IKIO Lighting Limited IPO (Subscribe)

IKIO Lighting Limited is a leading Indian manufacturer of light-emitting diode (LED) lighting solutions. The company’s unwavering commitment lies in sustainability and strives to provide low-energy LED products that contribute to India’s sustainability goals. As an original design manufacturer (ODM), the company’s core operations encompass the design, development, manufacturing, and supply of products to esteemed customers (Philips), who subsequently distribute these offerings under their own brands. Additionally, they actively collaborate with their customers to bring their unique product designs to life through manufacturing and supply capabilities.

Key Highlights

• The company offers a diverse range of products. It provides premium LED lighting solutions, including a wide variety of lights, fittings, fixtures, accessories, and components. Additionally, they specialize in supplying comprehensive lighting solutions, including lights, drivers, and controls, to commercial refrigeration equipment suppliers.
  
  They have also developed sustainable ABS piping as an alternative to PVC piping, which is extensively used in plumbing systems for recreational vehicles in the US. Moreover, the company’s manufacturing capabilities extend to other products, such as fan regulators, light strips, molding, and various components and spares.
• The company has a strong 10-year relationship with its largest customer, Signify (Philips), resulting in consistent growth. They started with 2 SKU’s and expanded to over 600 SKU’s in FY22. In 9mFY23, repeated customers contributed to around 73.63% of IKIO’s proforma consolidated revenues. They have also supplied LED home lighting products internationally and retained long-term customers in the retail store segment.
• The company has 4 manufacturing facilities in India. In Haridwar, they have a facility of 42,517 sq ft for LED lights, regulators, and switches. In Noida, they have three facilities with land areas of 80,000 sq ft, 112,077 sq ft, and 57,171 sq ft, respectively.
  
  These Noida facilities produce regulators and switches, refrigerator LED lighting and drivers, LED lights, solar panels, and ABS pipes for RVs. The company is undertaking greenfield Capex worth Rs 270 bn for a constructing a 5,00,000 sq ft complex in Noida which will get commercialized in phases over the next 24 – 36 months.
• Growth strategy
• Expanding into new product lines with a focus on high–margin areas.
• Expand manufacturing capacities for existing and new product lines.
• The company aim is to expand the ODM business into new international markets, with a primary focus on North American markets. They aim to gradually expand into European and Southeast Asian markets, serving both existing and new customers.
• Continue to invest in R&D for better product development and enhance the expansion of ODM business.
• Continue to focus on sustainability through ESG investments.

Key Risks

• The Company heavily relies on a single customer, Signify Innovations India Limited (formerly Philips India) has contributed 70%/91%/95%/96%, to their overall revenue in 9mFY23/FY22/FY21/FY20.
• More than 85% of their revenue comes from their top twenty customers. Any cancellations, delays, or order reductions from these top customers could significantly harm their business, financial condition, and results.
• They have experienced negative cash flows from operating activities in FY22 and FY21.
• The company imports certain components and raw materials from vendors in China, Singapore, Hong Kong and Taiwan, 55.67% of total raw materials are imported.

Valuation

At upper band, the issue is quoting at P/E multiple of 47.8x 9mFY23 annualised EPS. The IPO looks fairly valued across various valuation parameters when compared with its close peers. Investor can SUBSCRIBE the issue for long term investment horizon.

Disclaimer: The views expressed in the blog are purely based on our research and personal opinion. Although we do not condone misinformation, we do not intend to be regarded as a source of advice or guarantee. Kindly consult an expert before making any decision based on the insights we have provided.