DOMS Industries IPO - Investment Rationale, Issue Details, Financials, Peer Comparison, Strengths, Risks: KRChoksey

KRChoksey Research Report

Doms Industries Ltd. will open its initial public offering on December 13, 2023 and the offer will close on Dec. 15. The stationery and art products maker has fixed a price band in the range of Rs 750-790 Apiece.

The Rs 1200 crore IPO consists of an offer for sale of Rs 850 crores and a fresh issue of equity shares worth Rs 350 crores.

Object of the issue

• 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.

• General corporate purposes.

Outlook and valuation

Doms Industries had a robust two-year revenue compound annual growth rate between FY21 and FY23 of 73.5%, much higher than most of their listed industry peers.

Ebitda margin in H1 FY24 was 16.7% higher than the mean of listed industry peers. Profit after tax margin in H1 FY24 was 9.7% higher than the mean of listed industry peers.

The company had superior return ratios; return on equity and return on capital employed of 38.0% and 36.1% respectively annualized for H1 FY24 which is the highest among the listed industry peers.

Doms is the second largest player in India’s branded ‘stationery and art’ products market, with a market share of ~12.0% by value, as of FY23. The core products such as ‘pencils’ and ‘mathematical instrument boxes’ enjoy high market shares; 29.0% and 30.0% market share by value in FY23 respectively.

Doms manufactures products from its plants across Umbergaon, Gujarat with an installed capacity of 4,734 million units as on March 31, 2023, for key products, with an efficiency of 4,223 million units during the period.

Doms intends to use a portion of the net proceeds amounting to Rs 256 million, Rs 2,061 million, and Rs 1,482 million in FY24E, FY25E and FY26E, respectively, for the construction of the manufacturing facilities on the newly purchased land.

By planning for a high utilisation rate and with the commissioning of additional capacities, Doms strives to continue reducing its cost of production and achieve economies of scale.

The company’s pan-India presence affords them significant reach to all parts of the country, although there is further scope for expansion in eastern and southern markets where Doms intends to shore up its network.

The company recently entered the European market by introducing its Doms-branded products in Italy; the high quality of its products could help generate significant sales from European countries for Doms, going forward.

At the upper end of the price band, the company’s price/earning is 43.2 times which is higher than the industry average of 36.0 times.

We believe the premium is justified given the company’s robust market share, established distribution network, expansion of capacities and venturing into new markets, and strong revenue growth and profitability. We recommend a ‘Subscribe’ rating on the IPO of Doms Industries.

Key risks

• Distribution risk

• Dependence on FILA

• Supply risk

• Intense competition

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