IPO Size: Rs. 607 cr 

• Fresh Issue worth Rs. 350 cr to fund greenfield capex (Rs. 212 cr) and debt repayment (Rs. 50 cr)
• Offer for sale (OFS) worth Rs. 257 cr by the promoters (100% to drop to 72% post listing)

Price band: Rs. 270-285 per share

M cap: Rs. 2,203 cr, implying 28% dilution

IPO Date: Tue 6^th Jun to Thu 8^th Jun 2023, Listing Fri 16^th Jun 2023

Grey Market Premium (GMP): We are strongly against ‘grey market premium’ as it is an unofficial figure, against SEBI guidelines.

High-end LED Lighting Maker

Ikio Lighting is an original design manufacturer (ODM) for high-end functional home decorative LED lighting products for Signify (Philips), accounting for ~60% of Rs. 332 cr FY22 revenue. Philips, in turn, accounts for 50% share in domestic non-commoditized LED lighting (excluding bulbs, tube light etc) market. Ikio also provides customized lighting solutions to branded retail stores and manufactures products for commercial refrigeration (import substitution theme) which enables company to earn EBITDA margins as high as 24%, despite B2B operations as also much higher than 11-16% of other third-party electronic manufacturing services (EMS) peers like Syrma SGS, Kaynes, Avalon among others.

Massive Capex Lined Up

Ikio is undertaking greenfield capex worth Rs. 260 cr, which will get commercialized in phases over the next 15-30 months. The capex is sizeable, as current net fixed assets are just Rs. 30 cr. New capacity is estimated to operate on a fixed asset turnover ratio of 5-6x, implying approximately Rs. 1,400 cr incremental revenue when fully complete.

High Growth and High Margin

With effect from 12 Sep 22, four subsidiaries have become wholly owned by Ikio, hence proforma financials are considered. On a consolidated proforma basis, Ikio’s revenue grew at 23% CAGR from Rs. 220 cr in FY20 to Rs. 332 cr in FY22, with 9MFY23 revenue already at Rs. 329 cr. Niche product profile and end-to-end solution offerings leads to 23.8% EBITDA margin, with a very impressive net margin of 15.2% in FY22 and 15.6% in 9mFY23. Proforma EPS for 9M FY23 rose to Rs. 7.90 from Rs. 7.77 in FY22, with 46% RoE, on Rs. 65 cr equity (face value Rs. 10 each), wholly owned by the promoter family.  

Significant Valuation Upside

M cap of Rs. 2,200 cr and enterprise value (EV) of Rs. 2,300 cr, imply PE multiple of 27x for 9MFY23 annualized PAT of Rs. 68 cr and annualized EPS of Rs. 10.6, which is not expensive as it is at its historic multiple. In comparison to EMS peers too, Ikio IPO valuation is seen attractive, as Kaynes is ruling at an EV of Rs. 7,800 cr on FY23 PAT of Rs. 95 cr (multiple of 81x) while Syrma SGS has an EV of Rs. 6,300 cr on FY23 PAT of Rs. 123 cr, translating into a PE of 51x.

While Ikio’s topline is smaller, its margin is top-notch and growth visibility is seen strong. Shareholders can except to be rewarded well in this IPO given attractive pricing, experienced promoters and strong industry tailwinds.