IPO Analysis

IPO: Stanley Lifestyles

Everything you need to know about the IPO of this luxury furniture player

Stanley Lifestyles IPO: Everything you need to knowAI-generated image

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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
Price/book ratio (P/B) 4.8

Financial history

Key financials (Rs cr) 2Y CAGR (%) FY23 FY22 FY21
Revenue 46.3 419 292 196
EBIT (ex OI) 144.7 55 37 9
PAT 464.3 33 21 1
Net worth 8.8 217 200 183
Total debt 31.5 151 130 88
EBIT (ex OI) is earnings before interest and tax (excluding other income)
PAT is profit after tax

Key ratios

3Y average FY23 FY22 FY21
ROE (%) 9.7 16.3 11.8 1
ROCE (%) 11.6 16.6 12.9 5.5
EBIT margin (%) 10.1 13 12.8 4.6
Debt-to-equity 0.6 0.7 0.6 0.5
ROE is return on equity
ROCE is return on capital employed

Risk report

Company and business

  • Are Stanley Lifestyles' earnings before tax more than Rs 50 crore in the last 12 months?
    No. The company's profit before tax was Rs 25 crore for nine months ending FY24 and Rs 46 crore for FY23.
  • Will Stanley Lifestyles be able to scale up its business?
    Yes. The growing number of affluent consumers and their rising preference towards premium products will help the company scale up its business.
  • Does Stanley Lifestyles have recognizable brands with client stickiness?
    No. The company is still building its brand and the industry has a low switching cost.
  • Does the company have a credible moat?
    No. Although it is among the top four companies in the furniture industry, it faces stiff competition from other organised and unorganised players.

Management

  • Do any of the company's founders still hold at least a 5 per cent stake? Or do promoters have over 25 per cent stake in the company?
    Yes. Post the IPO, the promoters' stake will be 56.8 per cent.
  • Do the top three managers have more than 15 years of combined leadership at Stanley Lifestyles?
    Yes. Key managerial personnel and senior management have more than 15 years of experience combined.
  • Is the management trustworthy? Is it transparent in its disclosures, which are consistent with SEBI guidelines?
    Yes. No information to suggest otherwise.
  • Is the company's accounting policy stable?
    Yes. No information to suggest otherwise.
  • Is Stanley Lifestyles free of promoter pledging of its shares?
    Yes. No shares have been pledged.

Financials

  • Did the company generate a current and three-year average ROE of more than 15 per cent and a ROCE of more than 18 per cent?
    No. Its three-year average ROE and ROCE are 9.7 and 11.6 percent, respectively. In FY23, its ROE and ROCE were 16.3 and 16.6 per cent, respectively.
  • Was the company's operating cash flow positive during the last three years?
    Yes. The company's operating cash flows, even after excluding lease rentals that are included in the financing head, have been positive in the last three years (FY21-23).
  • Is the company's net debt-to-equity ratio less than one?
    Yes. The company's total debt-to-equity ratio, as of December 2023, was 0.9 times.
  • Is Stanley Lifestyles free from reliance on huge working capital for day-to-day affairs?
    No. Due to high inventory days, the company has a high cash conversion cycle. It recorded a cash conversion cycle of 148 days in FY23.
  • Can the company run its business without relying on external funding in the next three years?
    Yes. The IPO proceeds should ensure that it does not rely on external funding for the next three years.
  • Is Stanley Lifestyles free from meaningful contingent liabilities?
    Yes. Contingent liabilities as percentage of equity stood at 5.2 per cent in 9M FY24.

Valuations

  • Does the stock offer an operating earnings yield of more than 8 per cent on its enterprise value?
    No. Post the IPO, the stock will offer a 2.4 per cent operating earnings yield on its enterprise value.
  • Is the stock's price-to-earnings less than its peers' median level?
    It will trade at a P/E ratio of 64.1 times. Its peers are not listed.
  • Is the stock's price-to-book value less than its peers' average level?
    It will trade at a P/B ratio of 4.8 times. Its peers are not listed.

Disclaimer: This is not a stock recommendation. Do your due diligence before investing.

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