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  • 07 Jun 2023
  • ICICIdirect

IKIO Lighting IPO: All data points you should know

 

The fourth IPO in this financial year opened for subscription this week. IKIO Lighting IPO subscription opened on 6th June and closes on 8th June. In this article, we will share all the relevant information that would help you decide whether to subscribe or invest in the IPO for the long term. Let us get started.

IKIO Lighting IPO: Key Details

Below are the key details related to IKIO IPO

  • Issue Size: Rs 593 crore to Rs 607 crore
  • Price Band: Rs 270 - Rs 285
  • Issue Details: Fresh issue of Rs 350 crore and remaining Offer For Sale (OFS)
  • Market Cap: At the upper price band, Rs 2,203 crore
 

IKIO Lighting Business & Products

IKIO is a relatively new company with less than 10 years in the business - incorporated in 2016. They are an Indian manufacturer of light-emitting diode (LED) lighting solutions. IKIO is primarily an Original Design Manufacturer (ODM), a company that takes the original specifications of another company or individual and builds the design. 

They manufacture and assemble other products including fan regulators that are designed by their clients - light strips, molding, and other components and spares.

IKIO has four manufacturing facilities, with three in Noida in the National Capital Region and one in the SIDCUL Haridwar industrial park in Uttarakhand.

Their products are categorized into 4 categories:

  • LED lighting - They produce LED lights, fittings, fixtures, accessories, LED strip lights, individual LED rechargeable bulbs, and RV lights for customers in this segment as an ODM.  
  • Refrigeration lights - They produce refrigerator LED lighting for customers in this segment as an ODM.  
  • ABS (acrylonitrile butadiene styrene) piping - ABS piping is an alternative to PVC piping, which consists of pipes made of a thermoplastic resin.
  • Other products - The company produces fan regulators and switches for customers in this segment under ODM and assembly business models. 
 

IKIO Lighting: Industry overview

The business of IKIO falls under EMS - Electronic Manufacturing Services. To be precise, they work in the LED segment. In India, the LED business is booming, and the government has designated LED as one of its strategic priorities. 

The Indian government continues to drive for LED lighting and measures to replace conventional CFL and GLS lights. Up to 2022, the Indian government has installed over 12 million LED lights as part of the Street Lighting National Programme.

Incandescent bulbs, CFL lights, and halogens have dominated the lighting market for centuries now but over the last decade LED lights have become very popular in the Indian lighting industry. Many have adopted the new LED lights over the traditional incandescent and fluorescent lights. It is because LEDs give more light, has a lesser environmental impact, and last longer as compared to incandescent bulbs.

IKIO Lighting: Listed Peers

IKIO Lighting faces competition from both Indian and global companies. Among global peers, the competitors include names like Bharat FIH, Flex, Pegatron, Wistronand Jabil. The Indian peers include companies like Dixon, Amber, SFO, Syrma, Elin, and Centum, among others. 

IKIO competes primarily based on product and services offering, systems and spares, quality of the products, quality of installation, operation and maintenance services, security of supply, and cost-effective manufacturing and services. Let us compare them on key financial metrics:

  • IKIO is the smallest player in terms of revenue, with a consolidated revenue of Rs 221 crore in FY22, the largest being Dixon Technologies, with a revenue of Rs 10,701 crore.
  • However, the EBITDA margin (FY22) is the highest among peers, with 18.26%. The next on the list is Syrma Technology, with an EBITDA percentage of 18.26%.
  • Earning Per Share (EPS) is the lowest for IKIO among all the peers.
  • Looking at the Return on Net Worth (RoNW), you will find IKIO at the top of the list.
 
 

What are the competitive strengths of IKIO Lighting?

As per the company, their competitive strength is as below:

  • They are well poised to capture the growth of the LED market. They can capitalize on opportunities provided by the tailwinds in the LED lighting market, driven in part by governmental policies for energy saving and environment protection.
  • They plan to diversify their product basket. For example, they currently manufacture more than 753 SKUs for their largest customer - Signify (Philips). They are in negotiations with some of their existing customers to supply LED home lighting products to their international supply chain. 
  • They have a long-term relationship with leading industry customers. For 9MFY23 and Fiscal 2022, they derived approximately 85.49% and 93.56%, respectively, of their consolidated restated revenues from operations from repeat customers.
 

Risks associated with the IKIO Lighting business

Below are the risks the company has highlighted in its RHP documents:

  • As mentioned above, their largest customer is Signify Innovations India Limited, erstwhile Philips India. The risk is that a large part of their revenue comes from this particular customer. Also, over 85% of the total revenue is derived from the top twenty customers.
  • Even though the company has four segments or product lines, they have too much dependency on LED products - more than 90% of total revenue comes from this segment.
  • They have long last relationships with their clients, but they do not receive firm and long-term volume purchase commitments from them. 
 

Critical Note

Since September 12, 2022, IKIO owns 100% of the equity shareholding of its subsidiaries. As the company did not own 100% of the equity shareholding of its subsidiaries until September 12, 2022, the Restated Consolidated Financial Information does not include financial information for their subsidiaries prior to their acquisitions by the company.

Accordingly, the Restated Consolidated Financial Information, as of, and for the nine-month period ended December 31, 2022, and as of, and for the years ended, March 31, 2022, 2021 and 2020, are not comparable to any future financial results that they may prepare. In addition, because of their nature, the Proforma Consolidated Financial Information addresses a hypothetical situation and, therefore, does not represent the factual results of operations or financial condition