IPO Analysis: DOMS Industries Limited

IPO Rating: Apply for the long-term

About the Issue: 

The company designs, develops, and markets an extensive array of stationery and art items, mainly under its flagship brand 'DOMS’. It is gearing up to launch its Initial Public Offering (IPO) for equity shares, each having a face value of Rs 10. The IPO price range is set between Rs 750 and Rs 790 per equity share, resulting in a total issue size of Rs 1,200 crore at the upper price band. The IPO is scheduled to commence on December 13, 2023, and will conclude on December 15, 2023. The market lot size for the IPO is 18 shares, with the option to apply for multiples of this lot. Individual retail investors have the opportunity to apply for a maximum of 14 lots, equivalent to 252 shares or a total investment of Rs 1,99,080 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. Proposing to partly 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. 
2. General corporate purposes. 

Promoter holding 

Santosh Rasiklal Raveshia, Sanjay Mansukhlal Rajani, Ketan Mansukhlal Rajani, Chandni Vijay Somaiya and Fabbrica Italiana Lapis ed Affini S.p.A (FILA) are the promoters of the company. The promoters currently hold a pre-issue shareholding stake of 89.26 per cent in the company.  

Company profile 

The company designs, develops, and markets an extensive array of stationery and art items, mainly under its flagship brand 'DOMS,' both within the country and across more than 45 countries globally as of September 30, 2023. It holds the position as the second-largest player in India's branded market for stationery and art products, securing approximately a 12 per cent market share by value as of fiscal 2023. 

The company provides consumers with meticulously crafted and high-quality stationery and art material products, categorized into seven segments including scholastic stationery, scholastic art material, paper stationery, kits and combos, office supplies, hobby and craft and fine art products. The company's core products, such as pencils and mathematical instrument boxes, command substantial market shares, with a 29 per cent and 30 per cent share by value in fiscal 2023, respectively. 

The company has established a strategic partnership with specific entities within the FILA, a listed Italian multinational company to handle the distribution and marketing of their products in the South Asian region. As of September 30, 2023, the company boasts an extensive multi-channel distribution network, exhibiting a robust presence across India and a global reach, encompassing the Americas, Africa, Asia Pacific, Europe, and the Middle East. Additionally, its products are readily accessible through various e-commerce platforms. 

Financials 

Outlook and valuation  

The company has demonstrated a consistent upward trajectory in its top-line growth over the past few years. In FY23, the revenue reached Rs 1,212 crore, marking an exceptional 77 per cent growth compared to the revenue in FY22. Despite reporting modest losses in FY21, the company successfully rebounded and achieved a net profit of over Rs 100 crore in FY23. 

The issue is priced with a P/BV ratio of 11.18 times, calculated using its Net Asset Value (NAV) of Rs 70.69 as of September 30, 2023. At the upper price cap, it is priced at a P/BV ratio of 6.41, considering its post-IPO NAV of Rs 123.20 per share. 

When we calculate the PE ratio for the company by considering the annualized FY24 earnings relative to the post-IPO fully diluted paid-up equity capital, the resulting PE ratio stands at 30. As per its official documents, the company has referenced several listed peers, including Kokuyo Camlin Ltd, Linc Ltd, and Flair Writing Industries Ltd which are currently trading at PE ratios of 39, 27 and 34, respectively.  

Taking into account the industry average PE ratio of 37 times and the valuation of listed peers, the offering appears to be attractively priced. Meanwhile, the return on equity (RoE) stands impressively at 35 per cent, outperforming peers by a significant margin. 

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 product concentration risk is a crucial factor worth considering, given that the company relies heavily on a limited number of products for a substantial portion of its revenue. However, the company's leadership in market share, extensive product portfolio, strategic partnership with FILA, and robust financials contribute to reinforcing its position. Hence, we recommend investors to subscribe to the issue with a long-term perspective.