IKIO Lighting Ltd. IPO: Shining in the LED Lighting Market

Published by Sharekhan Education | June 6, 2023

 Amit Pathak | Sharekhan Education

Introduction:

Welcome to our blog, where we bring you the latest insights on the upcoming IPO. In this IPO note, we shine a spotlight on IKIO Lighting Ltd., an Indian manufacturer of LED lighting solutions. With a strong market presence and a focus on premium products, IKIO Lighting presents a promising investment opportunity. Let’s delve deeper into the details.

IPO Details:

IKIO Lighting Ltd. plans to raise funds through an initial public offering (IPO) with an issue size of ₹593-607 crores. The price band for the IPO is set at ₹270-285 per share. The IPO opens on Tuesday, 6th June 2023, and closes on Thursday, 8th June 2023. Upon allotment, the company will list the shares on BSE and NSE

Company Overview:

IKIO Lighting specializes in the manufacturing of LED lighting solutions and offers a range of products, including LED lighting, refrigeration lights, and ABS piping. Operating under the original design manufacturer (ODM) business model, IKIO Lighting conceptualizes, designs, and manufactures products that are marketed by their client companies under their own brand names. With manufacturing facilities in Noida and Haridwar, IKIO Lighting caters to the residential, industrial, and commercial lighting segments, focusing on the premium market.

Objects of the Issue:

The IPO comprises a fresh issue of equity shares amounting to ₹350 crores and an offer for sale (OFS) of up to ₹257 crores by existing shareholders. IKIO Lighting will utilize the proceeds from the fresh issue to repay borrowings and invest in its wholly-owned subsidiary, IKIO Solutions.  The minimum application for this IPO is 52 shares, with multiples thereafter.

Industry Overview:

India’s electronics manufacturing services (EMS) sector has evolved from contract manufacturing to offering design services. Post-COVID, global original equipment manufacturers (OEMs) are keen on diversifying their sourcing through the China +1 strategy. Simultaneously, Indian OEMs are seeking locally sourced components to reduce foreign dependence. The increasing demand for energy-efficient lighting and smart city projects, along with this trend, is expected to drive the growth of the LED lighting market in India. Frost and Sullivan project that the Indian LED lighting market will grow at a compound annual growth rate (CAGR) of 12.2% from FY22 to FY26E

Competitive Strengths:

IKIO Lighting enjoys several competitive strengths that position it favorably in the LED lighting market. The company’s diverse product portfolio enables it to meet the evolving needs of its customers. With long-term relationships and active engagements with clients, IKIO Lighting efficiently plans its capital expenditures. Moreover, the company has the capability to manufacture mechanical components in-house, including diodes and resistors. This self-reliance allows IKIO Lighting to maintain control over quality and costs.

Business Strategy:

IKIO Lighting’s strategic focus lies in expanding and growing its existing manufacturing facilities while constructing a new facility through its subsidiary, ISPL. The company has already acquired a land parcel in Noida spanning approximately 500,000 square feet for this purpose. The expanded capacity will facilitate increased production of the current product portfolio. Additionally, IKIO Lighting aims to expand into the North American market initially, followed by gradual expansion into the European and South-East Asian markets. Leveraging their relationships with prominent customers such as Signify (formerly Philips),
Honeywell, Frigoglass, and Western Refrigeration, IKIO Lighting aims to showcase the quality of its offerings.

Key Concerns:

One key concern for IKIO Lighting is its revenue concentration risk. The company derives a significant portion, approximately 70%, of its revenue from a single customer, Signify Innovations India Limited (formerly Philips India). Additionally, IKIO Lighting sources raw materials from vendors based in China, Singapore, Hong Kong, and Taiwan. Any restrictions on imports of components or raw materials from these regions could adversely affect the company’s ability to deliver products to its customers.

Financials:

Over the past three fiscal years, IKIO Lighting consolidated revenue grew at CAGR of ~23% over FY20-22 led by LED lighting segment, which grew at CAGR of ~24% during the same period. The EBITDA margin increased 600 bps to 23.3% supported by savings in RM costs and other costs. PAT grew at a CAGR of ~54% to Rs.51 crore tracking EBITDA margin expansion. IKIO Lighting holds a long-term debt credit rating of “BBB-” from CRISIL, with a positive outlook. Its ROE for FY22 stood at 46.4% and Net debt/EBITDA was 1.47x. As of 9M FY23, the company’s ROE was 36.46%, and the Net debt/EBITDA ratio was 1.94x. With an upper price band of ₹270-285, the company appears to be fairly valued at 32x based on proforma consolidated financials of FY23 annualized EPS.

Source: SEBI Red Herring Prospectus

Conclusion:

The upcoming IPO of IKIO Lighting Ltd. presents a strong outlook in the growing LED lighting market in India. With a strong market position, diverse product offerings, and strategic growth plans, the company is well-positioned for future success. However, investors should carefully consider the risks associated with revenue concentration and raw material sourcing. By evaluating the company’s financial performance and future prospects, investors can make informed decisions regarding their participation in the IPO.

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