DOMS Industries IPO review (Apply)

DIL is India’s fastest growing stationery and materials product company.
• The company has posted spectacular performance for FY22 to H1-FY24.
• Based on FY24 annualized earnings, the issue appears fully priced.
• Recent growth indicates bright prospects ahead for this emerging player.
• Investors may consider investment for medium to long term rewards in this dividend paying company.

ABOUT COMPANY:
DOMS Industries Ltd. (DIL) is the fastest growing stationery and art material products company in India in terms of revenue over the period from Fiscal 2020 to Fiscal 2023 (Source: Technopak Report).

The company designs, develops, manufactures, and sells a wide range of stationery and art products, primarily under its flagship brand ‘DOMS’, in the domestic market as well as in over 45 countries internationally, as of September 30, 2023. DIL is the second largest player in India’s branded ‘stationery and art’ products market, with a market share of 12%+ by value, as of Fiscal 2023 (Source: Technopak Report). DIL’s keen focus on research and development (R&D), product engineering, and backward integrated manufacturing, operations, combined with multichannel Pan-India distribution network has enabled it to achieve a strong brand recall amongst consumers.

It offers well-designed and quality ‘stationery and art material’ products to consumers, which it classifies across seven categories: (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.

As per the Technopak Report, it has the widest breadth of product categories amongst its peers in India and are amongst the few ‘stationery and art material’ products manufacturing and marketing companies globally with such a wide product breadth. Among other factors, DIL’s presence across multiple such 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 Fiscal 2020 to Fiscal 2023 (Source: Technopak Report).

Its products are marketed under flagship brand ‘DOMS’ along with other brand/sub-brands including ‘C3’, ‘Amariz’, and ‘Fixyfix’. While ‘wooden pencils’ is its largest product in terms of revenue, contributing 31.66% and 32.49% to Gross Product Sales. In order to support its growth strategy to expand manufacturing capabilities, recently the company has acquired 44 acres of land which is adjacent to its existing Umbergaon Manufacturing Facilities.

As of September 30, 2023, it has a widespread multi-channel distribution network with a strong Pan-India presence and a global footprint catering to over 45 countries, covering the Americas, Africa, Asia Pacific, Europe, and Middle East. In the domestic market, it sells products through (i) general trade; (ii) modern trade and ecommerce; and (iii) original equipment manufacturer (OEM) & institutions. Its domestic distribution network for general trade comprises of over 120 super-Stockists, and over 4,000 distributors along with a dedicated sale team of over 500 personnel covering more than 120,000 retail touch points over 3,500 cities and towns. DIL also caters to consumers through modern trade and e-commerce. Its products are sold through a variety of modern trade platforms such as supermarkets, hypermarkets, minimarkets, cash and carry stores. Further, its products are also available on multiple e-commerce platforms.
ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with a maiden combo book building route IPO of fresh equity shares of Rs. 10 each worth Rs. 350 cr. (approx. 4430376 shares at upper cap) and an Offer for Sale (OFS) worth Rs. 850 cr. (approx. 10759494 shares at the upper cap). Thus overall, the company mulls mobilizing Rs. 1200 cr. (approx. 15189870 shares at the upper cap). It has announced a price band of Rs. 750 – Rs. 790 per share. The issue opens for subscription on December 13, 2023, and will close on December 15, 2023. The minimum application to be made is for 18 shares and in multiples thereon, thereafter. Post allotment, the shares will be listed on BSE and NSE. The issue constitutes 25.03% of the post-IPO paid-up capital of the company. From the net proceeds of the fresh equity issue, it will utilize Rs. 280.00 cr. for part financing proposed new project, and the rest for general corporate purposes.

The company has reserved shares worth Rs. 5.00 cr. for its eligible employees and offering them a discount of Rs. 75 per share. From the rest, it has allocated not less than 75% for QIBs, not more than 15% for HNIs and not more than 10% for Retail investors.

The four Book Running Lead Managers for this issue are JM Financial Ltd., BNP Paribas, ICICI Securities Ltd., and IIFL Securities Ltd., while Link Intime India Pvt. Ltd. is the registrar of the issue.

Having issued initial equity shares at par value, the company issued further equity shares in the price range of Rs. 5242.38 – Rs. 20735.50 per share between February 2012 and October 2015. It has also issued bonus shares in the ratio of 150 for 1 in July 2023. The average cost of acquisition of shares by the promoters/selling stakeholders is Rs.0.03, Rs. 0.07 and Rs. 101.53 per share.

Post-IPO, DIL’s current paid-up equity capital of Rs. 56.25 cr. will stand enhanced to Rs. 60.68 cr. Based on the upper cap of IPO price band, the company is looking for a market cap of Rs. 4793.77 cr.

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, DIL has (on a consolidated basis) posted a total income/net profit/ – (loss) of Rs. 408.79 cr. / Rs. – (6.03) cr. (FY21), Rs. 686.23 cr. / Rs. 17.14 cr. (FY22), and Rs. 1216.52 cr. / Rs. 102.87 cr. For the H1 of FY24 ended on September 30, 2023, it earned a net profit of Rs. 73.91 cr. on a total income of Rs. 764.22 cr. Thus it has marked steady growth in its top lines for the reported periods, and has incurred a loss for FY21 while rising trends in profits thereafter.

For the last three fiscals, the company has posted an average EPS of Rs. 9.98 and an average RoNW of 15.49%. The issue is priced at a P/BV of 11.18 based on its NAV of Rs. 70.69 as of September 30, 2023, and at a P/BV of 6.41 based on its post-IPO NAV of Rs. 123.20 per share (at the upper cap).

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. Thus the issue appears fully priced.

For the reported periods, the company has posted PAT margins of – (1.50) % (FY21), 2.51% (FY22), 8.49% (FY23), 9.70% (H1-FY24) and RoCE margins of 0.36%, 10.04%, 33.31%, and 18.04% for the said periods respectively.

DIVIDEND POLICY:
The company has paid a dividend of 1500% for FY22 and 2500% for FY23. It has already adopted a dividend policy in July 2023, based on its financial performance and future prospects.

COMPARISON WITH LISTED PEERS:
As per offer document, the company has shown Kokuyo Camlin, Linc Ltd., Navneet Education, and Flair Writing as their listed peers. They are trading at a P/E of 41.94, 27.09, 15.13, and 35.63 (as of December 07, 2023). However, they are not comparable on an apple-to-apple basis.

MERCHANT BANKER’S TRACK RECORD:
The four BRLMs associated with the offer have handled 90 public issues in the past three fiscals, out of which 26 issues closed below the offer price on listing date.

Conclusion / Investment Strategy
DIL is the fastest growing 2nd largest leader in stationary and related material products. It has marked tremendous growth since FY23 and that indicates its prospects going forward. It is on an expansion spree to enhance its product range as well as capacity to meet the rising demand. Based on FY24 earnings, the issue appears fully priced. Investors may consider parking of funds for the medium to long term in this emerging leader in the segment.

Review Author