Doms Industries: For medium to long-term gain

The issue opens on Wednesday (Dec 13) and closes on Friday (Dec 15). The price band is Rs750-790

At A Glance

• It’s a maker of stationery and art products under DOMS brand
• With 12% market share, it’s 2nd largest player
• It reported revenues of Rs1,216.52 cr&Rs102.87-PAT for FY23
• Top line rose to Rs764.21 cr in H1
• EPS on a fully diluted basis is Rs18.29 for FY23, Rs13.14 for H1

Doms Industries Ltd is tapping the capital markets with a fresh issue of Rs350 crore and an offer for sale of Rs850 crore. The issue opens on Wednesday (December 13) and closes on Friday (December 15). The price band is Rs750-790.

The company is a manufacturer of and seller of a wide range of stationery and art products, primarily under the flagship brand ‘DOMS’ in the domestic market. The company also sells its products in over 45 countries internationally. As of the first half of September 23, the company was the second largest player in India’s branded stationery and arts product market. The market share of the company is 12 per cent by value as of the financial year ended March 23. The company offers well designed and quality stationery and art material.

They have seven broad categories under which their products are classified and sold. They are 1) Scholastic stationery, 2) Scholastic art material, 3) paper stationery, 4) kits and combos, 5) office supplies, 6) hobby and craft and 7) fine art products. Across these products they have almost 4,000 SKUs with about 2500-2600 being in the fine art products category.

A key focus area for the company is the scholastic category where they manufacture products for students. This segment is about volume and the company wants to increase their penetration and market share. They want students to consume their products and ensure that prices are affordable and availability next door. The company is content with the present margins and it is more interested in increasing volumes. They believe strongly that if the reach of the product increases, sooner than later, larger volumes will lead to greater efficiency and they in turn will automatically lead to higher realisations.

The pencil making process is complex and requires multiple operations before you have a pencil to write with. After the basic pencil is complete, it needs to be painted which has a process similar to painting one’s house. This is followed by the clamp, on which the small tiny eraser is affixed onto the pencil. Against this in the case of a ballpoint pen, all parts are made in a plastic moulding machine and then fed through an automatic pen assembling machine which gives you a completed ball point pen. Clearly a pencil is far more painstakingly made compared to a pen.

Further we all remember that the handwriting that we have was developed with the help of a pencil. One interesting fact that I discovered on my visit to the factory of DOMS was that almost 80 per cent of the pencils manufactured in India come from the small town of Umbergaon in Valsad district of Gujarat. Strange as it may seem, this is one more industry that has a cluster town like ceramic tiles, textiles and cycles.

The business of stationery, writing instruments, pencil, colour pencils and allied products was badly affected during Covid. This was because schools were shut and classes were conducted online which virtually did not need writing or homework to be done. Post covid, the recovery was faster than the slowdown which was witnessed over 18 months and things bounced back. The system had exhausted all inventories and when schools re-opened there was a huge demand that was generated. In the next couple of years, pre-Covid levels were crossed and the path to growth had a higher trajectory.

The company has been adding capacity as it finds its demand and has ramped up capacity continuously to match increasing demand. The company added to its bouquet of products, writing instruments which include pens and markers. This is a similar segment which recently listed players Cello World and Flair Writing instruments are present in.

The company reported revenues of Rs1,216.52 cr for the year ended March 23 and the topline improved further to Rs764.21 cr for the six months ended September 23. The profit after tax (PAT) was Rs102.87 cr for the full year and Rs73.9 cr for the half year. The EPS on a fully diluted basis is Rs18.29 for the full year and Rs13.14 for the six months. The PE multiple on earnings for March 23 was 41.01-43.19. If one were to look at the EPS for the six months ended September 23, the same would be Rs13.14. If one were to annualize the same and look at the earnings on an annualized basis, the company would report an earnings growth of over 43 per cent. In terms of revenue using the same annualized basis, the growth would be over 25 per cent. New capacities are on the way which would add to sales in the next couple of quarters.

The company has bought new land opposite the present factory which would double the present land at the existing location. Large capex is on the way and would materialize in a phased manner over the next couple of years.

The company offers comfort in terms of the business model and the huge growth potential that the business has. Some of the government schemes which entail education for all augur well for the company and offer plenty of opportunity to grow the capacity and business.

From an investor’s perspective there is a very active and high grey market premium which ensures decent returns for investors who are allotted shares. Allotment in this issue will be tougher than normal as the retail quota or allocation in this issue is 10 per cent of the issue size. The issue warrants subscription for decent listing gains. For investors with a medium to long-term gain, they may relook at the share post listing and decide their strategy.