DOMS Industries Ltd. IPO

Business

Leading stationery producer DOMS Industries will launch its initial public offering (IPO) on December 13, 2023.

Overview

Why Should You Invest in DOMS Industries Ltd. IPO?

Strength & Weakness of DOMS Industries Ltd.

Market Leadership 

1. Holds a 12% market share in the Indian stationery and art material industry.
2. Commands significant market shares of 29% in pencils and 30% in mathematical instrument boxes.

Diverse Product Portfolio

1. Offers an extensive range of over 3,800 distinguishable products as of September 30, 2023.
2. Strategic partnership with FILA enhances global market access and positions the company for emerging trends.

Revenue Concentration

1. Dependency on wooden pencils, constituting 32%, 34%, and 37% of revenue in FY23, FY22, and FY21, respectively.
2. Vulnerability to headwinds in this segment, such as increased competition or lower demand.

Dependence on FILA

1. Relies on FILA for business operations and R&D capabilities.
2. Any deterioration in the relationship with FILA could significantly impact financial performance.

Financial Performance Summary

Analysis

•  Assets Growth: The company's total assets have witnessed a steady increase, growing from ₹458 crore on March 31, 2021, to ₹829 crore by September 30, 2023, indicating positive financial expansion.

•  Revenue Surge: DOMS experienced substantial revenue growth, surging from ₹409 crore in March 2021 to ₹1217 crore in March 2023, followed by a slight decrease to ₹764 crore by September 30, 2023. This could suggest a potential change in sales dynamics.

•  Profitability Fluctuations: While the Profit After Tax (PAT) showed a remarkable turnaround from -₹6 crore in March 2021 to ₹103 crore in March 2023, there was a slight decline to ₹74 crore by September 30, 2023. The fluctuation could be due to various operational factors impacting the bottom line.

•  Net Worth Expansion: The company's net worth has grown consistently, increasing from ₹234 crore in March 2021 to ₹398 crore by September 30, 2023, indicating strong financial health and shareholder value creation.

•  Reserves and Surplus: Reserves and surplus have seen growth over time, reaching ₹341 crore by March 2023. This indicates the company's ability to retain profits for future growth opportunities.

•  Borrowing: Total borrowing has shown a fluctuating trend, increasing from ₹97 crore in March 2021 to ₹176 crore by September 30, 2023. Monitoring the company's borrowing levels is crucial for understanding its leverage and potential financial risks.

Business

Earnings Strength

1. Earnings Before Tax: Rs 139 crore as of March 31, 2023.
2. Growth Drivers: Government initiatives, urbanization, and rising literacy rates in India.

Brand Recognition

1. Recognizable Brand: DOMS is a well-known brand with a diverse product range.
2. Competitive Landscape: Faces significant competition, lacking a distinct competitive advantage.
Management:

Stakeholding and Leadership

1. Promoter's Stake: 75% post IPO.
2. Leadership Experience: Top three managers have over 15 years of experience at DOMS.

Trustworthiness and Transparency

1. Trustworthy Management: No information suggests otherwise.
2. Transparency: Disclosures align with SEBI guidelines.

Financials

• Performance Metrics

1. Return on Equity (ROE) and Return on Capital Employed (ROCE): ROE and ROCE at 19% and 18%, respectively (as of September 30, 2023).
2. Operating Cash Flow: Positive in the last three years.

•  Financial Stability

1. Debt and Working Capital: Low net debt-to-equity ratio (0.3), reliance on working capital for day-to-day affairs.
2. Contingent Liabilities: Minimal, 0.6% of equity (as of September 2023).

• Future Funding and Expansion

1. External Funding: No reliance, plans to use 80% of IPO proceeds for a new manufacturing facility.
2. Expansion: Healthy cash flows for further expansion.

Valuation

• Operating Performance:

1. Operating Earnings Yield: 3.0% on enterprise value (as of March 2023).

• Market Comparison:

1. Price-to-Earnings (P/E) Ratio: 50 times, compared to peers' median of 30.5 times.
2. Price-to-Book (P/B) Ratio: 6.2 times, compared to peers' average of 4.7 times (as of September 2023)

Overall Evaluation 

DOMS Industries showcases strengths in brand recognition and financial stability. However, competitive challenges and valuation metrics suggest careful consideration for potential investors. The IPO's success may hinge on the company's ability to leverage its recognized brand and navigate market dynamics effectively.