Flair Writing Industries Ltd. (Subscribe)

Flair Writing Industries Limited (FWIL) was incorporated in 2016 and is among the top 3 players in the writing instruments industry with Rs. 9,150 mn+ sales in FY23 and approx. 9 pct domestic market share and 7 pct export market share. Also, it is the largest player in the pens segment in India by sales for FY23 at Rs. 7,500 mn.

It manufactures and distributes several brands in India. FWIL products are sold under their “Flair” brand, its principal brands “Hauser” and “Pierre Cardin” and they have recently introduced “ZOOX” in India. Their brands Flair and Hauser offer mass-market and premium pen and stationery products, the brand ZOOX focuses on mid-premium and premium writing instruments, and the Pierre Cardin brand offers premium pen and stationery products.

It is also a contract manufacturer of writing instruments as an OEM for export and for sale in India.

The company’s product range includes a variety of pens, which is their largest category in terms of the number of products offered, stationery products and calculators. They also launched a range of “Flair Creative” products in FY21. As of 30 June 2023, they offered 727 different products. FWIL recently forayed into manufacturing a wide range of houseware products including casseroles, bottles, storage containers, serving solutions, cleaning solutions and basket and paper bins, through one of its Subsidiaries, FWEPL.

The company manufacture pens and other products from 11 manufacturing plants located in Valsad, Gujarat; in Naigaon (near Mumbai), Maharashtra; in Daman, Union Territory of Dadra and Nagar Haveli and Daman and Diu; and in Dehradun, Uttarakhand. All these facilities have an overall installed capacity of 2 bn+ pieces per annum as of March 2023.

Out of the total proceeds of Rs. 5,930 mn, Rs. 559 mn would be utilised to set up the new Valsad Unit. Rs. 867 mn would be utilised to fund the capex of the company and its subsidiary, Flair Writing Equipments Private Limited. Rs.770 mn would be to fund the working capital requirements of the company and its subsidiaries, Flair Writing Equipments Private Limited and Flair Cyrosil Industries Private Limited. Rs. 430 mn would be utilised towards repayment/pre-payment, in part or full of certain borrowings availed by the company and its subsidiaries and Rs. 3,010 mn would go towards existing selling shareholders.

Key Highlights                               

• The Indian writing and creative instruments industry is dominated by organised players and is expected to grow at a CAGR of 7.7 pct to 8.4 pct over the FY23 to FY28, with the pen segment projected to grow at a CAGR of 7.5 pct to 8.5 pct over the same period. The Indian steel bottle industry is highly fragmented and is expected to grow at a CAGR of 14 pct to 16 pct over the FY23 to FY28. As of March 31, 2023, the Indian homeware industry is estimated to be around Rs. 400 to Rs. 450 bn with the kitchen appliances segment occupying a share of 40 pct to 45 pct. FWIL’s recent entry into the houseware market and diverse product range of the company shows brighter prospects ahead.

• As per Crisil, FWIL is also among the top 2 organized players which have seen faster growth in revenue as compared to the overall writing and creative instrument industry growth rate, i.e., while the industry grew at a CAGR of 5.5 pct between FY17 and FY23, the company grew at a CAGR of approximately 14 pct during the same period.

• The company exports their products to 77 countries and the USA, Japan, UAE, Yemen, and Colombia are the key export destinations of the company. Out of the total sales of the company, 20 pct of sales is contributed by exports and 80 pct of sales is contributed by the domestic market. Also, the company wants to grow its export sales.

• Over FY21-23 the company production capacity is grown at a CAGR of 6 pct to ~2bn pieces per annum. After the capex, the capacity of the company will grow by 6-7 pct.

• Flair focuses on competitive pricing and aggressive marketing for their Mass Segment and brand building and product differentiation for their Mid-premium Segment and Premium Segment to boost their brand presence in terms of product pricing. In the three months ending June 30, 2023, and FY23, they launched 28 and 151 pen products at various pricing points, respectively.

• As compared to competitors like Doms, Camlin, Linc and Luxor, FWIL has a 7700 dealer/distribution network and 3.15 lakh wholesalers/ retailers which is the largest distribution network among peers.        

• FWIL seek to integrate technology into its processes at key stages of design, manufacturing, and distribution to increase efficiency and ensure optimization and quality in a cost-effective manner. They target to further increase cost efficiencies by taking advantage of its economies of scale.

• Revenue and PAT has increased with a CAGR of 14 pct and 15 pct for FY2017-23. The Company has witnessed faster growth of 14 pct CAGR as compared to industry growth of 5.5 pct for FY17-23. During FY23, the company reported sales of Rs. 9,427 mn which increased by 64 pct YoY while EBITDA rose by 88 pct YoY to Rs. 3,166 mn as the EBITDA margin significantly improved from 16.9 pct in FY22 to 19.5 pct in FY23. Profit in the FY23 stood at Rs. 1,181 mn, which increased by more than 100 pct YoY.

Key Risk

• The writing instruments industry is highly concentrated in the mass-market sub-segment and an inability to increase prices of FWIL products or any failure to achieve high retail penetration may cause them to lose market share.

• FWIL operate in a competitive business environment and its inability to compete effectively could have a material adverse effect on its business, prospects, operations or financial results.

Valuation

FWIL is one of the leading players in writing instruments with around 9 pct market share. Going forward, new product launches with innovative designs are likely to improve the blended pens realizations. Moreover, improved penetration of other products like creative stationary items, houseware and steel bottles will further boost the topline growth. The company has outperformed the industry with revenue growth at 14 pct CAGR between FY17-23 vs. industry growth at 5.5 pct. At the upper end of the price band, the issue is quoting at PE of 24.9x its annualised FY24E. One Can Subscribe from a long-term perspective.