DOMS Industries IPO Note: A deep dive into the leading stationery player
DOMS Industries Ltd – IPO Note
Price Band: Rs. 750-790
Issue Date: 13th Dec-15th Dec
Recommendation: Apply
Overview:
Established in 2006, DOMS Industries Ltd is a prominent player in the stationery and art products market. With a strong focus on research, development, and backward integrated manufacturing, DOMS has gained significant market presence both domestically and internationally, spanning over 45 countries. The company holds the second-largest market share (by value) in India’s branded stationery and art products market, boasting around 12% as of FY23. DOMS Industries Limited specializes in the design, development, and sale of stationery and art products, categorized into seven segments, including scholastic stationery, scholastic art material, paper stationery, kits and Combos, office equipment, hobbyist and craft items, and artistic supplies are all available.
Company Profile:
- DOMS Industries has established itself as one of the globally recognized entities with such a comprehensive product portfolio in the ‘stationery and art material’ sector.
- Under its flagship brand ‘DOMS’ and other associated brands like ‘C3,’ ‘Amariz,’ and ‘Fixyfix,’ the company effectively markets its diverse range of products. Manufacturing operations are conducted at facilities situated in Umbergaon, Gujarat, and Bari Brahma in Jammu and Kashmir.
- With an expansive multi-channel distribution network, DOMS Industries has secured a robust pan-India presence and a global footprint, serving over 45 countries across the Americas, Africa, Asia Pacific, Europe, and the Middle East.
The Objective of the Issue:
- Total issue amount: Rs 1,200 Crores, comprising a fresh issue of Rs 350 Crores and an offer for sale of Rs 850 Crores by promoters.
- Utilization of fresh issue proceeds:
- Financing the construction of a new manufacturing facility.
- Expanding DOMS’ production capabilities for writing instruments, watercolor pens, markers, and highlighters.
- Allocation for general corporate purposes.
- A proposal to partially finance the cost of establishing the new manufacturing facility.
Outlook and Valuation:
- DOMS Industries exhibits robust revenue growth, healthy profit margins, and superior return ratios when compared to industry peers.
- The company stands to benefit from increasing literacy rates, a growing student population, and rising disposable income in India, creating a favorable market environment.
- DOMS is a trusted and reputable name in the Indian market, offering a combination of quality products and affordability, which enhances its position among consumers.
- DOMS maintains a strong commitment to research and development, staying ahead of industry trends by regularly introducing new and innovative products to the market.
- The upcoming new manufacturing facility is expected to significantly boost production capacity. This strategic move positions the company well to meet the growing demand for its products, aligning with market trends and customer needs.
- The company has demonstrated strong financial performance, with a Compound Annual Growth Rate (CAGR) of 23% for revenue and 42% for Profit After Tax (PAT) between FY20 and FY23.
- The issue is valued at 46 times the FY23 Earnings Per Share (EPS) and 33 times the annualized H1FY24 EPS, suggesting what is perceived as fair valuation.
- The company’s valuation metrics reveal a substantial market assessment, with an EV/EBITDA ratio of 38.6. Additionally, the Price-to-Earnings (P/E) ratio stands at 32.9.
ISSUE OFFER Price band (INR) 750-790 Bidding date 13th Dec-15th Dec Sector Stationary Total IPO size (Cr) 1200 Fresh issue (Cr) 350 Offer for sale (Cr) 850 Market lot 18 Face value (INR) 10 Listing on NSE, BSE Retail Allocation 10%
Competitive Strengths:
- Strong brand recognition in India, especially in smaller towns and rural areas.
- Extensive portfolio caters to various needs, from basic school supplies to professional art materials.
- Robust distribution network present in over 45 countries.
- Regular introduction of new and improved products to stay ahead of trends.
- Vertical Integration: 13 manufacturing facilities across India for cost control and quality assurance.
- Optimized logistics and inventory management for faster delivery and reduced waste.
- Experienced personnel ensure high-quality production.
- Sustainable Practices: Commitment to environmental responsibility enhances brand image.
Key Strategies:
- Doms has a strong brand recognition, Leveraging trust in “DOMS” across India.
- Expanding portfolio: From school supplies to professional art materials.
- It has a Wide distribution network, reaching consumers and retailers in India and 45+ countries.
- Continuous innovation: Introducing new products to stay ahead of trends.
- Vertical integration: 13 manufacturing facilities for cost control and quality assurance.
- Faster deliveries, reduced waste, and improved costs.
- Skilled workforce: High-quality production and sustained success.
- Enhancing brand image and resonating with eco-conscious consumers.
Key Concerns:
- DOMS Industries has a notable dependency on FILA Group, particularly for export sales, with FY23 export sales to FILA amounting to Rs. 159 Cr. This constitutes 12.9% of total sales and a significant 61.6% of export sales.
- The company faces a potential risk due to the substantial concentration of its major product category, Wooden Pencils, which accounts for approximately 32% of total sales. Any decline in the sales of wooden pencils could adversely impact the company’s overall revenue.
- In the competitive industry landscape, effective competition is crucial for DOMS. Inability to compete effectively may lead to adverse effects on business performance, operations, and profitability.
- The company’s strategic approach involves acquisitions, posing a potential risk. Inability to manage the expansions resulting from these acquisitions may have a material adverse effect on DOMS’ business operations, impacting financial results negatively.
- DOMS relies significantly on key products, particularly wooden pencils, for a substantial portion of its Gross Product Sales.
- The ‘general trade’ distribution network plays a vital role for DOMS, accounting for more than 70.00% of its Gross Product Sales.
- FILA, a promoter of DOMS, is crucial for the company’s business operations and research and development (R&D) capabilities.
- Operating in a competitive business environment, DOMS faces competition from both organized and unorganized players.
- The company’s dependence on natural resources for raw materials and potential pricing pressure from suppliers are additional factors influencing its operational landscape.
Comparison with Listed Industry Peers:
FY23 FIGURES | DOMS | KOKUYO CAMLIN LTD | LINC LTD | FLAIR WRITING INSTRUMENTS |
Revenue | 1212 | 775 | 487 | 943 |
CAGR (20-23) | 22.8% | 6.9% | 7.4% | 18.0% |
EBIDTA Margin | 15.4% | 7.0% | 12.6% | 19.5% |
ROCE % | 33.1% | 12.0% | 31% | 33.4% |
ROE % | 28.9% | 9.3% | 21.1% | 31.4% |
Debt/equity | 0.3 | 0.2 | 0 | 2.5 |
EV/EBIDTA | 26.4 | 27.0 | 20.1 | 22.9 |
P/E | 46.6 | 57.4 | 33.2 | 34.3 |
PARTICULARS | FY23 | FY22 | FY21 |
Equity share capital | 3.73 | 3.73 | 3.73 |
Other equity | 3370.59 | 2468.74 | 2332.38 |
Net worth | 3553.45 | 2580.94 | 2416.79 |
Total Borrowings | 151.55 | 28.52 | 28.99 |
Revenue from Operations | 12118.90 | 6836.01 | 4028.17 |
EBIDTA | 1866.60 | 697.13 | 300.25 |
PBT | 1387.63 | 240.24 | (75.78) |
Net profit | 1028.71 | 171.40 | (60.26) |
The image added is for representation purposes only