Stove Kraft Q1 Results Review - Cost Rationalisation Helps In Margin Expansion: Nirmal Bang

Nirmal Bang Report

While Stove Kraft Ltd.'s topline was in line with our estimates, Ebitda margin was above our estimates by 544 basis points due to lower-than-expected other expenses.

The management cited healthy primary order booking for the upcoming festive sales. It expects Q2 and Q3 of FY25 to be stronger quarters on the back of the same, and contributing ~60% of the overall annual topline.

Stove Kraft opened 117 stores in FY24 versus a target of 7-8 stores per month. The current total store count (as on 30th June 2024) stands at 191, with ~20 new stores added in Q1 FY25. The company also converted 23 stores from Company Owned Company Operated to Company Owned Franchise Operated model in Q1 FY25, and this run-rate is expected to continue.

FY25 topline guidance stands at ~19% (past four-five years’ topline compound annual growth rate, and the company aspires to touch ~11% – in FY25.

The management’s strategy is to cater to the mass segment and offer them branded products at reasonable price points. While margin expansion is a positive, the stock has run up ~50% YTDCY24.

We maintain Accumulate with a revised target price of Rs 730. This implies a price to earning of 24 times on June 2026E earning per share.

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