IPO Size: Rs. 537 cr

• Rs.200 cr is Fresh Issue for (i) opening new stores Rs. 130 cr (ii) store renovation Rs. 10 cr (iii) manufacturing capex Rs. 7 cr
• Rs.337 cr is Offer for Sale (OFS): 60% of OFS by PE investor Oman India (27% stake to drop to 15%), 26% by promoter (67% stake to drop to 57%), 13% by two individual shareholders

Price band: Rs. 351-369 per share

M cap: Rs. 2,104 cr, implying 26% dilution

IPO Date: Fri 21^st Jun to Tue 25^th Jun 2024, Listing Fri 28^th Jun 2024

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

Bengaluru-based Luxury Furniture Company

Stanley Lifestyles is a home-grown manufacturer and retailer of super-premium and luxury furniture, with integrated operations. Company has 2 manufacturing plants in Bengaluru and 62 retail stores under brands ‘Stanley Level Next’, ‘Stanley Boutique’ and ‘Sofas & More by Stanley’. Of these stores, 38 are company-owned and company-operated, contributing to 2/3^rd of Rs. 420 cr annual revenue. Geographically, 60% revenue is from Karnataka, 11% each from Telangana and Maharashtra and 5% from Delhi. Also, nearly 1/4^th revenue comes from non-furniture B2C retailing, such as contract manufacturing, B2B sales for airports/hospitals, automotive seating covers.

39% Store Count Increase over Next 3 years

From fresh issue proceeds, company plans to open 24 new company-owned company-operated stores, mainly in Mumbai, Delhi, Hyderabad. Of this, 12 stores are expected to start in FY25E itself. Company also plans to augment manufacturing capacity, which was utilised 65-70% for sofa, which accounting for half of the revenue.

Healthy Margins

FY23 revenue stood at Rs. 419 cr, and presence in premium category leads to healthy margins – 50+% gross, 18-20% EBITDA, 7-8% net margin. Despite carrying inventory of 3-4 months, company’s RoE was heathy at 16% in FY23, thanks to backward integration.

Lacklustre 9MFY24

Despite store count rising from 54, as of 31.3.23, to 62 as of 31.12.23, 9MFY24 revenue was flat at Rs. 313 cr, as revenue per store contracted 13% to Rs. 6.7 cr in 9MFY24, from Rs. 7.8 cr in FY23. While gross margin was maintained, lack of operating leverage halved Rs. 35 cr PAT of FY23 to just Rs. 19 cr in 9MFY24. Thus, net margin slipped to 6% (from 8.3% in FY23) and EPS contracted from Rs. 6.4 in FY23 to Rs.3.8 in 9MFY24.  

9MFY23 financials have not been disclosed in the RHP to gauge seasonality, nor have Q4FY24 earnings been presented. This limited information does not give confidence on future financial performance.   

Grey Areas of Governance?

Promoter had started off as B2B car seat upholstery supplier to auto OEMs in 2007 under ‘Stanley Seating’. Now, company has bought ‘Stanley’ trademark and copyright from promoters for Rs. 37 cr. Between FY21 to 9MFY24, company has spent 4-5% of revenue or Rs. 54 cr in aggregate, on advertising and sales promotion. This will include brand advertisements expenses (not disclosed separately) which has helped strengthen brand ‘Stanley’. In this backdrop and given FY23 full year net profit of Rs. 35 cr, Rs. 37 cr paid by company to promoter is a material sum and unwarranted from the governance point of view.