What you must know about Stanley Lifestyles IPO?

About Stanley Lifestyles Ltd

Stanley Lifestyles Ltd was incorporated in the year 2007 and it is into the design and manufactures super-premium, luxury, and ultra-luxury furniture. The company sells its products through the brand, "Stanley.” The product portfolio of Stanley Lifestyles Ltd is dividend int several key product verticals. There is the seating products suite which includes the design and manufacture of high-end sofas, sofa beds, recliners, dining chairs, bar stools, and cushions. Most of the specific wood products are sold under the category of cased goods. They include coffee tables, dining tables, end tables, and consoles. It has a separate vertical for kitchen and cabinetry products which include; modular kitchens, wardrobes, laundry/utility cupboards, bar cabinets, shoe racks, and bedside tables. In addition, Stanley Lifestyles Ltd is also into the design, manufacture, and sale of a range of bed frames, mattresses, pillows, and accessories.

Apart from furniture products to cater to the uber luxury market in homes, Stanley Lifestyles Ltd  also has a dedicated vertical for automotive furnishings. These include a wide range of higher end products including leather seat covers for car brands. While the company manufactures all of its own products, ancillary products such as lighting and switches are generally imported and sold under private labels. Stanley Lifestyles Ltd also sells carpets sourced locally from other manufacturers but they tend to be sold under private labels. The company currently operates a total of 38 COCO stores. These company-owned and company-operated (COCO) stores are located in major metropolises with a higher wallet share availability like Bengaluru, Chennai, New Delhi, Mumbai, and Hyderabad. Apart from these 38 COCO stores, Stanley Lifestyles Ltd also has 24 FOFO stores (franchisee-owned and franchisee-operated). It has a total presence across COCO and FOFO stores covering 21 cities across 11 Indian states and UTs. The company also has a 15,000 SFT product development manufacturing centre in Bengaluru. Stanley Lifestyles Ltd employs over 778 personnel on its rolls.

The fresh funds will be used for opening Stanley Level Next and Stanley Boutique stores, apart from anchor stores. Part of the funds will also go towards capex for its centre in Bengaluru. The promoters of the company are Sunil Suresh and Shubha Sunil. The promoters currently have a 67.36% stake in the company, which will get diluted post the IPO to 56.81%. The IPO will be lead managed by Axis Capital, ICICI Securities, JM Financial, and SBI Capital Markets; while KFIN Technologies Ltd will be the IPO registrar.

Highlights of the Stanley Lifestyles IPO Issue 

Here are some of the key highlights to the public issue of Stanley Lifestyles IPO.

•    Stanley Lifestyles IPO will be open from June 21st, 2024 to June 25th, 2024; both days inclusive. Stanley Lifestyles IPO has a face value of ₹2 per share and the price band for the book building IPO has been set in the range of ₹351 to ₹369 per share. 

•    Stanley Lifestyles IPO will be a combination of a fresh issue of shares and offer for sale (OFS) component. The fresh issue brings in fresh funds into the company, but is also EPS and equity dilutive. The OFS is just a transfer of ownership; and hence neither EPS nor equity dilutive.

•    The fresh issue portion of the IPO of Stanley Lifestyles Ltd comprises the issue of 54,20,054 shares (54.20 lakh shares approximately), which at the upper price band of ₹369 per share will translate into a fresh issue size of ₹200.00 crore.

•    The offer for sale (OFS) portion of the IPO of Stanley Lifestyles Ltd comprises the sale / offer of 91,33,454 shares (91.33 lakh shares approximately), which at the upper price band of ₹369 per share will translate into an OFS size of ₹337.02 crore. 

•    The 91.33 lakh shares in the OFS is being offered by a mix oof promoter shareholders and investor shareholders. The selling promoter shareholders include; Sunil Suresh (11.82 lakh shares) and Shubha Sunil (11.82 lakh shares). The selling investor shareholders include; Oman India Joint Investment Fund (55.44 lakh shares), Kiran Vuppalapati (10 lakh shares), and Sridevi Vuppalapati (2.25 lakh shares). 

•    Therefore, the total IPO of Stanley Lifestyles Ltd will comprise of a fresh issue and an OFS of 1,45,53,508 shares (145.54 lakh shares approximately) which at the upper end of the price band of ₹369 per share aggregates to total issue size of ₹537.02 crore.

Key dates for Stanley Lifestyles IPO and How to Apply?

Stanley Lifestyles IPO opens on Friday, 21st June 2024 and closes on Tuesday, 25th June 2024. The Stanley Lifestyles Ltd IPO bid date is from 21st June 2024 at 10.00 AM to 25th June 2024 at 5.00 PM. The Cut-off time for UPI Mandate confirmation is 5 PM on the issue closing day; which is 25th June 2024.

Data Source: Company RHP

Investors can apply either through their existing trading account or the ASBA application can be directly logged through the internet banking account. This can only be done through the authorized list of self-certified syndicate banks (SCSB). In an ASBA application, the requisite amount is only blocked at the time of application and the necessary amount is debited only on allotment. It must be noted that in ASBA applications, there is no refund concept. The total application amount is blocked under the ASBA (applications supported by blocked amounts) system. Once the allotment is finalized, only the amount is debited to the extent of the allotment made and the lien on the balance amount is automatically released in the bank account. The credit of shares to the demat account on June 27th 2024, will be visible to investors under the ISIN Code – (INE01A001028). This allocation to the demat account is only applicable to the extent of the allocation of shares and if no allocations are made in the IPO, then no credit would be visible in the demat account.

Promoter Holdings and Investor Quota Allocation 

The promoters of the company are Sunil Suresh and Subha Suresh. The promoters of the company are Sunil Suresh and Shubha Sunil. The promoters currently have a 67.36% stake in the company, which will get diluted post the IPO to 56.81%. As per the terms of the offer, not more than 50% of the net offer is reserved for the qualified institutional buyers (QIBs), while not less than 35% of the net offer size is reserved for the retail investors. The residual 15% is kept aside for the HNI / NII investors. The table below captures the allocation to various categories.

It may be noted here that the Net Offer above refers to the quantity net of employee and promoter quota, as indicated above. There is no specific and dedicated employee quota of shares as per the red herring prospectus (RHP). The anchor portion, will be carved out of the QIB portion and the QIB portion available to the public will be reduced proportionately.

Lot sizes for investing in the Stanley Lifestyles IPO

Lot size is the minimum number of shares that the investor has to put in as part of the IPO application. The lot size only applies for the IPO and once it is listed then it can be even traded in multiples of 1 shares since it is a mainboard issue. Investors in the IPO can only invest in minimum lot size and in multiples thereof. In the case of Stanley Lifestyles Ltd, the minimum lot size is 40 shares with upper band indicative value of ₹14,760. The table below captures the minimum and maximum lots sizes applicable for different categories of investors in the Stanley Lifestyles IPO.

It may be noted here that for the B-HNI category and for the QIB (qualified institutional buyer) category, there are no upper limits applicable.

Financial highlights of Stanley Lifestyles Ltd

The table below captures the key financials of Stanley Lifestyles Ltd for the last 3 completed financial years. 

Data Source: Company RHP filed with SEBI (FY refers to Apr-Mar period)

There are few key takeaways from the financials of Stanley Lifestyles Ltd which can be enumerated as under:

a)    In the last 3 years, revenue growth has been rather strong, with the FY23 sales revenues more than double that of the FY21 sales revenues. We are not comparing the data for previous year as FY23 has shown a sharp growth over previous years and hence may not be reflective. However, net margins have been quite steady and robust at around 7.85%.

b)    While the net margins of the company have been quite strong, even the ROE at 15.18% and the ROA at 7.18% are quite healthy by industry standards. These are the latest year figures, but previous figures have steadily grown. The challenge appears to be that of an IRR based pricing model, where the net margins are getting constrained for 2 years.

c)    The company has relatively healthy sweating of assets at around 0.91X in the latest year, and this is normal in the retailing and high-end luxury products where a lot of costs tend to get front-ended.

Overall, the company has reported strong and steady growth in sales and profits while the net margins and the capital margins are relatively steady and robust in last two years. Let us now turn to the valuation story.

Valuation metrics of the Stanley Lifestyles IPO

Let us turn to the valuations part. On the latest year diluted EPS of ₹6.37, the upper band stock price of ₹369 gets discounted at a P/E ratio of 57-58 times. If one looks at the average growth in top line and bottom line and also as the margins on sales and capital; the pricing does look OK. More importantly, in an industry that caters to a very exclusive market segment, valuations tend to be on a higher plane. If you look at the numbers for the first 9 months of FY24, the impact on the P/E is not really substantive. This looks relatively reasonable valuations, especially with the brand value to boot and the segment targeted.

Here are some qualitative advantages that Stanley Lifestyles Ltd brings to the table. 

•    The company has positioned itself as one of the largest and fastest growing uber luxury furniture and lifestyle brand in the Indian market. They offer a wide range of products and product categories across a number of key price points.

•    The company is known for design led innovation and has carved a niche in the Indian market. Its vertically integrated manufacturing and marketing process flows, helps them maintain greater control over costs, quality, and brand communication.

If you add up the qualitative factors and the valuation on P/E of FY23, the story looks to be reasonably good; although it is not too certain if the pricing leaves much on the table for investors in the short run. Investors must look at the business franchise, the brand and the uber luxury positioning from a long term investment perspective. That would call for a higher risk appetite and patience in the investors.