2023, based on its financial performance and future prospects.

COMPARISON WITH LISTED PEERS:
As per the offer document, the company has no listed peers to compare with. 

MERCHANT BANKER'S TRACK RECORD:
The four BRLMs associated with the offer have handled 72 pubic issues in the past three fiscals, out of which 19 issues closed below the offer price on the listing date. 

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