IPO Analysis: Flair Writing Industries Limited

IPO Rating: Apply for the long-term

About the Issue 

The company is actively involved in the development and production of writing instruments. It is gearing up to launch its Initial Public Offering (IPO) for equity shares, each having a face value of Rs 5. The IPO price range is set between Rs 288 and Rs 304 per equity share, resulting in a total issue size of Rs 593 crore at the upper price band. 

The IPO is scheduled to commence on November 22, 2023, and conclude on November 24, 2023. The market lot size for the IPO is 49 shares, with the option to apply for multiples of this lot. Individual retail investors have the opportunity to apply for a maximum of 13 lots, equivalent to 637 shares or a total investment of Rs 1,93,648 assuming the upper price band.  

Objects of the Issue 

The offer encompasses both the fresh issue and the offer for sale. It's important to note that the company will not accrue any proceeds from the offer for sale. The company plans to allocate the net proceeds raised from the fresh issue for the following purposes: 

1. Setting up a new manufacturing facility for writing instruments in District Valsad, Gujarat  
2. Funding capital expenditure of the company and its subsidiary 
3. Funding working capital requirements of the company and its subsidiaries 
4. Repayment/pre-payment, in part or full, of certain borrowings availed by the company and subsidiaries 
5. General corporate purposes

Promoter holding 

Khubilal Jugraj Rathod, Vimalchand Jugraj Rathod, Rajesh Khubilal Rathod, Mohit Khubilal Rathod and Sumit Rathod are the promoters of the company. The promoters and promoter group currently hold a pre-issue shareholding stake of 97.49 per cent in the company.  

Company profile 

The company is actively involved in the development and production of writing instruments customized to meet the demands of the dynamically evolving market. As of the fiscal year 2023, it stands as one of the leading three companies in the writing instruments sector, boasting a revenue of Rs 942 crore. Furthermore, as of March 31, 2023, the company holds a market share of around 9 per cent in the broader writing and creative instruments industry in India, as reported by CRISIL. 

The company's diverse product portfolio comprises an extensive range of pens, including ball pens, fountain pens, gel pens, roller pens, and metal pens, constituting its largest category in terms of the number of products offered. Additionally, its product lineup includes stationery items such as mechanical pencils, highlighters, correction pens, markers, gel crayons, and kids' stationery kits, along with calculators. The company proudly owns several reputable brands, including Flair, Hauser, Pierre Cardin, Flair Creative, Flair Houseware, and the Zoox. 

The company has recently expanded its operations by venturing into the production of an extensive array of houseware products, such as casseroles, bottles, storage containers, serving solutions, cleaning solutions, and basket and paper bins, through one of its subsidiaries. With 11 manufacturing facilities across India, the company's products are distributed in more than 77 countries, showcasing its strong global presence. 

Financials

Outlook and valuation  

In light of the risk factors, the company operates within a dynamically evolving and intensely competitive business landscape, making it susceptible to disruptions if it fails to maintain a competitive edge. The necessity for a substantial amount of working capital is one of the driving factors behind the company's objectives of the offer. Challenges such as shortages in the availability of raw materials and substantial price surges can impact the business. Additionally, there is a concern as certain trademarks of the company are not registered under its name. 

Conversely, the company enjoys several strengths that position it favourably for further growth. These include a robust brand image, a prominent standing among the top three players in the market with a substantial market share, strategic partnerships with international brands, a well-established distribution network, and a diverse and comprehensive product portfolio.  

The company demonstrated remarkable consistency in revenue growth, achieving a substantial 63 per cent rise in FY23 compared to FY22. Although profitability faced challenges in FY21, the company rebounded impressively, attaining substantial profits of Rs 118 crore in FY23, marking an outstanding 114 per cent year-on-year growth. Furthermore, the positive trend continued into Q1FY24, with notable performance in top-line and bottom-line figures. 

The issue is priced with a P/BV ratio of 6.04 times, calculated using its Net Asset Value (NAV) of Rs 50.34 as of June 30, 2023. At the upper price cap, it is priced at a P/BV ratio of 3.84, considering its post-IPO NAV of Rs 79.24 per share. 

When we calculate the PE ratio for the company by considering the annualised FY24 earnings relative to the post-IPO fully diluted paid-up equity capital, the resulting PE ratio stands at 22. As per its official documents, the company has referenced several listed peers, including Linc Limited and Kokuyo Camlin Limited which are currently trading at PE ratios of 27 and 37, respectively.  

When compared to its peers, Flair Writing Industries Limited not only presents an appealing valuation but also demonstrates a track record of delivering stellar returns that surpass those of its competitors. Hence, we recommend investors to subscribe to the issue with a long-term perspective.