IKIO LIGHTING LIMITED IPO ANALYSIS

About the Company and products / services of the Company: -

Incorporated as IKIO Lighting Private Limited in 2016, the name of Company was subsequently in 2022 changed to IKIO Lighting Limited, upon conversion into a public company.
The Company is an Indian manufacturer of LED lighting solutions.
It is primarily an Original Design Manufacturer (“ODM”) which designs, develops, manufactures and supplies products to customers, who then further distribute these products under their own brands.
They also work with customers to develop, manufacture and supply products that are designed by customers.

Their products are categorised as:
(i) LED lighting;
(ii) refrigeration lights;
(iii) ABS (acrylonitrile butadiene styrene) piping; and
(iv) other products.

The LED lighting offerings include lighting, fittings, fixtures, accessories and components.

They provide lighting solutions (lights, drivers and controls) to commercial refrigeration equipment suppliers under the refrigeration light segment.

They manufacture an alternative to PVC piping called ABS piping that is primarily used by US customers for plumbing applications in the recreational vehicles (“RVs”) that they fit out.

In addition, the Company manufactures and assemble other products including fan regulators that are designed by clients; light strips, moulding and other components and spares.

Images to understand the business better:

LED lights

LED lighting

LED fittings and fixtures

Refrigeration lights

Refrigeration light drives

Fan regulators

Light strips

Industry Outlook: -

The global electronics manufacturing services market is traditionally comprised of companies that manufacture electronic products, predominantly assembling components on printed circuit boards (PCBs) and box builds for major brands. Today, brands are seeing more value from EMS companies, leading to involvement beyond just manufacturing services to include product design and development, testing, and aftersales services such as repair, remanufacturing, marketing, and product lifecycle management.

The global EMS market was estimated at USD 880 billion in 2021 and is expected to grow at a CAGR of 5.4% to reach USD 1,145 Billion in CY 2026.

Technological advancements: The development of new manufacturing technologies and the emerging end-use sectors, such as the Internet of Things, are expected to boost demand for the EMS industry.

The use of smart lighting has also been on the rise in the past few years. The IoT technology in lighting has potential to grow not just in office buildings but also in warehouses, commercial parking areas, healthcare facilities, educational facilities and retail outlets. As LED lights are naturally friendly to digital controls, they are perfectly suited for IoT applications. Growth of the smart lighting market is owed to the government’s push in terms of the ‘Smart City Mission’ and ‘Digital India’ programs, as well as rising adoption of smart homes across the country.

Greater emphasis on vehicle electrification: The EV market will be the most lucrative in the automotive industry over the next decade. With an ever-increasing electronic content in each car, energy-related modules, and sub-assemblies, as well as charging infrastructure, which requires an overall ecosystem; it is a paving out major potential for EMS firms to enter this fast-developing industry and serve the leading EV manufacturers.

In CY 2021, India's EMS market was estimated at around USD 20 billion with a market share of 2.2% and it is expected to grow at a CAGR of 32.3% to USD 80 billion with a market share of 7.0% by CY2026.

So, the industry outlook seems to be good.

The Objects of the Offer: -

1. Repayment / Pre-payment of certain borrowings availed by the Company and its subsidiaries;

2. Investment in wholly owned subsidiary IKIO Solutions Private Limited, for setting up a new facility at Noida, Uttar Pradesh; and

3. General corporate purposes.

Key Financials: -

The Total Income, EBITDA and Net Profit have all grown in absolute terms, with a CAGR of 25.23%, 23.47% and 32.34% respectively (from FY20 to FY22). There is also a slight increase in EBITDA margin & Net Profit margin (from FY20 to FY23(9m)). However, both ROE & ROCE are in decreasing trend.

Valuation: -

Peer comparison and valuation

*The PE & Price to BV ratios for IKIO Lighting Limited are calculated on the basis of upper price band of the IPO. For PB calculation, the book value of all peers belongs to March 2023, whereas that of IKIO Lighting Limited belongs to December 2022.

As it can be seen in the above table, whereas PE ratio of the company is slightly lower than the peer average, the Price to Book value ratio is higher than peer average.

Key Risks: -

1. The Company is dependent on and derives a substantial portion of its revenue from a single customer, Signify Innovations India Limited (erstwhile Philips India). In the nine months ended December 31, 2022, Signify Innovations India Limited accounted for 70.04% of its restated revenue from operations. Cancellation by company’s top customer or delay or reduction in their orders could have a material adverse effect on business.

2. The Company is dependent on and derive a substantial portion of its revenue from LED lighting products. Any reduction in orders from LED lighting product line could have a material adverse effect on business.

3. The Company does not receive firm and long-term volume purchase commitments from customers. If customers choose not to renew their supply contracts or continue to place orders with the Company, its business and results of operations will be adversely affected.

4. Business is dependent and will continue to depend on manufacturing facilities, and is subject to certain risks in manufacturing process such as the breakdown or failure of equipment, industrial accidents, injury to employees, severe weather conditions and natural disasters. In addition, any strikes, work stoppages or increased wage demands by employees could also interfere with operations.

5. The Company relies on a number of third-party suppliers for key components, materials and stock-in-trade as well as customer support services including product repairs and returns. Further, the Company does not have any long-term contracts with any of the suppliers.

6. In the nine months ended December 31, 2022, its imported raw materials as a percentage of total raw materials represented 49.82%, of which ~90% were imported from China. Any restriction on import of components or raw materials could have an adverse effect on its ability to deliver products to customers, business and results of operations.

7. The company is continuously experiencing negative cash flows. (Nine months ended December 31, 2022, Fiscal 2022, Fiscal 2021 and Fiscal 2020). In particular, they have experienced negative cash flows from operating activities in Fiscal 2022 and Fiscal 2021.

8. The Company is dependent on its R&D activities for future success. If they do not successfully develop new products in a timely and cost-effective manner, their business, results of operations and financial condition may be adversely affected.

9. And more risk factors, which could not be covered due the restrictions on the size of the blog.

IPO Details: -

The IPO will start on 6 June 2023 and will end on 8 June 2023 with an issue size of Rs. 607 Crores (Fresh issue of 350 Cr & remaining OFS). The lot size will be 52 shares and a retail investor can apply for a maximum of 13 lots. The price band offered by the company is Rs. 270-285 per share. As at the time of writing of this blog, the Grey Market Price is Rs. 357, making the GMP 25.26%.