What investors must know about IKIO Lighting IPO

IKIO Lighting Ltd is a 7 year old company incorporated in the year 2016. IKIO Lighting Ltd is a domestic manufacturer of light-emitting diode (LED) lighting solutions. In the last few years, even the government has consciously encouraged the shift to LED lights, which are economical in the long run and leave a lower carbon footprint. The company has broadly focussed on sustainable and low-energy LED products to help India meet its sustainability goals. Broadly, the product portfolio of IKIO Lighting Ltd comprises of LED lighting, refrigeration lights, ABS (acrylonitrile butadiene styrene) piping and other products.

The company is primarily into the ODM (Original Design Manufacturer) segment. IKIO Lighting Ltd designs, develops, manufactures, and supplies products to customers. They are at the top of the value pyramid and subsequently the first-level customers further distribute the products under their own brands. Alongside, the company also works closely with the customers to develop, manufacture and supply products based on custom design needs. Its products are focused more on the high-margin premium segment and includes lighting, fittings, fixtures, accessories, and components. Most of its products are customized and that gives them the added advantage in its entire manufacturing process.

Highlights of the IPO issue of IKIO Lighting Ltd

The size of the issue is known in terms of the fresh issue portion and the total shares offered in the OFS segment. However, since the price fixation has not happened for the book building band, the size of the issue is still not known. In the fresh issue portion, the number of shares to be sold is not yet known since the price band for this mainboard IPO is yet to be fixed. What we know, as per the Red Herring Prospectus (RHP) is that the total size of the fresh issue of IKIO Lighting Ltd will be worth ₹350 crore. In addition, the promoters of the company will also offer 90 lakh shares via offer for sale to the public. While the fresh issue portion would be EPS and capital dilutive, the OFS is just a transfer of ownership. The IPO will be lead managed by Motilal Oswal Investment Advisors Ltd, which will act as the BRLM (book running lead manager) to manage the IPO. The registrar to the issue is KFIN Technologies Ltd (formerly known as Karvy Computershare Ltd).

The company was promoted by Hardeep Singh and Sumeet Kaur. Currently the promoters hold complete 100% of the company, which will get diluted post the IPO. The fresh portion of the IPO will be used for repayment / prepayment of loans taken by IKIO Lighting Ltd and its subsidiaries and also for infusing funds into its subsidiary company. The total capital of the company comprises of 6.5 crore shares pre-issue, entirely held by promoters. The exact extent of dilution is not yet known since the pricing will determine how many fresh shares are sold as part of the IPO. What we know is that the promoters will dilute about 90 lakh shares as part of the OFS.

As per the terms of the offer, 50% of the net offer is reserved for the qualified institutional buyers (QIBs), while 35% of the total issue size is reserved for the retail investors. The residual 15% is kept aside for the HNI / NII investors . The company has a par value of ₹10 per share and post the IPO, the stock of IKIO Lighting Ltd will be listed on the NSE and on the BSE. Being a fresh issue of equity, combined with offer for sale, the IPO will result in dilution of equity and EPS, apart from transfer of ownership internally.

Key dates for IKIO Lighting Ltd IPO and how to apply?

The issue opens for subscription on 06th June 2023 and closes for subscription on 08th June 2023 (both days inclusive). The basis of allotment will be finalized on 13th June 2023 and the refunds will be initiated on 14th June 2023. In addition, the demat credits are expected to happen on 15th June 2023 and the stock will list on 16th June 2023 on the NSE and the BSE. Mainboard IPOs in FY24 have been few and far between and would be crucial in setting the tone for FY24. It is hoped that for the IPO market, the FY24 is able to recreate the IPO magic of FY22. Let us now turn to the more practical issue of how to apply for the IPO of IKIO Lighting Ltd.

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. Investors can apply in the retail quote (up to ₹2 lakh per application) or in the HNI / NII quota (above ₹2 lakh). Minimum lot sizes will be known after pricing.

Financial highlights of IKIO Lighting Ltd

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

Data Source: Company RHP filed with SEBI

There are few key takeaways from the financials of IKIO Lighting Ltd which can be enumerated as under

1. Revenues have grown strongly in the latest FY22 fiscal year. However, the 9 months data for revenue and profits hint at substantial growth in the numbers for FY23, purely based on annualized numbers.
    
2. PAT margins and return on assets have been consistent and growing, despite a higher asset base. Margins promise to be robust even in the latest 9 months of FY23, which is likely to be carried to the full year.
    
3. The company has maintained an impressive rate of sweating assets as is evident from the asset turnover ratio. However, expansion has put some pressure on the ratio.

While pricing of the IPO will matter here, what is more critical is the eventual PAT margins that will sustain. PAT margins at around 15% and return on assets at around 19% is fairly impressive and should enable the company to get a good valuation. A lot will depend on the pricing and how much of gap is left on the table for investors. It is a good bet on eco friendly lighting, although one must wait for the pricing and valuations to take a call. It would fit into a high risk equity investment strategy from a longer term perspective.