IKIO Lighting IPO kicks off today: Should you subscribe to the issue?

The Rs 607 crore-initial public offering (IPO) of IKIO Lighting kicks off for subscription on Tuesday, June 6 as the company looks to sell its shares in the range of Rs 270-285 apiece till Thursday, June 8 in a lot size of 52 equity shares.

Incorporated in 2016, the Noida-based IKIO Lighting manufactures light-emitting diode (LED) lighting solutions. The company is primarily an original design manufacturer (ODM). The company's LED lighting offerings focus on the premium segment.

The issue, at large, has gathered positive views from the analysts who suggest subscribing to the issue citing its attractive valuations, high margin products, strong performance and growth potential. However, select analysts are cautious over its dependence on a single client, competitive industry, import concerns and limited product line as the key risks for the business.

The issue consists of sale of fresh equity worth Rs 350 crore, while promoters of the company will offload 90,00,000 equity shares via offer for sale (OFS) route. Hardeep Singh will sell 60,00,000 equity shares, while Surmeet Kaur will cut her stake by 30,00,000 equity shares in the OFS.

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The net proceeds from the public offer will be used towards repayment of certain borrowings, investments in its subsidiary IKIO Solutions for setting up a new facility in Noida, and other general corporate purposes.

IKIO Lighting designs, develops, manufactures and supplies products to customers, who then distribute the products under their own brands. They also work with the customers to develop, manufacture and supply products as designed by the customers.

The company has reserved 50 per cent of the offer for qualified institutional buyers (QIB), while 15 per cent of the shares will be allocated to the non-institutional investors. Remaining 35 per cent of the issue is set aside for retail investors.

For the period ended on December 31, 2023, the company reported a net profit at Rs 51.35 crore with a total revenue at Rs 332.79 crore. Its net profit stood at Rs 50.52 crore, with a total revenue at Rs 334 crore for the financial year 2021.22.

Motilal Oswal Investment and Advisors are book running lead managers to the issue, while Kfin Technologies is the registrar to the issue. The stock will be listed at both BSE and NSE. Here's what brokerage firms suggest for the primary offering of the IKIO Lighting:

SBICap Securities
Rating: Subscribe for long term
"At upper band, the business is trading at P/E multiple of 47.8 times of the annualised EPS. The IPO looks fairly valued across various valuation parameters when compared with its close peers. Investors can 'subscribe' to the issue for a long-term investment horizon," said SBICap Securities.

Anand Rathi
Rating: Subscribe
IKIO has created its niche in functional decorative lights, commercial refrigeration lighting and recreational vehicles. Its ability to offer end-to-end solutions and its backward-integrated manufacturing have resulted in a strong business model with healthy RoEs despite operating on a smaller base than its peers, said Anand Rathi with a 'subscribe' rating.

However, the brokerage has cited concentration on Signify as the key risk for the company as a major market share loss of the latter could curtail the former's offtake. "Continuous customer on-boarding is critical for any contact manufacturer. Significant delay could curtail growth," it said.

Watch: IKIO Lighting IPO opens for subscription today: Should you apply? See what analysts say

Choice Broking
Rating: Subscribe
IKIO doesn't have any peer company having business operations similar to it. The peer companies are operating in the EMS sector and are considered only for valuation benchmarking.  Based on our FY23E earnings, the demanded P/E is 32.7 times, which is at discount to peer’s prevailing P/E multiple of 43.2 times. Thus we assign a 'subscribe' rating for the issue, said Choice Broking.

Swastika Investmart

Rating: Subscribe
IKIO Lighting is mainly in the business of original design manufacturing. The company has achieved remarkable success in this highly competitive market. It has a diverse product basket with a focus on high-margin areas, and we can witness its growth through consistent financial performance, said Swastika Investmart with a 'subscribe' rating for listing gains and long-term.

"However, there are some concerns, like that even after establishing backward integration, it is still dependent on imports for major components, and secondly, it has a major dependency on a single client and a specific product line (LED), although management assures a strong, long-term relationship with these clients," it said.

Marwadi Shares and Finance
Rating: Subscribe with caution
Considering the FY23 Annualized EPS of Rs 5.97 on a post issue basis, the company is going to list at a P/E of 47.77 times with a market cap of Rs 2,202.5 crore, whereas its peers namely Dixon Technologies, Amber Enterprises, Syrma SGS Technology and Elin Electronics are trading at a P/E of 92.6 times, 46.8 times, 57.2 times and 26 times, respectively, Marwadi Shares.

"We assign 'Subscribe with caution' rating to this IPO as the company has a diverse product basket with focus on high-margin areas and is poised to capture growth in the LED market. However, client concentration risk particularly Signify Innovations India Limited contributing 70-90 per cent to their overall revenue from FY20 to nine months of FY23 keeps us cautious," it added.

Religare Broking
Rating: Neutral
The company’s overall financials have grown at a CAGR of 25 per cent and 32.3 per cent over FY20-22 but the valuation seems expensive as it is trading at P/E of 66 times on FY22 EPS of 4.3/share, said Religare Broking which has a 'neutral' rating on the issue. Substantial portion of the revenue is derived from single customers and high competition amongst the sector are the key risks.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Business Today)

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