Thread by @aditya942000

#𝐈𝐍𝐅𝐋𝐀𝐌𝐄

🥘Kitchen Chimneys r becoming a necessity day by day

🧑‍🍳All the modern kitchens nowadays hv Chimneys due to their functionality & aesthetics.

📖So today we will be reading about India's largest Kitchen Chimney mfg. Co

🇨🇳Which is getting benefited due to CHINA+1

Firstly lets have a look on how the co evolved over a period of time.👇

🧑‍💼Mr. Aditya Kaushik and Mr. Dinesh Kaushik in the year 2015 took over a partnership firm which was into mfg. of Automobile parts.

And later started operations in order to sell Gas stoves to OMCs under

🏭PMUY Yojana, Like every other Kitchen app. Co. did in order to est. their Brand name.

👎But unfortunately no Co. was ever able to make healthy margins under this scheme due to elongated WC Cycle.

In 2017 they converted partnership firm M/s. Techno Engineering Corpn.” into

..“Inflame Appliances Ltd.

🏭Their current Panchkula plant was set up in 2018 & production started in 2019 to mfg. Kitchen Chimenys/Hoods.

📝Today they mfg.
-Chimneys
-Hobs & Stoves
For other established brands by replacing the 🇨🇳Chinese imports.

👉They are currently following ODM model.
Means they design chimneys & other products, gets them approved from them & then supply to them.

3⃣0⃣Currently they have developed more than 𝟑𝟎 𝐦𝐨𝐝𝐞𝐥𝐬 under kitchen hoods category

🤜🤛They directly compete with Chinese imports & hv been successfully able to reduce the import content in CHIMNEYS from 𝟱𝟬-𝟲𝟬% 𝘁𝗼 𝟮-𝟯%

✳️Therefore reducing dependence on Chinese suppliers for components.

🕴️‍♂️The most important aspect while investing in any co. is the Promoter of the co.

👨‍💼The co. is run by Kaushik family & the Key person is Mr.Amit Kaushik who is running the show along with his brother Mr.Aditya Kaushik

🧑‍🎓He is a graduate in economics & started his career in 1991

as Assistant Mgr at Jindal Steel Ltd.

🏭Just 5 yrs later he started his own co. KAY ESS stamping which did powder coating service to OEMs

⛔️This business lasted for 3 yrs & after that he took roles in various Co’s before venturing into entrepreneurship again .

🍳He started a Kitchen App. mfg. Co. in 2012 in Faridabad with the name of PLANET HOME PRODUCTS PVT LTD

🤝Later merged that co. with into INFLAME APP. Before its listing on BSE SME platform.

📉Promoter Holding was 70% until Dec 2020, after which they pared some stake in order to provide liquidity to the investors.

💸They also raised money via preferential issue of shares amounting to Rs.25.25crs in July 2022 @ Rs.382/share

🤩Veteran Investors like 𝐀𝐬𝐡𝐢𝐬𝐡 𝐊𝐚𝐜𝐡𝐨𝐥𝐢𝐚 & 𝐍𝐢𝐤𝐡𝐢𝐥 𝐕𝐨𝐫𝐚 also participated in the issue

👍Both hold 4.21% & 3.97% as per latest SHP

⚖️𝐒𝐈𝐙𝐄 𝐎𝐅 𝐈𝐍𝐃𝐔𝐒𝐓𝐑𝐘

💰The kitchen app market is around 27000crs growing at a pace of 15% CAGR

👍Under kitchen app the major segment for Inflame is Kitchen hoods/Chimeys which is valued ~3900crs

✳️Total domestic sales is around 2.2mn units which is expected to reach 5mn units in next 5yrs

⚠️Earlier India was importing 1.6mn units of chimneys every year from China.

🔄Now post covid things hv changed dramatically, due to supply chain issues

💪During covid Inflame was successfully able to gain market share from Chinese competitors.

💯They indigenized all the components which were being sourced from China.

✔️As a result Inflame successfully Indianised over 30 chimney models and replaced Chinese manufacturers

With ⏫income levels the market for these products is expected to increase significantly.

🌐Their addressable market size is expected to inc. as they will also venture into new products like👇
- OTG
-Built in Oven
-Dishwasher etc.

𝐂𝐔𝐑𝐑𝐄𝐍𝐓 𝐂𝐀𝐏𝐀𝐂𝐈𝐓𝐘🏭

Currently the co. is carrying out mfg only at Panchkula Plant

Capacities are as follows🔻
Chimneys – 22000 units/month
Hobs - 5000 units/months
Stoves – 10000 units/month

They are currently operating around 80-90% utilization in Chimneys

𝐅𝐮𝐭𝐮𝐫𝐞 𝐄𝐱𝐩𝐚𝐧𝐬𝐢𝐨𝐧

🚀They are in process of doubling their capacities with new Hyderabad plant.

👎Earlier this facility was to be operationalised in Jan 2023, but it got delayed by 45 days.

🤩Also they hv now inc. the total area to be constructed from 41000 sqft to 73500sqft

♨️What’s interesting is that 50% of their new capacity at Hyd. Plant is already 𝐁𝐨𝐨𝐤𝐞𝐝

🎯So, Ideally we should see at least 50%growth in topline next year. .

𝗙𝗨𝗡𝗗𝗜𝗡𝗚💵

👉Since the co is not profitable yet so they were dependent on external funding in order to expand their operations.

✔️Although the debt levels are low as they have been raising funds via preferential issue.

👉The latest round of preferential issue was done in July 2022 @ Rs.382/share through which they raised Rs.25.25crs from investors.

🌎𝗠𝗮𝗿𝗸𝗲𝘁 𝘀𝗵𝗮𝗿𝗲
Currently their market share stands at around 𝟖-𝟏𝟎% of the overall 2.2mn units annually.

🎯Their target is to reach 20% in next 1 year.

✅Their market share is expected to inc. going ahead with the commissioning of new facility in Hyderabad.

🏵️Mgt. hv very aggressive growth targets wrt to market share.
They are targeting 30%-40% of the overall market in next 5 yrs

⭐️The market size of Chimneys is expected to reach 4mn units in next 5 yrs

⏫Therefore they will be mfg around 1.2mn units annually.

🏗️Which means they would need to undergo further expansion as their market share increases.

𝐂𝐥𝐢𝐞𝐧𝐭𝐬🤝
Earlier their majority of business came from just 2 clients 𝐇𝐢𝐧𝐝𝐰𝐚𝐫𝐞 & 𝐒𝐮𝐧𝐟𝐥𝐚𝐦𝐞.

✅But today their client list include many marquee names like:

-KAFF APPLIANCES
-WONDERCHEF
-INALSA
-STOVEKRAFT
-Greenline
-PRESTIGE

𝐅𝐈𝐍𝐀𝐍𝐂𝐈𝐀𝐋 𝐇𝐄𝐀𝐋𝐓𝐇👩‍💻

⏲️Since the co. was started in 2019 only & they are yet to achieve any significant scale therefore the P&L statement doesn't represent real picture.

⚙️They work under ODM/OEM model in which both Gross & EBITDA margins are usually lower.

📈As this is a business of scale , they need to achieve higher turnover in order to achieve profitability.

✔️Their gross margins usually vary from 21%-27% which seems to be quite healthy for this type of business.

👎As such there is no clear guidance by the mgt. on the margins

💪But being in a high Asset turnover buss. They can definitely generate good return ratios.

🧮𝐁𝐚𝐥𝐚𝐧𝐜𝐞 𝐬𝐡𝐞𝐞𝐭 is the most important aspect while investing in a SME/Micro cap co.
It is the balance sheet strength which decides whether the business can sustain or not.

💵Since most of their Capex requirement is met from external source of funding therefore they hv been able to maintain their debt levels.

💰CFO - Most of the sales are either on LC or Discounting therefore they don’t face any issues with Cash flows

𝐅𝐔𝐓𝐔𝐑𝐄 𝐆𝐑𝐎𝐖𝐓𝐇 𝐎𝐔𝐓𝐋𝐎𝐎𝐊

🪩As far as future growth outlook is concerned the co. is expected to grow at a healthy growth rate.

🚀Last 3 year Sales Cagr is around 46.75% & in Nov. 2021 concall mgt. guided for 𝟱𝟬%+ 𝗖𝗔𝗚𝗥 𝗶𝗻 𝗻𝗲𝘅𝘁 𝟱-𝟳 𝘆𝗿𝘀.

✅So conservatively they should be able to grow at a healthy rate of 30%+ CAGR easily.

𝙑𝙖𝙡𝙣𝙨.
As far a valns are concerned stock has seen a good run-up since 2020.

⭕️The valns at current levels might look a lil expensive but given the growth prospects of the co.

the valns look reasonable when one focuses on the long term picture.

🎯They are targeting to reach 30% of the market share in next 5 years.

🚀Which implies their Sales could be a lot higher than the current M.cap of Rs.326crs going ahead.

⏫Not to forget their revenue will get further boost from other & new products except chimneys which is major contributor till now.

𝙍𝙄𝙎𝙆🅾️
-Unable to get more clients onboard
-Issues in scaling up the business with profitability
-Family disputes could arise

-Frequent Equity dilution
-Unable to maintain Quality of the products
-Heightened competitive intensity
-Raw material volatility

Thanks to Sir @drprashantmish6
for sharing this gem with us.

@SwarnashishC
@caswapnilkabra
@tushar9590
@mishika_chamria

Disclosure: Invested