IPO: IKIO Lighting

In a nutshell

• Quality: Its topline and profit after tax have grown at 25 and 32 per cent per annum, respectively, over FY20-22. In addition, it has maintained the highest ROE in its segment.
• Growth: Localisation of the supply chain, the emergence of the China + 1 strategy and emerging technologies will fillip growth in the industry.
• Valuation: The stock will be priced at a P/E of 78.6, which is higher than the peers' median P/E of 52.3.
• Overview: The IPO proceeds will be utilised to deleverage and expand its existing facilities. The company operates in a growing industry; however, it faces significant competition from its peers.

About the company
IKIO Lighting primarily provides LED lighting solutions. It manufactures original designs as well as designs of other OEMs for commercial, industrial and residential applications.

Strengths

• Long-term relationship with a top customer: One of the company's promoters (Hardeep Singh) has a 10-year-long relationship with the biggest customer, Signify Innovations (formerly Philips India) has also honoured the promoter with the 'Game Changer' award for LED lighting production.
• Backward integration: It manufactures all the mechanical components required for making LED lights (except two - diodes and resistors) at its facilities. This gives the company better control over its supply chain and higher margins.

Weaknesses

• Revenue concentration: Signify Innovations (formerly Philips India) is IKIO's biggest customer and accounted for over 90 per cent of its revenue in each of the last three fiscal years (FY20-22). However, the same has come down to 70 per cent in the nine months ending December 2022.

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

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