- 12 Dec 2023
- ICICIdirect
DOMS INDUSTRIES LIMITED IPO: ALL YOU NEED TO KNOW
After a pause of a couple of weeks, the IPO market is gearing to close the year on the high. Over half a dozen IPOs are lined up for launch in December. The first IPO to open in December is DOMS Industries Limited (DIL) - one of the fastest-growing stationery and material product companies. DOMS opens for subscription on the 13th and closes on the 15th of December. In this article, we will look at the various aspects related to the company. It will help you decide whether to subscribe or invest in the IPO for the long term.
DOMS Industries Limited IPO: Key Details
Below are the key details related to the DIL IPO:
- Issue Size: Rs 1,200 crore
- Price Band: Rs 750 - Rs 790
- Issue Details: Fresh Issue of Rs 350 crore + Rs 850 crore Offer For Sale (OFS)
- Market Cap: At the upper price band, Rs 4,794 crore
- Minimum Investment: Rs 14,220
DOMS Industries Limited IPO: Business Details
DOMS Industries design, develop, manufacture, and sell a wide range of stationery and art products, primarily under its flagship brand ‘DOMS’, in the domestic market and in over 45 countries internationally. As of FY23, DIL is the second largest player in India’s branded ‘stationery and art’ products market, with a market share of ~12% by value. Their core products, such as ‘pencils’ and ‘mathematical instrument boxes’ enjoy high market shares - 29% and 30% market share by value for FY23, respectively.
They offer well-designed and quality ‘stationery and art material’ products to consumers, which they classify across seven categories:
(i) scholastic stationery
(ii) scholastic art material
(iii) paper stationery
(iv) kits and combos
(v) office supplies
(vi) hobby and craft
(vii) fine art products
Their products are sold through a variety of modern trade platforms such as supermarkets, hypermarkets, minimarkets, cash and carry stores. Further, their products are also available on multiple e-commerce platforms. DIL has manufacturing operations 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 million square feet, which are equipped with modern and automated production processes.
DOMS Industries Limited IPO: Industry Overview
The global market was valued at approximately $192 billion in CY22 and is expected to reach a market size of $220 billion by CY27, registering a CAGR of approximately 2.8% during the forecasted period, as compared to 2.0% from CY16 to CY22.
In CY22, the Printing and Writing Paper sector dominated the global stationery and art materials market with approximately 33% market share, while the Scholastic Stationery sector followed closely with around 32% share. Moving forward, these two categories are projected to hold an equal share of 31% each by CY27. The Pen & Writing Instrument segment, on the other hand, is expected to experience substantial growth, increasing its market share from 9% in CY 22 to 12% by CY27. The market share for the above categories for CY22 and the projected share in CY27 are presented in the below chart.
India and China are both major players in the global stationery export market in Asia. While China has been the dominant player in this market for many years, India’s stationery exports have been growing steadily in recent years. In terms of overall stationery exports, China witnessed a higher growth rate in stationery exports to the world than India during CY21, however, India’s stationery export growth rate rebounded and exceeded China in CY22, reaching a recorded rate of 42% during that period, whereas China recorded a growth rate of 25% in the same year. Despite China’s dominant position in stationery exports, India still possesses significant opportunities to supply its stationery products to the global market.
DOMS Industries Limited IPO: Listed Peers
The company faces tough competition from listed and unlisted peers. In the listed space, they have four companies - Linc Limited, Kokuyo Camlin Ltd, Navneet Education, and recently listed Flair Writing Industries. Let us look at the financials of DIL and listed peers to get an idea of where the company stands against its peers. We will compare the crucial parameters for FY23. Here is the comparison:
- In terms of revenue, DOMS is the second-largest player player behind Navneet Education.
- If we compare the Earning Per Share (EPS), DOMS is only behind Linc (25.15) with an EPS of 18.29.
- Return of Net Worth (RoNW) is highest for DOMS Industries (28.39%), followed by Flair Writing (27.18%) and Linc (21.10%).
DOMS Industries Limited IPO: Financials
Let us now look at the most crucial part that one needs to consider while evaluating a new company. Below are the financial numbers of DIL over the last three financial years:
- The company has reported a revenue of Rs 402.82 crore, Rs 683.60 crore, and Rs 1,211.89 crore for FY21, FY22, and FY23, respectively. Revenue has grown at an exceptional 72.69% CAGR in this period. The revenue for H1FY24 was Rs 761.80 crore.
- The ‘wooden pencils’ are the largest product in terms of revenue, contributing 31.66% to their Gross Product Sales for FY23.
- DIL's advertisement and business promotion expenses represented 0.37%, 0.41%, 0.28%, and 0.33% of its revenue from operations in FY21, FY22, and FY23, and for the six months ended September 30, 2023, respectively, and the yield on advertising expenses represented 267.47 times, 243.36 times, 355.18 times, and 301.76 times of revenue for the same period.
- DOMS has reported an EBITDA of Rs 30.03 crore, Rs 69.71 crore, and Rs 186.66 crore for FY21, FY22, and FY23, respectively. EBITDA margins for the same period were 7.45%, 10.20%, and 15.40%, respectively. The margins have nearly doubled in this period.
- They have reported a net profit of Rs (6.03) crore, Rs 17.14, and Rs 102.87 crore for FY21, FY22, and FY23. The profits have grown at a tremendous rate in this period because of margin improvement. The trend continued in H1FY24, the company reported a PAT of Rs 73.91 crore.
- For the last three financial years, DIL has posted an average EPS of Rs 9.98 and an average RoNW of 15.49%.
- If we annualized FY24 earnings and attribute it to post-IPO fully diluted paid-up equity capital, then the asking price is at a P/E of 32.43.
- Return on Equity (ROE) for FY22 and FY23 was 6.86% and 33.54%, respectively. ROCE for the same period was 10.04% and 33.31%, respectively.
- The net debt has come down from Rs 68.26 crore in FY21 to Rs 58.37 crore in FY23.
What are the competitive strengths of DOMS Industries Limited?
As per the company, their competitive strength is as below:
- The company enjoys a leadership position in the Indian ‘stationery and art material’ industry with the widest range of products, driving rapid business growth.
- DOMS has a strong brand recall driven by high-quality, innovative, and differentiated products.
- They have a robust manufacturing infrastructure, with a focus on backward integration to drive efficiencies.
- The company has a robust multi-channel distribution network with a strong pan-India presence.
Risks associated with the DOMS Industries Limited
Below are the risks associated with the DIL:
- A large part of the revenue comes from the sale of 'Wooden pencils' - 59.54% for FY23.
- They are dependent on their ‘general trade’ distribution network for a significant portion (more than 70.00%) of their Gross Product Sales in each of the last three Fiscals. Failure to manage the ‘general trade’ distribution network efficiently could hurt the business.
- There is an outstanding civil litigation against the company by one of its listed peers.
- They have not entered into any formal contracts or exclusive arrangements with their suppliers from whom they procure materials consumed by them for the manufacturing process.