IKIO Lighting Limited

Summary

A IPO Analysis

About Business

Incorporated in 2016, IKIO Lighting Limited is an Indian manufacturer of light-emitting diode (LED) lighting solutions. In its journey of over seven years, the entity focused on providing sustainability and low-energy LED products to help India meet its sustainability goals.

The product portfolio of IKIO can be categorized as LED lighting, Refrigeration lights, ABS (acrylonitrile butadiene styrene) piping and other products.

The company is primarily an Original Design Manufacturer (ODM). They design, develop, manufacture and supply products to customers. Thereon, the customers further distribute the products under their own brands. Alongside, they also work with the customers to develop, manufacture and supply products as designed by the customers.

The company's LED lighting offerings focus on the premium segment and include lighting, fittings, fixtures, accessories, and components. The products are designed and created to cater to the distinct requirements and expectations of the customers.

The total revenue of IKIO Lighting Limited in the preceding financial years 2022, 2021, and 2020 was 3,339.95 million, .72 million, and 2,218.28 million, respectively.

Corporate Structure

Business Overview

The company is an Indian manufacturer of light emitting diode (“LED”) lighting solutions. The company's focused on sustainability and providing low energy LED products to help India meet its sustainability goals. Company is primarily an original design manufacturer (“ODM”) and design, develop, manufacture and supply products to customers who then further distribute these products under their own brands. Company is also work with their customers to develop, manufacture and supply products that are designed by our customers. Company's products are categorised as (i) LED lighting; (ii) refrigeration lights; (iii) ABS (acrylonitrile butadiene styrene) piping; and (iv) other products. Company's LED lighting offerings focus on the premium segment and include lighting, fittings, fixtures, accessories and components. The company provide lighting solutions (lights, drivers and controls) to commercial refrigeration equipment suppliers under their refrigeration light segment. Company's also manufacture an alternative to polyvinyl chloride (“PVC”) piping called ABS piping that is primarily used by their US customers for plumbing applications in the recreational vehicles (“RVs”) that they fit out. In addition, the company manufacture and assemble other products including fan regulators that are designed by their clients; light strips, moulding, and other components and spares. Company's equipment and systems are used in various industries and products, including residential, industrial and commercial lighting.

Customer Profile and Business Highlights

Company's largest customer is Signify Innovations India Limited, erstwhile Philips Electronics India Limited (“Signify (Philips)”), which according to Frost & Sullivan in Fiscal 2022 had a 50% market share in India’s functional decorative lighting category (including LED spotlights, LED downlights and cove lights) and a 10% market share in India’s true-blue decorative lighting segment (including chandeliers, wall lights, pendants, outdoor lights). (Source: F&S Report, March 2023). One of their Promoters, Hardeep Singh, has a 10 year long relationship with Signify (Philips). In addition to Signify (Philips), the company have a diversified customer base across all their other product segments across industry sectors and geographies which include Western Refrigeration Private Limited, Panasonic Life Solutions India Private Limited and Novateur Electrical & Digital Systems Private Limited. The company have a history of high customer retention. In Fiscal 2022, company derived approximately 93.56% of their consolidated restated revenues from operations from repeat customers (defined as customers from which they have had revenues in the past three fiscal years). In the nine months ended December 31, 2022 and Fiscal 2022, they derived 73.63% and 78.81% of their proforma consolidated revenues from operations from repeat customers (defined as customers from which the company have had revenues in the past three fiscal years).

In the nine months ended December 31, 2022 and in Fiscal 2022, their consolidated restated revenue from operations from their top ten customers were ₹2,068.87 million and ₹2,172.63 million, respectively, which represented 85.94% and 98.80%, respectively, of their consolidated restated revenues from operations. In December 31, 2022 and in Fiscal 2022, company's proforma consolidated revenue from operations from their top ten customers was ₹2,575.41 million and ₹2,659.18 million, respectively, which represented 8.37% and 80.13%, respectively, of their proforma consolidated revenues from operations. The companty enjoyed relationships of over three years with seven out of these top ten customers. In addition, they are building an international customer base, primarily in the United States.

Manufacturing Facilities

The company's manufacturing operations are a key driver of their business. The company have four manufacturing facilities with one located in the SIDCUL Haridwar industrial park in Uttarakhand and three in Noida in the National Capital Region. In line with their focus to provide end-to-end product solutions and to develop better control on our supply chain and improve their margins, the company have backward integrated their major manufacturing processes. The company have developed in-house capabilities so that they manufacture all mechanical components inhouse (save diodes and resistors). 

Capacity, Production and Capacity Utilization

Products Portfolio

LED Lights

ABS Piping

Refrigerator LED lighting

Other Products

Company's Customer Base

Company's Strength and Capabilities

Poised to capture growth of LED market 

With a proven operational and financial track record, the company are well-positioned to capitalize on opportunities provided by the tailwinds in the LED lighting market driven in part by governmental policies for energy saving and environment protection and importantly, the increasing awareness and adoption of LED lighting versus incandescent lighting. Further, LED lighting is central to reducing environmental impacts in both the residential, commercial and industrial sectors. 

According to Frost & Sullivan growth in demand for LED lighting solutions in India will be driven by:

• the rise in smart city projects and overall infrastructure development;
• increasing demand for energy-efficient lighting;
• the decreasing total cost of ownership of advanced lights (including LED lights);
• the pronounced increase in real estate; and
• the increasing use of smart and automation lighting.

Diverse product basket with focus on high-margin areas

As an ODM, the company offer their products in four segments: (i) LED lighting; (ii) refrigeration lights; (iii) ABS piping; and (iv) other product. This wide range of products helps them capture a larger wallet share of their customers. Company's LED lighting offering focuses on the premium segment and includes lighting, fittings, fixtures, accessories, and components. The company also provide lighting solutions (lights, drivers and controls) to commercial refrigeration equipment suppliers under their refrigeration lights segment. In addition, the company manufacture ABS piping which is an alternative to PVC that is primarily used by their US customers for plumbing applications in the RVs that they fit out. 

The company currently manufacture more than 753 SKUs for their largest customer, Signify (Philips) in India. In addition, company are in negotiations with some of their existing customers to supply their LED home lighting products to their international supply chain. The company also manufacture interior refrigerator lighting solutions (lights, drivers and controllers) which are sold to commercial refrigeration equipment suppliers such as Western Refrigeration. 

Set forth in the tables below is a breakdown of their revenue from operations on a consolidated restated basis, broken down by product category and as a percentage of revenue from operations for the nine months ended December 31, 2022 and for Fiscal 2022, Fiscal 2021 and Fiscal 2020.

Long-term relationships with leading industry customers

In the nine months ended December 31, 2022 and in Fiscal 2022, Fiscal 2021 and Fiscal 2020, the company provided their products to approximately 900 domestic customers and 16 international customers. The company's largest customer is Signify (Philips), which according to Frost & Sullivan in Fiscal 2022 had a 50% market share in India’s functional decorative lighting category (including LED spotlights, LED downlights and cove lights) and a 10% market share in India’s true-blue decorative lighting segment (including chandeliers, wall lights, pendants, outdoor lights). (Source: F&S Report, March 2023). One of their Promoters, Hardeep Singh, has a 10 year long relationship with Signify (Philips). The company have been increasing the number of SKUs that they are manufacture for Signify (Philips) from 225 in Fiscal 2018 to 412 in Fiscal 2020 to 608 in Fiscal 2022 to 753 in the nine months ended December 31, 2022. Company's consolidated restated revenue from Signify (Philips) has increased from ₹1,345.08 million in Fiscal 2020 to ₹2,006.03 million in Fiscal 2022. Company's consolidated restated revenue from Signify (Philips) was ₹1,686.03 million in the nine months ended December 31, 2022. Company's proforma consolidated revenue from Signify (Philips) has increased from ₹1,345.08 million in Fiscal 2020 to ₹2,006.03 million in Fiscal 2022. Company's proforma consolidated revenue from Signify (Philips) was ₹1,686.03 million in the nine months ended December 31, 2022.\

Established infrastructure with backward integration 

Company's Business Strategy

Expand into new product lines

Over the years, company's Promoter, Hardeep Singh and their Company have established relationships with their customers. Based on market intelligence, discussions with their customers and research by their R&D team, the company are able to produce new products that have been well-accepted in their target markets. The company propose to utilise the Net Proceeds towards the expansion and growth of their current manufacturing facilities, as well as through the construction of their new manufacturing facility by their subsidiary, ISPL. This expanded capacity will help them expand the output of their current portfolio of products, and more importantly, help them to break into new markets with additional product offerings.

Expand our manufacturing capacities for our existing and new product lines

LED is lighting is considered an important and growing part of India’s sustainability initiatives. (Source: F&S Report, March 2023). LED lighting solutions are an immediately accessible option for companies and individuals looking to decrease their environmental footprint. According to Frost & Sullivan, the Indian LED lighting market is expected to grow by a CAGR of 12.2% from an estimated market size of ₹217,020 million in Fiscal 2022 to a projected market size of ₹338,000 million from Fiscal 2023 to Fiscal 2026.

Diversify our customer base and expand across geographies

The company plan to continue expand their ODM business to new international markets. The company intend to focus their expansion on North American markets and gradually expand to the European and South East Asian markets. In their opinion, these markets offer them the ability to market their premium LED offerings. The company intend to achieve this expansion by employing dedicated sales and marketing teams whose primary focus will be on business development in international markets, particularly, in their focus geographies. The company will also look for new partners in their focus markets to establish a local presence, and, in certain markets, they may establish subsidiaries or local offices. Further, they will also leverage their relationships with marquee customers like Signify (Phillips), Honeywell, Frigoglass and Western Refrigeration to showcase the quality of their product offerings and their ability to provide their services globally.

Continue to invest in R&D and expand our ODM business

The company aim to continue to invest in their R&D initiatives to develop new products for their ODM customers and to enhance production and cost efficiencies of their customer’s product suites. In addition, the company intent to expand their space for their R&D expansion, and the company are actively looking to add employees to their R&D team. Through their focus on R&D and developing products with their customers, the company will be able to continually innovate their products in line with the demands of their customers as well as end-user preferences for better comfort, quality, performance and aesthetics in their products. Further, by developing products with their customers and by offering a broad range of products, the company are able to increase customer dependence on them and position ourselves as a preferred supplier.

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Industry Overview

OVERVIEW OF INDIAN ELECTRONICS INDUSTRY

Electronics is one of the fastest growing industries in the country. The total electronics market (which includes domestic electronics production and imports of electronic finished goods) in India is valued at INR 9263 billion (USD 124 billion) in Fiscal 2022 and is expected to grow at a CAGR of 17.9% to reach INR 17,902 billion (USD 240 billion) in Fiscal 2026. Domestic production accounted for approximately 69% of the total Indian electronics market in Fiscal 2022, valued at INR 6,376 billion (USD 86 billion), and is expected to grow at a CAGR of 24.2% to reach INR 15,159 billion (USD 203 billion) in Fiscal 2026, owing to various government initiatives to boost domestic electronics manufacturing industry. Also, the global landscape of electronic design and manufacturing is changing significantly, and revised cost structures have shifted the attention of multinational companies to India. At present, the Indian government is attempting to enhance
manufacturing capabilities across multiple electronics sectors and to make the Indian electronics sector globally competitive. India is positioned as a destination for high-quality design work as well as a cost-competitive alternative. Many multinational corporations have established or expanded captive centres in India. Increasing penetration of consumer electronics in semi-urban and rural markets, a shift in lifestyle among the Gen Y population, and the adoption of smart devices are some of the key drivers that are fuelling the rapid expansion of this industry.

Total Electronics market, value in INR billion, USD billion, India, FY17-FY26E

India’s demand for electronic items has expanded significantly in recent years, owing mostly to the country’s progress in the EMS sector. Low manufacturing costs, together with a skilled workforce and a vast geographical area, are some of the driving elements behind the
development of India’s electronics ecosystem. Also, the EMS companies are slowly shifting their focus on product mix from high volume low margin products to high margin low volume products. 

Other Key Parameters

Population and urbanization in India

As at Fiscal 2021, India is the world’s second most populous country, with 1.35 billion people, or 17% of the world’s total population. India’s population is expected to grow at a CAGR of 1.0% between Fiscal 2022 and Fiscal 2026. India’s Gen Y constitutes a third of the country’s population and will join the working-age group, forming 42% of the total workingage population, by Fiscal 2026. India is in the midst of a massive wave of urbanization. There has been a drastic increase in urban towns and cities in the country over the past few years, primarily driven by a better standard of living and job opportunities in the cities. India’s seven largest metropolitan areas – Mumbai, Delhi, Bengaluru, Kolkata, Chennai, Hyderabad, and Ahmedabad—dominate the country’s economic landscape.

 Urban Vs rural population in India, in %, total population in million, India, FY17-FY26E

Employment opportunities and the opportunity for income generation across newly urbanised towns create a positive outlook for the
consumption of electronic products. Urbanization is expected to be a major driver of the overall electronics market’s growth, particularly for
mobile phones, which are imperative for establishing and maintaining communication with family members. High-end technology
adoption also contributes to the growth of consumer electronic devices. The introduction of significant technological transitions such as the
Internet of Things (IoT) and 4G/LTE networks is rapidly increasing consumer electronics adoption. In addition, rural markets will likely see increased demand for consumer electronics as the government aims to invest heavily in rural electrification.

Per capita income
The per capita income is a broad indicator of prosperity of an economy. India’s per capita income, calculated in correlation to Real GDP, was INR 99,694 during Fiscal 2021, as compared to INR 108,645 in Fiscal 2020, representing an approximate decline of 8.2%. As the economy is reviving, the per capita income increased by 8.1% during Fiscal 2022 to reach INR 107,801. Post that, the growth is likely to be stable at approximately 5.6% CAGR over the medium term. 

Per capita income and growth (annual percentage change), value in INR, growth in %, India, FY17-FY26E

India’s per capita electronic usage is low compared to the worldwide average. Global per capita electronics consumption is 4.1 times that
of India. While Indian government has initiated various measures to boost Indian domestic electronics manufacturing industry, the country has also witnessed 13.1% growth in electronics consumption between Fiscal 2017 and Fiscal 2022. Long term growth outlook for the
industry is extremely positive, primarily because market penetration for many electronics products is still very low compared to global average. In addition, the growth of India’s per capita electronic usage is expected to be driven by stable growth outlook for the economy, Digital India programme, rising disposable incomes (proportion of mid & high-income earners expected to increase from 64% in Fiscal 2021 to 85% in Fiscal 2030), changing lifestyles, emerging work from home culture, expansion of organized retails to tier 2 & tier 3 cities1
, improving electricity and internet infrastructure, and better logistics infrastructure. It is with these strong fundamentals, many global electronics brands along with their supply chain partners have invested in electronics manufacturing infrastructure in the recent years and India is ready to become an important electronics manufacturing hub in the coming years. At a global level, the per capita electronics consumption is increasing.

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Management of the Company

Hardeep Singh - Managing Director and Chairman

Hardeep Singh is the Chairman and Managing Director of their Company. The company is the founder and one of the Promoter of their Company. The company has been associated with their Company since its inception. He has completed his Higher Secondary Education and has more than two decades of experience in the manufacturing of television kits, electronic components and LED lighting. He has been honoured by Philips with "Game Changer" Award for LED Lighting Production. He oversees the overall functions of our Company and is responsible for overseeing the strategic growth initiatives and expansion plans.

Surmeet Kaur - Whole time Director

Surmeet Kaur is the Whole-time Director on our Board and one of the Promoters of our Company. She holds a bachelors’ degree in Arts (Honours) from University of Delhi. She has been associated with the Company since inception and is responsible for management of Human Resources.

Promoters Shareholdings

Pre issue shareholding - 100%

Post issue shareholding

Promoter shareholding - 72%

Public - 28%

Financial Performance (All Fig are in Mn)

Profit and Loss

Balance Sheet

Cash Flow

Risk of the Business

• Huge competition in this lighting space where small players have an difficulties to protect their market share.
• Higher commodity prices can drag the margin of the business.
• Slowdown in economy
• Slowdown in auto industry which can impact on company's overall revenue

Outlook and Valuation

IKIO Lighting Limited (“IKIO”) was incorporated on March 21, 2016. IKIO is an Indian manufacturer of light emitting diode (“LED”) lighting solutions. They are focused on sustainability and providing low energy LED products to help India meet its sustainability goals. IKIO has a fully integrated manufacturing infrastructure, capable of producing ingenious LED lighting products.  They have recorded higher order bookings of ₹86.21 crore as at March 31, 2022, with major orders coming from Signify (Philips). Given the facts above business can do continue to do well in the future and the management of the company is also competitive and future agnostic. The company is currently trading at 54x on TTM basis.