Stanley Life Ltd (SLL), headquartered in Bengaluru, is a producer and retailer of top fee, luxury and extremely-luxury furniture. It's miles the fourth largest by income in India within the dwelling furniture section and operates 62 stores pan-India, all over 25 cities, with a predominance within the South, which contributes to around 80 per cent of income.
The IPO dimension is ₹537 crore, out of which the unusual dispute half of the pie is ₹200 crore. Of that, the firm has earmarked ₹130 crore for capex, including for developing 24 unusual COCO (Firm Owned Firm Operated) stores over the next two years. Right here's as a replace of an equal choice of FOFO (Franchisee Owned Franchisee Operated) stores anticipated to come up, as per the management. (Gift: The firm does not incur capex on any of its FOFO stores and it's left to the franchisee). The promoters will effect around 56.8 per cent stake submit dispute (67.4 per cent pre-dispute)
SLL has an even tune yarn in its enterprise and operates in a distinct section condominium. Nonetheless, the IPO valuation at a trailing PE of 84 instances (9M FY24 earnings annualised) appears to be like too high and unattractive. Right here's particularly when brooding in regards to the reality that income boost has slowed rather drastically in FY24 and there are execution dangers in launching unusual stores and rising the enterprise. Hence, we counsel that investors want not subscribe to the dispute and wait to peer how the enterprise performs over the following couple of quarters.
SLL doesn’t contain a listed peer and a appreciable quantity of the competitors is from the sellers of imported luxury furniture, predominantly from Europe.
Strengths
SLL operates below two segments — B2C and B2B. In the B2C section, which accounts for around 80 per cent of income, the firm manufactures bespoke furniture, corresponding to sofas, recliners, dining tables, coffee tables, wardrobes, kitchen objects, beds and mattresses, below three diversified value components — namely, monumental top fee, luxury and extremely-luxury. The pricetag level begins from ₹1.5 lakh to ₹5 lakh and beyond.
In the B2B section, the firm is engaged in contract manufacturing for home furnishing MNCs and a sizable automobile firm. The B2B section accounts for around 20 per cent of income.
At the second, SLL sells the manufactured furniture in 62 stores, 38 being COCO and 24 being FOFO. For 9M FY24, COCO stores contributed 62 per cent to the total income, whereas the FOFO stores contributed a magnificent lower 13 per cent to the firm’s overall income. The total store count at 62 as of December 31, 2023, has elevated from 25 at the tip of FY21. A peculiar store takes four to 5 years to outdated faculty (to effect peak output), as estimated by the management.
SLL’s key aggressive income lies in a vertically built-in enterprise model, perfect-looking out from handling procurement to turning in to retail. Specialising in bespoke furniture, SLL contrasts with competitors who import from far away continents, providing agile lead instances and flexibility to inclinations. This agility enables SLL to explain superior value to prospects in comparison to its peers.
What works
The Indian housing market, particularly the posh section with objects valued at ₹1.5 crore and above, has been in an upcycle. In step with Anarock, unusual launches in luxury and extremely-luxury condominium, as a proportion of total, contain grown from around 10 per cent pre-pandemic to a peak of 27 per cent as of Q3 CY2023. The effectively off who flock to e-book such objects are SLL’s purpose prospects and when the booked objects are delivered within the following couple of years, the furniture budget for these unusual objects becomes the TAM (Total Addressable Market) of SLL. The management notes that 80 per cent of the firm’s B2C enterprise comes from unusual construction and simplest the relaxation is from refurbishing.
Extra, as per a RedSeer Document within the RHP, the choice of Indian affluent households has grown twice between 2017 and 2022 and the posh PFCE (Non-public Final Consumption Expenditure) has grown at a CAGR of 26 per cent within the same duration. The scale of the Indian luxury furniture market is anticipated to outpace the expansion of the non-luxury market by 7 proportion components to effect ₹22,300 crore by FY27, from ₹6,700 crore (FY23). Extra, the organised sector market share, which became at 26 per cent in FY23, is projected to be 35 per cent by FY27.
SLL appears to be like poised to piggyback on this rising luxury spending by India’s effectively off.
These apart, the Government is in discussions with the enterprise to enforce PLI blueprint for the furniture sector. In December 2023, the DPIIT became reported to be working closely with 24 sub-sectors, including furniture, to promote import substitution. If worthwhile, this initiative would possibly perchance perchance plot back competitors, whereas bolstering the firm’s aggressive advantages.
What does not work
Whereas the macro account is attention-grabbing, there are dangers and diversified components to effect up in mind here. First is the slowdown in income boost in FY24. Income grew at a CAGR of 46 per cent, between FY21 and FY23, to ₹419 crore, rebounding from a low unpleasant in FY21 due to the pandemic. Estimated FY24 income (9M FY24 annualised/adjusted for seasonality) at ₹420-430 crore, represents a well-known slowdown with three hundred and sixty five days on three hundred and sixty five days boost at around 0-2.6 per cent.
Management notes that FY24 numbers are likely to be not representative of ability efficiency, due to delayed condominium handovers and disruptions due to store relocations and a fire at one in all the stores. Nonetheless, even when these are factored, that also can gift for 5-7 per cent loss of income, the expansion is indifferent low.
Extra, the slowdown in boost that would possibly perchance even be attributed to the delays and disruptions well-liked above, also components to inherent enterprise dangers.
Amid the expansion slowdown, the asking valuation at a submit dispute PE of 84 instances (pre-dispute PE of 76 instances) is rather costly. Other dangers encompass the firm being extremely dependent on the posh housing market upcycle. Any dangers to the long-time frame sustainability of this upcycle would adversely impact the firm’s prospects.
Whereas the dispute has priced on your complete boost alternatives, there are execution dangers as far because the scaling up is concerned. Hence, we counsel that investors build conviction first, presumably over the next couple of quarters, and affords the dispute a walk for the second.