The stationery industry in India is witnessing an unprecedented surge in growth, especially after the challenges posed by the COVID-19 pandemic.
As evidence of this boom, DOMS Industries, the country’s second-largest pencil maker, is gearing up for a ₹1,200 crore initial public offering (IPO). This strategic move comes as DOMS aims to expand its market presence and establish a significant manufacturing facility in the Asia Pacific region.
The Upcoming IPO: DOMS Industries Ambitious Step
DOMS Industries, backed by Italy’s F.I.L.A. Group, will be filing draft papers with the Securities and Exchange Board of India (SEBI) in the second week of August. The IPO aims to raise ₹1,200 crore, with ₹800 crore worth of shares offered by F.I.L.A. Group. The Indian promoters, the Raveshia, and Rajani families are also actively involved in this significant milestone.
Fueling Growth: Utilising IPO Proceeds to Enhance Manufacturing Capabilities
The IPO proceeds will play a pivotal role in DOMS Industries’ growth strategy. The company has earmarked ₹800 crore for capital expenditure, which will be directed towards establishing a state-of-the-art manufacturing facility. This facility will be one of the largest single-location units in the stationery industry across the Asia Pacific region.
A Promising Growth Trajectory: Revenue Surge and Operational Success
The pandemic-induced shift in consumer behaviour has led to a remarkable increase in stationery demand, catapulting DOMS Industries’ revenue by a staggering 77%. In FY23, the company achieved revenue of ₹1,212 crore, a significant jump from ₹683 crore in FY22. This remarkable growth has enabled DOMS to achieve an estimated operating margin of over 15% for FY23, as reported by Crisil.
Current Capacity and Expansion Efforts
DOMS Industries currently boasts a daily production capacity of 6.5 million pencils, making it the second-largest player in the market after Hindustan Pencils Pvt. Ltd. The IPO-driven expansion aims to capitalise on the surging demand for their pencil segment and enhance production capacities. Additionally, DOMS acquired a 30% stake in toy maker Clapjoy, signalling a strategic move into new market segments.
A Strong Market Presence: Network and Branding
With a robust distribution network comprising over 100 super stockists, 3,500 dealers or distributors, and more than 100,000 wholesalers and retailers, DOMS Industries caters to both premium and economy segments under its two brands, DOMS and C3.
Financial Stability and Debt Protection
Crisil Ratings has emphasised DOMS Industries’ strong financial position. The company exhibits a comfortable capital structure and debt protection metrics, with limited reliance on external debt. The Total Outside Liabilities to Adjusted Net Worth (TOLANW) is estimated at a healthy 0.86 times. Moreover, the company’s interest coverage ratio and net cash accruals to adjusted debt are projected to be above 15 and 1.35 times, respectively.
Looking Ahead: Cash Flow Projections and Growth Prospects
With estimated cash accruals of over ₹130 crore in FY23 and cash and cash equivalents of ₹40 crore as of March 2023, DOMS Industries is poised for a prosperous future. The company is expected to generate cash accruals exceeding ₹160 crore over the medium term. Furthermore, DOMS has access to fund-based limits of ₹67 crore, reinforcing its ability to meet debt repayment obligations and finance future capital expenditures.
DOMS Industries’ upcoming IPO presents a golden opportunity for investors to be part of a growing success story in the stationery industry.
The company’s prudent financial management, coupled with the burgeoning demand for stationery, places DOMS at the forefront of innovation and expansion. As the stationery market continues to thrive, DOMS Industries is undoubtedly set to make its mark across the Asia Pacific region.
