Doms Industries

Stationery and art products manufacturer

The second largest player in India’s branded stationery and art products market

Doms Industries 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. The company has a wide and differentiated product category, which includes over 3,800 SKUs as of September 30, 2023, and is spread across scholastic stationery, scholastic art material, paper stationery, kits and combos, office supplies, hobby and craft and fine art products.

Santosh RasiklalRaveshia, Sanjay Mansukhlal Rajani, Ketan Mansukhlal Rajani, Chandni Vijay Somaiya and FILA are the promoters of the company.The company trace its lineage back to 1973, with the formation of a partnership firm, R.R. Industries by its founders late RasiklalAmritlalRaveshia and late MansukhlalJamnadas Rajani, which over the years undertook the business of manufacturing and sale of pencils and crayons.

Subsequently, in 2005, another partnership firm S.Tech Industries was founded by certain members of Promoter Group, to primarily undertake the business of manufacturing and sale of polymer based scholastic stationery.

To streamline its operations and achieve integration of businesses, Doms Industries (then known as Writefine Products Private Limited) acquired the business of these partnership firms.

Further, in 2012, the company entered into a strategic partnership with FILA, FabbricaItaliana Lapid ed Affini S.p.A, a listed Italian multinational company, engaged in the supply of various art materials and stationery products, with a global presence acquiring 18.50% of the paid-up capital of the company, with a subsequent increase to 51.00% in the year 2015. Its partnership with FILA has enabled it to gain access to international markets for distribution of products, augmentation of R&D and technological capabilities.

Further, it has an exclusive tie-up with FILA and certain entities of the FILA Group through the brand authorisation letters, for distribution and marketing for all categories of their respective products, under their name and trademark, in India, Nepal, Bhutan, Sri Lanka, Bangladesh, Myanmar, and Maldives. In the fiscals 2021, 2022 and 2023 and the six months period ended September 30, 2023, the total sales of FILA branded products by Doms Industries aggregated to, Rs 3.85 crore, Rs 6.09 crore, Rs 4.94 crore, and Rs 2.39 crore respectively, which represented 0.95%, 0.89%, 0.41%, and 0.31% of total revenue from operations for the respective period and fiscals.

The company products are marketed under its flagship brand DOMS along with other sub-brands including C3, Amariz, and Fixyfix. It launched brand C3 in the year 2012, under which it sell polymer black lead pencils, polymer colour pencils, erasers, sharpeners, and chalks.

For the for the fiscal 2023 and the six months period ended September 30, 2023, DOMS contributed 80.38% and 83.18%, respectively, of its gross product Sales amounting to Rs 990.06 crore and Rs 646.19 crore respectively, and C3 contributed 3.96% and 2.96% of its gross product sales amounting to Rs 48.77 crore and Rs 23.02 crore, during the respective periods. Further, it launched Amariz in the year 2022, which is exclusively focused on fine art products and Fixy Fix in the year 2023, which is exclusively focused on a range of glues and adhesives.

In fiscals 2021, 2022, and 2023, and the six months period ended September 30, 2023,DOMS Industries sold an aggregate of 1.48 billion units, 3.06 billion units, 3.93 billion units, and 2.2 billion units of products across its product categories, respectively and achieved gross product Sales of Rs 413.05 crore, Rs 693.09 crore, Rs 1231.74 crore, and Rs 776.84 crore respectively. Product-wise, wooden pencils formed 31.66% of gross product sales in fiscal 2023 while Crayons formed 5.88% of gross product sales, Mathematical instruments box formed 5.59% of gross product sales, Sketch pens formed 5.59% of gross product sales, Erasers formed 5.43% of gross product sales and exercise books formed 5.39% of gross product sales.

The company operate 13 manufacturing facilities across Umbergaon, Gujarat, spread over approximately 34 acres of land covering approximately 1.18 million square feet and is one of the largest stationery manufacturing facilities in India. Its annual installed capacity as on March 31, 2023, for its key products was 4,734.93 million units. It undertakes end-to-end operations, from conceptualisation to design, manufacturing, packaging, and distribution of its product portfolio through integrated operations at Umbergaon manufacturing facilities. Its fully integrated operations comprise procurement of raw materials, moulding, assembling, integration of subassemblies into finished products, quality control and testing of finished products. It also operate one manufacturing facility which is spread across approximately 2 acres of land covering approximately 0.07 million square feet at Bari Brahma, in Jammu and Kashmir, where it produce wooden slats from locally sourced wood. The wooden slats produced by it are further used as an input material for production of wood-cased pencils.

The company has undertaken further capital expenditure in fiscal 2023 of Rs 125.94 million, primarily towards enhancing manufacturing capabilities across its range of product categories. It also intend to streamline its operations and enhance manufacturing capacity for writing instrument products by adding approximately 0.10 million square feet to its Umbergaon manufacturing facilities.

Further, to enhance its manufacturing operations to meet the current and anticipated demand of products, it has acquired a parcel of land measuring approximately 44 acres located adjacent to Umbergaon manufacturing facilities.

The company procures a vast and diverse range of raw materials and packing materials to support the large range of product categories and multiple SKUs. Its portfolio of raw materials and packing materials consist of over 2,400 material items. It procures raw materials domestically as well as import from countries such as Japan, Germany, South Korea and China. Further, it purchases packing material from its subsidiary, Micro Wood Private Limited, as well as from domestic vendors.

The company is vertically integrated with operations such as procurement of raw materials, moulding, assembling, integration of sub-assemblies into finished products being done at its manufacturing facilities in Umbergaon, Gujarat, which has enabled it to gain a competitive advantage by improving productivity and reducing costs. In order to support its growth strategy to expand manufacturing capabilities, recently it has also acquired 44 acres of land which is adjacent to its existing Umbergaon manufacturing facilities.

The company 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 its products through general trade, modern trade and ecommerce and 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 sales team of over 500 personnel covering more than 120,000 retail touch points over 3,500 cities and towns. It also caters to consumers through modern trade and e-commerce. The 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.

The company acquired a minority stake in ClapJoy Innovations Private Limited in 2023, which is in the business of manufacturing and sale of toys. This acquisition is in line with our objective to increase the breadth of its product offering by entering categories that are associated through the growing years of kids, children and young adults. In the year 2023, it also acquired a majority stake in Micro Wood Private Limited, which is in the business of manufacturing tin and paper based packing material. This acquisition is in line with the companystrategy in achieving greater degree of backward integration for manufacturing.

The Offer and the Objects

The offer comprises fresh issues of up to 4430380 equity shares at the upper price band of Rs 790 and 4666667 equity shares at the lower price band of Rs 750 aggregating Rs 350 crore and an offer for sale of up to 10759494 equity shares at the upper price band of Rs 790 and 11333333 equity shares at the upper price band of Rs 750 aggregating Rs 850 crore.

Promoter group selling shareholder FILA post-issue shareholding shall decrease to 30.6% from 51% pre issue shareholding, Sanjay Mansukhlal Rajani post-issue shareholding shall decrease to 7.5% from 8.6% pre issue shareholding and Ketan Mansukhlal Rajani post-issue shareholding shall decrease to 7.5% from 8.6% pre issue shareholding.

The company proposes to utilize the net proceeds from the fresh issue towards part financing 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 amounting Rs 280 crore and the balance towards general corporate purposes.The total estimated cost to establish the proposed Project is Rs 453.57 crore and expects commercial production from March 2026.

Strengths

Doms Industries is the second largest player in India’s branded stationery and art products market, with a market share of around 12% by value, as of fiscal 2023. The company core products such as pencils and mathematical instrument boxes enjoy high market shares: 29% and 30% market share by value in fiscal 2023, respectively.

The company 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 product breadth

The company keen focus on research and development (R&D), product engineering, and backward integrated manufacturing, operations, combined with its multichannel pan-India distribution network has enabled it to achieve a strong brand recall amongst consumers.

The company presence across multiple 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.

The company continues to expand its product range to keep pace with the ever-evolving customer requirements and preferences and have recently launched its writing instruments under DOMS brand in 2023, fine-art products under Amariz and adhesive products under Fixy Fix.

The company product offerings have evolved significantly over the past several years. Its largest product pencils contributed only 31.66% and 35.92% to its gross product sales amounting to Rs 389.99 crore and Rs 279.01 crore in fiscal 2023 and in the six months period ended September 30, 2023, respectively. It has the least concentration to overall revenue from the largest product segment among peers as of fiscal 2023.

The company has backward integrated its manufacturing process by producing several key components and materials used in manufacturing of finished goods. For instance, there is complete backward integration in the manufacturing process for pencils and mathematical instruments box.

As of fiscal 2023, branded play controls nearly 36% (around Rs 13,850 crore) of the stationery market in India. Branded play is estimated to capture around 43% (Rs 30,500 crore) market share by fiscal 2028. The stationery and art material market in India has untapped potential in multiple categories with a limited presence of branded players. The market is gradually shifting towards branded play, because of shift in consumer preference towards premium and innovative products, GST implementation, branded players undertaking various brand building initiatives and economies of pan-India distribution network by branded players.

The stationary industry in India is set to witness impressive growth in the coming years. With the increasing literacy rate and the implementation of government initiatives such asSarva Shiksha Abhiyan and National Policies on Education, the demand for stationery products is expected to rise significantly.

Weaknesses

The company operates in a competitive business environment and expect such competition to intensify both through the entry of new players and consolidation of existing players. The stationery and art material industry has a low entry barrier, resulting in a large number of players entering the market, which increases competition.

The availability of look-alikes, counterfeit products, primarily in domestic market, manufactured by other companies and passed off as the company products, could also adversely affect its goodwill and results of operations.

The Indian stationery and art material market is highly fragmented and has many small, unorganized players. Its inability to compete effectively with such unorganized players would have a material adverse effect on business, prospects, operations, or financial results.

In the stationery industry, cost of production and profit margin depend heavily on raw material prices, which account for a major portion of the production cost. Prices of key materials, such as plastic, paper and pigments, have been volatile in the past few years. Moreover, the company may not be able to fully pass on the increase in raw material prices to customers owing to intense competition.

The company has undertaken certain acquisitions in the past and may continue to do so in the future. Any inability to manage expansions effectively including through acquisitions and execute growth strategy in a timely manner could have a material adverse effect on its business, results of operations and financial condition.

The company is subject to various laws and extensive government regulations and if it fail to obtain, maintain or renew its statutory and regulatory licenses, permits and approvalsrequired in the ordinary course of business, including environmental, health and safety laws and other regulations, its business financial condition, results of operations and cash flows may be adversely affected.

The age of digitalization is tampering the stationery market with more people being dependent on technology.

Price sensitivity plays a major role as consumers are always looking for best deals, discounts and competitive pricing. The advent of e-commerce has made the market more price competitive.

Valuation

For FY2023, consolidated sales were up by 77% to Rs 1211.89 crore. OPM rose 520 bps to 15.4% which led to 168% increase in operating profit to Rs 186.66 crore. Other income increased 77% to Rs 2.42 crore, while interest cost rose 15% to Rs 11.88 crore and depreciation increased 7% to Rs 40.65 crore. PBT increased 478% to Rs 99.23 crore. Tax expenses were 421% higher at Rs 35.89 crore. Net profit increased 567% to Rs 95.81 crore.

FY2023 EPS on post-issue equity works out to Rs 15.8. At the upper price band of Rs 790, P/E works out to be 50.0

As of 06 December 2023, its listed peers such as Kokuyo Camlin trades at TTM P/E of 42.9, Linc trades at TTM P/E of 27.6, Navneet Education trades at TTM P/E of 26.9 and Flair Writing Industries trades at TTM P/E of 34.1.

For FY2023, Doms Industries Ebitda margin and ROE stood at 15.4% and 28.4% respectively, compared to 7% and 9.3% for Kokuyo Camlin, 12.6% and 21.1% for Linc,17.6% and 17.8% for Navneet Education and 19.5% and 27.2% for Flair Writing Industries.