IPO: Stanley Lifestyles

Stanley Lifestyles, a luxury furniture company, is coming out with its IPO (initial public offering) on June 21, 2024. Here's a breakdown of the company's strengths, weaknesses, and growth prospects to help investors make an informed decision. In a nutshell Quality : The company's three-year average ROE and ROCE are 9.7 per cent and 11.6 per cent, respectively. Growth : Its revenue and net profit grew 46 and 464 per cent per annum, respectively, between FY21-23. Valuation : Post the IPO, the stock will be valued at a P/E and P/B ratio of 64 and 4.8 times, respectively. Overview: Rising discretionary income, an increasing number of affluent households and a growing luxury real estate market will be key growth drivers for the company. However, the industry is highly competitive with unorganised players occupying the majority of the furniture market share at 74 per cent. About Stanley Lifestyles Stanley Lifestyles is a super-premium and luxury furniture company whose products start at an average price of Rs 1.5 lakh. The company is vertically integrated across the entire product value chain, meaning it designs, manufactures, and retails its products through self-owned brands. It has 38 company-owned and operated stores and 24 franchisee-owned and operated stores across 21 cities in India. In FY23, it was the fourth-largest player in the home furniture segment in terms of revenue. Strengths of Stanley Lifestyles Leveraging store counts: The company plans to offer new products under lifestyle categories such as shoes, bags etc., in order to attract customers to existing stores and increase its products' appeal. Fully integrated operations: The company manages operations across the entire product value chain from manufacturing to retailing. This allows them to benefit from operating leverage, which is reflected in their operating profit margins that grew from 4.6 per cent in FY21 to 13 per cent in FY23. Weaknesses of Stanley Lifestyles High inventory days: The company recorded high inventory days of 251 days for nine months ending FY24 (9M FY24). Its average inventory days were 242 days between FY22-23, suggesting that it faces challenges in managing its stock given customer preferences are ever changing in the industry. Supplier concentration: Its key raw material, leather, that accounted for 42 per cent of its total raw material expenses for 9M FY24 is supplied by a handful of suppliers. This weakens its bargaining power. In 9M FY24, the top five suppliers accounted for 98 per cent of its total leather supply. IPO details Total IPO size (Rs cr) 537 Offer for sale (Rs cr) 337 Fresh issue (Rs cr) 200 Price band (Rs) 351-369 Subscription dates June 21 to June 25 2024 Purpose of issue To open new stores and purchase machinery Post-IPO M-cap (Rs cr) 2,104 Net worth (Rs cr) 437 Promoter holding (%) 56.8 Price/earnings ratio (P/E) 64.1