Company Overview
Incorporated in 2006, DOMS Industries Ltd. is engaged in making and selling stationery and art products. The company operates under the brand ‘DOMS’ and other brands/sub-brands like ‘C3’, ‘Amariz’, and ‘Fixyfix’. The company is known for creating a variety of high-quality products like pencils and mathematical instrument boxes. DOMS holds a significant market share of 29% for pencils and 30% for mathematical instrument boxes in FY23 in the domestic market. It offers a diverse range of products, including items for school, art materials, paper stationery, kits and combos, office supplies, hobbies and crafts, and fine art products. The company undertakes manufacturing operations in Umbergaon, Gujarat, and Bari Brahma in Jammu and Kashmir. The company has a special partnership with some companies in the FILA Group to distribute and market their products in South Asia which helps them to reach more customers in that region. Their products are available globally due to a strong distribution network that spans across 45 countries covering America, Africa, Asia Pacific, Europe, and the Middle East. Their domestic distribution network for general trade comprises over 120 super-stockists, and over 4,000 distributors along with a dedicated sales team of over 500 personnel covering more than 120,000 retail touch points in 3,500 cities and towns. Additionally, it caters to its consumers through modern trade and e-commerce.
Objects of the issue:
The net proceeds from the fresh issue will be used towards the following purposes:
- To partly finance the cost of establishing a new manufacturing facility to expand its production capabilities for a wide range of writing instruments, watercolor pens, markers, and highlighters; and;
- General corporate purposes.
Investment Rationale:
Leadership position in the Indian stationery and art material industry with the widest range of products
DOMS is the second largest player in India’s branded stationery and art products market, with a market share of around 12% by value in FY23. The company’s core products such as pencils and mathematical instrument boxes enjoy high market shares of 29% and 30% by value in FY23, respectively. They have a wide and differentiated product category, which includes over 3,800 SKUs as of September 30, 2023, and is spread across (i) scholastic stationery; (ii) scholastic art material; (iii) paper stationery; (iv) kits and combos; (v) office supplies; (vi) hobby and craft; and (vii) fine art products. In addition to being present across multiple product categories to cater to diverse demography, they have also ensured their products are available at various price points through its brands ‘DOMS’ and ‘C3’, each of which benefit from strong brand loyalty and unique market positioning. In FY21, FY22, and FY23, and the six months ended September 30, 2023, the company sold an aggregate of 1.48 billion units, 3.06 billion units, 3.93 billion units, and 2.2 billion units across product categories, respectively, and achieved gross product sales of Rs. 4,130.5 million, Rs. 6,930.9 million, Rs. 12,317.3 million, and Rs. 7,768.4 million, respectively. DOMS’ presence across multiple stationery categories and price points has enabled it to be the fastest-growing stationery and art material products company in India in terms of revenue over the period from FY20 to FY23.
Robust manufacturing infrastructure, with a focus on backward integration driving efficiencies
The company has 13 manufacturing facilities across Umbergaon, Gujarat, spread over approximately 34 acres of land and covers approximately 1.18 million square feet, making it one of the largest stationery manufacturing facilities in India. It undertakes end-to-end operations, from conceptualization to design, manufacturing, packaging, and distribution of products through its integrated operations at Umbergaon manufacturing facilities. DOMS fully integrated operations comprise procurement of raw materials, moulding, assembling, integration of sub-assemblies into finished products, quality control, and testing of finished products. The company’s facilities and storage depots are also strategically located to achieve a shorter time to market, greater cost competitiveness (through proximity to raw material suppliers), and responsiveness of its inventory position to changes in the portfolio market , thereby allowing them to cater to domestic and international markets more effectively. The backward integrated manufacturing process for its mathematical instrument boxes provided them with significant efficiencies, leading to market leadership position in this product category in a very short period. DOMS’s implementation of SAP as its ERP solution in 2015 has also helped them to standardize its processes and provide for planning, performance monitoring, and provision of real-time information to improve profitability.
Valuation and Outlook:
India has a thriving stationery and art materials industry, and there are several opportunities for the country to become an export hub for stationery products. The demand for stationery products is growing rapidly worldwide, driven by increased literacy rates and education levels. India can capitalize on this demand by producing a diverse range of stationery products at competitive prices. DOMS Industries has demonstrated commendable performance over the past three years, marked by significant growth in revenue and profitability. The company’s remarkable turnaround from losses in FY21 to substantial profits in FY22 has further propelled its financial standing. The company’s asset utilization, as indicated by return on assets (ROA) of 16.1% and an above-average asset turnover of 2.1x for the latest year, is commendable. On the valuation front, the IPO is priced at 30.15x FY24 annualised earnings which we believe is richly valued and sustaining the recent performance on profitability front would be critical in justifying the current valuations. Despite the fully priced P/E, there are notable advantages that DOMS Industries Ltd brings to the market, including market leadership, a strong brand presence, established international partnerships, and a foothold in the export market. We, therefore, recommend a “SUBSCRIBE” for listing gains rating to the issue.
