DOMS Industries Limited (Subscribe)

Highlights

DOMS Industries Limited (DIL) engage in the business of designing, developing, manufacturing, and selling a wide range of stationery and art items in the home market as well as in over 45 countries worldwide, mostly under their flagship brand ‘DOMS’.

DOMS Manufactures and Markets a wide range of Stationery and Art Materials including (i) Pencil & Accessories (ii) Drawing & Colouring (iii) Mathematical Drawing Instruments (iv) Paper Stationery (v) Pen & Writing Instruments (vi) Gifting (vii) Marker Pens (viii) Crafts & Hobbyist (ix) Fine Art.

In 2005, They launched their flagship brand, “DOMS,” which has made significant gains in revolutionizing the Indian “stationery and art material” market. This was followed by a strategic relationship with F.I.L.A. – Fabbrica Italiana Lapis ed Affini S.p.A (F.I.L.A.), a listed Italian multinational corporation specialized in the provision of various ‘art materials’ and ‘stationery items’ with a global presence.

According to the Technopak report the company is the second largest player in India’s branded ‘stationery and art’ products market, with a market share of ~12 pct by value, as of FY23. DOMS core products such as ‘pencils’ and ‘mathematical instrument boxes’ enjoy high market shares; 29 pct and 30 pct market share by value in FY2023 respectively.

DIL undertake its manufacturing operations from facilities located in Umbergaon, Gujarat and Bari Brahma, in Jammu and Kashmir. Their Umbergaon Manufacturing Facilities are spread over approximately 34 acres of land covering approximately 1.18 mn square feet Further, its Jammu Manufacturing Facility is spread across approximately 2 acres of land covering approximately 0.07 mn square feet.

Out of the total proceeds of Rs. 12,000 mn, Rs. Rs. 3,500 mn would be utilised to to part finance the cost of establishing a new manufacturing facility to expand its production capabilities for a wide range of writing instruments, water colour pens, markers and highlighters, at Umbergaon, Gujarat. Rs. 8,500 mn and would go towards existing selling shareholders.

Key Highlights

• The global school’s (scholastic) stationery product market was valued at USD 61 bn in CY22. The market is expected to grow at a CAGR of 2.2 pct over the period CY 22 to CY 27 and is expected to reach approximately USD 68 billion by CY 27. The Indian stationery and art materials market has exhibited continuous growth over the years with an estimated size of Rs. 385 bn by value as of FY23. The Indian stationery and art materials market is expected to grow at a CAGR of ~13% over FY23-28 period to reach a market value of Rs 716 bn by FY28. Looking at the industry size and DOMS has plenty of room to grow.
• Apart from the existing manufacturing capabilities the company in order to support its growth strategy to expand its manufacturing capabilities, recently they have also acquired 44 acres of land which is adjacent to its existing Umbergaon Manufacturing Facilities.
• In 2012, DOMS entered into a strategic partnership with FILA, their partnership with FILA has enabled them to gain access to international markets for distribution of their products, augmentation of their R&D and technological capabilities. DOMS believes their symbiotic association with FILA, has resulted in expansion of their international footprint in key American and European markets and has helped in the global distribution of ‘DOMS’ brand.
• In terms of its international presence, over the years DOMS has developed a robust export sales network through its association with FILA as well as through distributors in over 45 countries, covering the Americas, Africa, Asia Pacific, Europe, and Middle East, that sell products under the DOMS and C3 brands. DOMS intend to expand their distribution capabilities in certain South East Asian countries as well as in the African continent.
• The company is continuing to seek and explore opportunities that complement and grow its product offerings as well as ancillary products in the categories are associated through the growing years of kids, children and young adults. DOMS may also look to increase their portfolio of brands through acquisitions.
• Out of FY23 gross products sales, General Trade contributes 74.3 pct of sales, Export sales to FILA Group contributes 12.8 pct of sales, Modern trade and ecommerce platform contributes 2.6 pct of sales, third party exports sales and others contributes 2.5 pct and 8.03 pct respectively.
• Sales of the company has grown by 73.45 pct CAGR during the period FY21-23 while EBITDA grew 63.62 pct CAGR over the same period. During FY23, company reported sales of Rs. 12,118 mn which increased by 77.3 pct YoY while EBITDA rise by 167 pct YoY to Rs.1,866 mn as EBITDA margin significantly improved from 10.2 pct in FY22 to 15.4 pct in FY23. Profit in the FY23 stood at Rs. 1,028 mn, which increased by more than 500 pct YoY. In H1FY24 the company sales of Rs. 7,618 mn, EBITDA of Rs. 1,274 mn with EBITDA margin of 16.73 pct and profit of Rs. 7,39 mn.

Key Risk

• FILA As a Promoter, DOMS are dependent on the FILA Group for their business operations and for their export sales. In the event FILA ceases to be a Promoter, it may affect their business and export sales.
• Some of the raw materials used by DOMS in their production processes are natural resources hence they are subject to the risk of depletion of such natural resources.
• Increase in costs of raw materials or DOMS inability to fully pass on costs to their customers because of competitive intensity, may impact their sales and profitability.

Valuation

DOMS Industries Ltd. is the fastest growing stationery and art material products company in India in terms of revenue over the period from FY20- FY23 (Source: Technopak Report). It has a wide range of products, driving rapid business growth and strong brand recall. It is expanding its product range as well as its capacity to meet the rising demand. At the upper end of the price band, the issue is quoting at PE of 32.43x its annualized FY24 earnings. Thus, the issue appears to be fully priced. One can Subscribe from a longer-term perspective.

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