Stanley Lifestyles, promoted by Sunil Suresh and Subha Sunil, is a super-premium and luxury furniture brand in India offering complete home solutions, including installations. The company designs, manufactures and retails its furniture products under the “Stanley” brand. Its product portfolio includes sofas, cabinetry and furniture for living rooms, dining rooms, family rooms, kitchens, bedrooms (including bedding products), and home offices.

Under Stanley brand it offers 3 different store formats i.e. Stanley Level Next, Stanley Boutique and Sofas & More by Stanley each catering to different price segments. While Stanley Level Next targets Ultra-Luxury (Rs 0.50 million and above) segment the Stanley Boutique and Sofas & More focuses on Luxury (Rs 0.30-0.50 million) and Super Premium (Rs 0.15-0.30 million) segments respectively.

The company retails its products through its own network of COCO (company owned and company operated) and FOFO (franchisee-owned and franchisee-operated) store with pan-India presence. As end of Dec 31, 2023, it operates 38 COCO stores (all located in the major metro-cities of Bengaluru, Chennai, New Delhi, Mumbai and Hyderabad) and 24 FOFO stores (in 21 cities across 11 States and Union Territories in India). The 38 COCO stores comprise 6 Stanley Next (in 4 cities), 10 Stanley Boutique (in 5 cities), 19 Sofas & More by Stanley (in 3 cities) and 3 0thers (D Eight and Stanley Personal stores) (in 2 cities). The 24 FOFO stores comprise 1 Stanley Next (in 1 cities), 4 Stanley Boutique (in 3 cities), 19 Sofas & More by Stanley (in 19 cities).

Apart from providing home solutions through its retail network, leveraging its ‘Stalnley’ brand, the company also supplies leather automotive interiors to auto OEMs. It also does B2B sales of premium and high-end luxury furniture products to airports, corporate offices and high-end hospitals etc., apart from doing contract manufacturing.

In FY23 and 9mFY24 COCO stores accounted for 63.08%/62.16% of revenue; FOFO stores 11.15%/13.04% and other (contract manufacturing, leather automotive interiors, other B2B sales, trading of raw materials) 25.77%/24.80% respectively. In FY23 & 9mFY24 the contribution from Leather Automotive Interiors was 12%/11.27% and that from contract manufacturing was 11.10%/11.16% respectively. Of FY23 and 9mFY24 revenue about 57.35%/56.22% come from Sofas & recliners with balance 42.65%/43.78% come from others.

The company is 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. 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. Further, it is one of the few organized vertically integrated furniture manufacturers with infrastructure capable of manufacturing and producing furniture for every room.

Luxury/super premium furniture manufacturing relies heavily on craftsmanship and is labour intensive in terms of designs and leather sewing etc. The total number of craftsman associated with the new product development division of the company as of December 31, 2023 stand at 58 (including permanent employees and craftsmen on contractual basis). Thus, availability of adequate craftsman also creates significant barriers to entry for any new entrant.

Currently it operates two manufacturing facilities located at Electronic City, Bengaluru, Karnataka and Bommasandra Jigani Link Road, Bengaluru, Karnataka. Of its two manufacturing facilities, the facility at Electronic City is dedicated to producing bespoke products all under the “Stanley” brand while the facility located at Bommasandra Jigani Link Road specializes in contract manufacturing for various multinational home furnishing players and manufactures products for its “Sofas & More by Stanley” brand. State-of-the-art manufacturing capabilities and know-how ensure the reliability, craftsmanship, design and customization of its products, providing luxury home furniture with better aesthetics to customers.

In certain cities, to put real estate into efficient use, it has adopted hybrid concept where all store formats of the company are under one roof. Leveraging its experience to operate different store formats, i.e., “Stanley Level Next” and “Stanley Boutique” at a single location at one of its existing stores located at Hosur Road, Bengaluru, Karnataka, the company intends to establish three Anchor Stores between Fiscals 2026 to 2027, each with an estimated average size of 30,000 square feet in the States and Union Territories of Delhi, Telangana, Maharashtra through three of its Subsidiaries. The Anchor Store format is a combination of “Stanley Level Next”, “Stanley Boutique” and “Sofas & More by Stanley” formats where luxury products are offered at a more affordable price.

All of its COCO stores are operated by its Subsidiaries. The company holds only 67% stake in ABS Seating and 55.95% in Shrasta Décor, with balance held by 3^rd party partners.

The issue

The initial public offer comprises Fresh Issue (equity share aggregating upto Rs 200 crore) and the Offer for Sale of 9133454 Equity Shares. The offer for sale is made by Sunil Suresh (1182000 equity shares) and Shubha Sunil (1182000 equity shares) both Promoter Selling Shareholders, Oman India Joint Investment Fund II (5544454 equity shares), the Investor Selling Shareholders, Kiran Bhanu Vuppalapati (1000000 equity shares) and Sridevi Venkata Vuppalapati (225000 equity shares), the individual selling shareholders.

Sunil Suresh, Shubha Sunil, Oman India Joint Investment Fund II, Kiran Bhanu Vupplapati, Sridevi Venkata Vuppalapati will hold 28.4%, 28.4%, 14.59%, 1.66% and 0.16% stake respectively on post issue expanded equity.

Objects of the issue

The net proceeds are proposed to be utilized towards 1) investment in certain subsidiaries, for opening of new stores, amounting Rs 90.13 crore, for opening of Anchor Stores amounting Rs 39.99 crore and for renovation of the existing stores amounting Rs 10.04 crore; 2) funding capital expenditure requirements of the company and its material subsidiary Stanley OEM Sofas; 3) general corporate purposes.

Over the next 3 years the company plans to open 24 new stores (2 under Stanley Level Next, 9 under Stanley Boutique, 13 under Sofas & More by Stanley brands) across Delhi (6 stores), Tamil Nadu(5 stores), Telangana(7 stores), Maharashtra(3 stores), and Karnataka(3 stores).

Strength

Largest and the fastest growing brand in the luxury/super-premium furniture segment

Pan-India retail presence with strategically located stores providing comprehensive home furniture with offerings across categories and price points

Focus on design-led product innovation and strong skilled craftsmanship capabilities of employees enable it to offer bespoke high quality products to customers

Vertically integrated operational model with in-house manufacturing along with retail presence

Strong growth of organized furniture and home goods market in India that is expected to reach a market share of 35% by 2027 with an annual growth rate of 36%.

Weakness

Does not own the brand name “Stanley” which is registered in the name of one of its Promoters, Sunil Suresh. Though the company has entered into Assignment Deeds with Sunil Suresh, the trademarks are yet to be registered in the name of the company. Further, Sunil Suresh, the promoter has entered into a co-existence agreement with Stanley Furniture Company, Inc to limit and restrict the use of the term “Stanley” as a trademark in a composite manner in respect of products.

Variations in demand and changes in consumer preference away from sofa and recliner products could have an adverse effect on the business, results of operations and financial condition.

Generated a substantial portion of its sales from its stores located in southern regions of India and more specifically Karnataka (62.12%/60.81% in FY23 & 9MFY24) & Telangana (12.41%/11.28% in FY23 & 9MFY24) and thus adverse developments affecting its operations in that region/market could have an adverse impact on its performance.

Top 5 customers account for the entire the aggregate revenue of Leather Automotive Interiors & Contract Manufacturing business in FY23 & 9mFY24, and thus any loss of customers will impact the business operations of the company.

The luxury and super-premium furniture market in India is highly competitive and segmented with presence of both unbranded and branded overseas and domestic players.

Steady fall in OPM that was 20.2% in FY22 declined to 19.7% in FY23 and further to 18.4% in 9mFY24.

Valuation

Consolidated (re-stated) sales for FY2023 were up 43% to Rs 419 crore. With a 50-bp contraction in the OPM, OP was up 40% to Rs 82.72 crore. After accounting for higher other income, higher interest and depreciation, the PBT was up 45% to Rs 46.40 crore. Pat after MI was up 54% to Rs 32.88 crore.

Consolidated sales in the nine months ended December 2023 were Rs 313.31 crore. OP was Rs 57.77 crore, with the OPM stood at 18.4%. Pat was Rs 19.78 crore.

On post-issue expanded equity (at the upper price band), the EPS for FY2023 and annualized 9mFY2024 were 5.8 and 4.6, respectively. The asking price, at the upper price band, discounts the annualized 9mFY24 EPS by 80.2 times. The price/BV stood at 4.8 times.

There are no direct listed companies in India or internationally with whom its business model can be compared that matches the size and scale of its business operations. However, Ethos, a luxury watch retailer quotes at a PE of 78 times of its FY24 consolidated EPS and P/BV of 7.2 times. The Metro Brands, a footwear retailer quotes at a PE of 81.4 times and P/BV of 18 times.