Stanley Lifestyles coming with IPO to raise Rs 547.28 crore

Stanley Lifestyles 

• Stanley Lifestyles is coming out with a 100% book building; initial public offering (IPO) of 1,48,31,459 shares of Rs 2 each in a price band Rs 351-369 per equity share.    
• Not more than 50% of the issue will be allocated to Qualified Institutional Buyers (QIBs), including 5% to the mutual funds. Further, not less than 15% of the issue will be available for the non-institutional bidders and the remaining 35% for the retail investors.
• The issue will open for subscription on June 21, 2024 and will close on June 25, 2024.
• The shares will be listed on BSE as well as NSE.
• The face value of the share is Rs 2 and is priced 175.50 times of its face value on the lower side and 184.5 times on the higher side.
• Book running lead managers to the issue are Axis Capital, ICICI Securities, JM Financial and SBI Capital Markets.
• Compliance Officer for the issue is Akash Shetty.

Profile of the company

The company is a super-premium and luxury furniture brand in India and among the few home-grown super-premium and luxury consumer brands in India operating at scale in terms of manufacturing as well as retail operations. It has the distinction of being among the first few Indian companies to venture into the super-premium and luxury furniture segment and one of the few Indian companies present across various price points, i.e., super-premium, luxury and ultra-luxury segment, through its various brands. The company retail its furniture products under the ‘Stanley’ brand. Over the years, it has developed brand recognition and customer loyalty through its quality products, as well as targeted marketing strategies and advertisement campaigns such as ‘Beautiful Living’, ‘Design Glamour’, ‘Luxury Unlimited’ and ‘Bed of Dreams’. Its customers are its ambassadors, that generate publicity for the ‘Stanley’ brand through testimonials and endorsements and word of mouth advertising.

The company designs, manufactures and retails its products through its own network of ‘company owned and company operated’ and ‘franchisee-owned and franchisee-operated’ store with pan-India presence. Its in-house manufacturing operations coupled with its retailing model, differentiates it from other Indian and foreign furniture brands. Its integrated model provides it with the ability to have complete control over its processes, ranging from procurement of raw materials, designing its products, manufacturing, quality control, marketing, and ultimately sale of its products.

The company market and sell its products through its network of stores. Over the years, it has significantly expanded its network of stores and as of December 31, 2023, it operated 38 ‘company owned and company operated’ or ‘COCO’ stores all located in the major metro-cities of Bengaluru, Chennai, New Delhi, Mumbai and Hyderabad and 24 ‘franchisee-owned and franchisee-operated’ or ‘FOFO’ stores in 21 cities across 11 States and Union Territories in India. In addition, in certain cities in India, it has also experimented with a hybrid concept, where it may have different store formats under one large store in order to efficiently utilize the real estate and provide an opportunity to its customers to experience the complete ‘Stanley’ brand experience under one roof.

Proceed is being used for:

• Investment in certain Subsidiaries for: opening of new stores by such Subsidiaries under the formats of ‘Stanley Level Next’, ‘Stanley Boutique’ and ‘Sofas & More by Stanley’ (New Stores); opening anchor stores (Anchor Stores) by such Subsidiaries; and renovation of existing stores under the formats of ‘Stanley Level Next’, ‘Stanley Boutique’ and ‘Sofas & More by Stanley’ (Existing Stores) by such Subsidiaries.
• Funding the capital expenditure requirements for purchase of new machinery and equipment by the company and its Material Subsidiary, Stanley OEM Sofas Limited.
• General corporate purposes.

Industry overview

The furniture industry is a complex ecosystem involving multiple stakeholders and a dynamic supply chain. From raw material suppliers to furniture manufacturers, retailers, distributors, designers, and customers, each stakeholder plays a crucial role in the design, production, distribution, and sale of furniture products. The boom in the real estate market in India has enabled the furniture market in India to experience a high growth trajectory. Rapid urbanization, high rising incomes, and an increasing shift towards tier-level cities are causing housing properties to flourish across India. Consequently, a high growth trajectory is expected in the demand for furnishing personal places. During Fiscal 21, the home and furniture market contributed approximately 0.38% to the GDP, and this contribution has increased to approximately 0.56% in Fiscal 2023. A paradigm shift is anticipated in the home and furniture industry over the years, driven by the expansion of a well-aware consumer base. The growth is further fuelled by the entry of numerous international brands and the proliferation of branded showrooms across the country. 

The luxury/super-premium furniture & home goods market in India constitutes 8% of the overall market. The rise of dual income households in India will further contribute to the growth of the furniture market as families will have increased discretionary income at their disposal. The desire of the urban millennial and Gen Z population to stay updated with the latest décor trends, largely influenced by social media and influencers, is driving consumer demand towards better quality products, thereby leading to an increase in purchases within the luxury/super premium product segment. The increasing demand for luxury/super-premium products is also fuelled by factors such as the growing number of nuclear families, higher disposable income, and urbanization. India currently offers a luxury/super-premium furniture & home goods market of $ 1.5 billion in Fiscal 2023 which includes sofas, chairs, dining tables, wardrobes, kitchens, home furnishings goods such as bath linens, kitchen, cushions & covers, bed linen, curtains, flooring & mattress, Home décor good such as table décor, tableware, spiritual & wall decors, Lighting (Includes lamps, wall lights, ceiling lights, smart lights, festive lights & LED lights) & others.

Pros and strengths

Largest and the fastest growing brand in the luxury/super-premium furniture segment: The company is a super-premium and luxury furniture brand in India and among the few home-grown super-premium and luxury consumer brands in India operating at scale in terms of manufacturing as well as retail operations and the largest in terms of number of stores and the fastest in term of revenue growth growing brand in the furniture segment. Its Promoters, who are first generational entrepreneurs have focused on building the Stanley brand by using leather products to provide premium crafted automotive seating products under the ‘Stanley’ brand in the Indian market which laid the foundation for its ongoing commitment to craft quality home solution products. It has been able to leverage its Promoter’s experience to position the ‘Stanley’ brand to make it synonymous with exclusivity, premium quality and high degree of personalization. Its stores complement the ‘Stanley’ brand and are dedicated to providing personalized solutions to customers. As part of its design-led sales model, its designers guide customers on various customization options. Its customers have an opportunity to experience its products by selecting the design, type and colour of leather and upholstery to match their preferences and style. 

Comprehensive home solutions provider with offerings across categories and price points: The company endeavors to cater to all home furnishing needs of its customers and establish itself as a one-stop destination for their complete home experience. Its product portfolio includes sofas, cabinetry and furniture for living rooms, dining rooms, family rooms, kitchens, bedrooms (including bedding products), and home offices, offering complete home solutions including installations. It has continuously expanded its product offerings by leveraging the “Stanley” brand in delivering luxury products into mid and premium categories and expanding its capabilities to offer furniture and accessories for every room of the home. As of December 31, 2023, it offered its customers an opportunity to select products across multiple catalogues, designs, configurations and SKUs with options offered in 10 different types and over 300 colours of leathers and fabrics that can be used in various combinations. By offering a diverse range of furniture and home solutions, it enables its customers to achieve a coordinated aesthetic throughout their living spaces.

Focus on design-led innovation: Customer preferences vary across regions. With over 15 years of experience in retailing furniture products, it has been able to understand customer requirements, trends, design and style preferences. Based on its experience, it is able to design and style products that have luxurious international appeal that corresponds to Indian sentiment, style and sizing which is well accepted across the country. As part of its new product development capabilities, it designed and manufactured 88 new products in Fiscal 2023 and 71 new products during the nine months ended December 31, 2023. Its product development division is spread over approximately 15,000 square feet at its Electronic City facility and as of December 31, 2023, it engaged one master Italian and also 48 employees for product design and development. To complement its product development, it has also invested in latest machinery and skill development for its craftsmen. During Fiscal 2021, 2022 and 2023 and the nine months ended December 31, 2023, it introduced 24, 76, 88 and 71 products, respectively, all under the ‘Stanley’ brand which includes, modern power motion recliner sofas, home cinema seating and sofa-cum-beds, dining tables, storage beds, kitchens and cabinetry, walk-in wardrobes and laundry units. 

Vertically integrated furniture manufacturer with skilled craftmanship capabilities: The company is one of the few organized vertically integrated furniture manufacturers with infrastructure capable of manufacturing and producing furniture for every room operating two manufacturing facilities in Bengaluru, Karnataka and retail through its network of COCO and FOFO stores. Over the years, it has developed a vertically integrated model that gives it control over its processes, right from procurement of raw materials, design, production, marketing and retail. Its integration allows it to introduce new products, monitor and control the quality of its products, reduce delivery timelines and gives it the ability to respond to customers’ requirements and preferences which in its experience results into higher margins. It has further optimized its manufacturing operations through streamlining its production processes and digitalization, product innovation based on the feedback of its customers, and brand value while reducing inventory levels and improving quality control. It has also taken steps to reduce its reliance on imports by sourcing certain quantities of its key raw materials such as leather and wood domestically. These measures are aimed at improving its supply chain and sourcing processes to ensure greater efficiency in its operations. 

Risks and concerns

Highly dependent on sale of sofas and recliners: The company's business is currently highly dependent on the sale of sofas and recliners. Its sale of sofas and recliners are dependent on a number of factors, and may decline as a result of increased competition, pricing pressures arising out of increase in raw material costs or fluctuations in the demand for or supply of its products and other factors outside its control. In particular, its business is characterized by rapidly changing customer preferences and customization requirements. Its results of operations are dependent on its ability to attract customers by anticipating and responding to such changes in customer preferences, and modifying its existing sofa and recliner products in line with changes in customer demands and preferences. If it is unable to anticipate and gauge customer preferences, or if it is unable to adapt to such changes in a timely basis or at all, it may lose or fail to attract customers, its sofa and recliner inventory may become obsolete and it may be subject to pricing pressure to sell such inventory at a discount. While it has not faced such issues in the past there can be no assurance that such instances will not occur in the future, which in turn could adversely affect its business, results of operations, financial condition and cash flows. 

Depends on limited suppliers for supply of leather: The company currently relies on limited foreign and domestic suppliers to provide leather, one of its primary raw materials. While it has not experienced any such instances in the past three years and nine months ended December 31, 2023, however, the loss of one or more of its significant suppliers or any increase in the cost of leather it obtains from them could have an adverse effect on its business, results of operations, financial condition and cash flows. Its reliance on a select group of suppliers may also constrain its ability to negotiate its arrangements, which may have an impact on its profit margins and financial performance. The deterioration of the financial condition or business prospects of these suppliers could reduce their ability to meet its requirements and accordingly result in a significant decrease in its revenues. Further, there can be no assurance that strong demand, capacity limitations or other problems experienced by its suppliers will not result in occasional shortages or delays in their supply of leather. 

The premises of all of COCO stores are leased: As all of the company’s COCO stores are on leased premises, it is exposed to the market conditions of the retail rental market. Most of its lease agreements for its stores contain an early termination clause that permits it to terminate the lease agreement early for the reasons specified therein. While it has renewal options for all of its leases for its stores, it typically needs to renegotiate the terms of renewal with the lessor, who may insist on a significant modification to the terms and conditions of the lease agreement. If a lease agreement is renewed at a rate substantially higher than the existing rate, or if any existing favorable terms granted by the lessor are not extended, it must determine whether it is desirable to renew on such modified terms. While there have been no such instances in the past, if it is unable to renew leases for its stores on acceptable terms or at all, it will have to close or relocate the relevant stores, which would eliminate the sales that those stores would have contributed to its revenues during the period of closure and could subject it to renovation and other costs and risks.

Dependent on third-party transportation providers: The company’s success depends on the uninterrupted supply and transportation of the various raw materials, especially wood and leather, required in the manufacture of its products and supply of its products to its customers, or intermediate delivery points, that are subject to various uncertainties and risks. It transports its raw materials and its finished products outbound by road. It relies on its suppliers, to deliver its raw materials while it uses its own fleet of leased vehicles to deliver its finished products ordered from its COCO stores to its customers. For its FOFO Stores, last mile delivery is borne by the relevant franchisee partner. Transportation strikes may have an adverse effect on supplies and deliveries to and from its customers and suppliers. In addition, raw materials and products may be lost or damaged in transit for various reasons including occurrence of accidents or natural disasters. There may also be a delay in delivery of raw materials and products which may also affect its business and results of operation negatively. It has in the past faced situations where goods were damaged during transit from Italy to India for which it claimed insurance. 

Outlook

Stanley Lifestyles ventured into Leather Sofas in 1999 and then gradually diversified into Full Home Solutions. Today, it offers a spectrum of collections for the Living Room, including Sofas, Coffee Tables, TV Cabinets, Storage Units, and Side Tables. For the Kitchen & Dining area, it provides Kitchen Cabinets, Dining Tables, and Storage Units. Additionally, for Bedrooms, its range includes Beds, Mattresses, and Wardrobes. As India's only Fully Integrated Furniture Manufacturer, Retailer, and Exporter, it takes pride in its comprehensive offerings. The company’s commitment to quality craftsmanship, unbridled creativity, and the use of the finest materials defines Stanley's products. It only collaborates with globally sourced brands that align with its values of Quality and Integrity. Similarly, it carefully selects retail partners nationwide who share its passion for quality. On the concern side, the company appoints independent contractors who in turn engage on-site contract labour for performance of certain of its operations, including its manufacturing operations and operation of its COCO stores. Although it does not engage this labour directly, it may be held responsible to pay their social benefits or shortfall in wages and provide certain amenities and facilities, if the independent contractors fail to do so, by a regulatory body or court, which may adversely affect its results of operations. 

The company is coming out with an IPO of 1,48,31,459 equity shares of face value of Rs 2 each. The issue has been offered in a price band of Rs 351-369 per equity share. The aggregate size of the offer is around Rs 520.58 crore to Rs 547.28 crore based on lower and upper price band respectively. On performance front, total revenues increased by 42.94% from Rs 2,977.55 million in Fiscal 2022 to Rs 4,256.22 million in Fiscal 2023 primarily due to a significant increase in its revenue from operations. The company has recorded a restated profit for the year of Rs 349.77 million in Fiscal 2023 compared to a restated profit for the year of Rs 232.19 million in Fiscal 2022. Meanwhile, the company intends to continue to further develop and increase brand awareness by advertising in traditional media such as newspapers and through targeted digital media advertisements. It also intends to launch format specific target brand campaigns. Further, going forward it will provide an omni-channel experience to customers to purchase products under ‘Sofas and More by Stanley’ for which it will do targeted marketing by utilize algorithms of popular search engines.