Doms Industries: Capacity expansion to fuel top-line growth

6 Mar 2024 , 11:31 AM

DOMS is the fastest growing Stationery and Arts Materials brand in India and is also the second largest player in India’s Branded “Stationery and Art” products market, with a market share of ~12%. Superior product quality, world-class manufacturing facilities, a strong brand recall and synergistic partnership with FILA (corporate promoter of DOMS and one of the largest stationery companies based out of Italy) —have ensured robust top-line performance. Scale-up of adjacencies (pens, sketch-pens, back-to-school categories, etc.) and steady growth in existing core categories will drive sales and EPS Cagr of ~25%/28% respectively over FY24-26. Analysts of IIFL Capital Services initiate their coverage with a BUY rating and TP of Rs1,875 (31% upside). 

Well-established player in Stationery: 

DOMS has a direct reach to ~0.12mn outlets and a dedicated team of 550+ sales personnel. In-house design, manufacturing, printing and packaging — all have enabled DOMS to deliver innovative and functional products with superior product quality at an affordable price point, which gives it a strategic advantage over peers. The company has been able to achieve complete backward integration in the manufacturing process of pencils and mathematical instrument boxes. 

Large headroom for growth across product categories: 

While pencils (largest contributor to sales) is a highly penetrated product category, there is a headroom for growth on the back of market share gain. This is because DOMS is focussing on capacity expansion to mitigate supply constraints. DOMS has incurred capex of ~Rs1.1bn in 9MFY24 and is expected to incur a total capex of Rs1.3bn/2.2bn/2.1bn in FY24/25/26. The company has recently entered into conventional pen category, which forms a large part of the Stationery market. Scale-up of adjacencies (pens, sketch-pens, back-toschool categories like tiffins, water-bottle, lunch-box, etc.) by leveraging the distribution network and steady growth in existing categories is expected to drive the robust top-line growth. 

Initiate coverage with a BUY rating, TP Rs1,875: 

DOMS has reported a healthy ROIC of 29.6% in FY23. The stock is currently trading at 38x FY26. Analysts of IIFL Capital Services estimate the company to deliver an EPS Cagr of 28% over FY24-26, driven by strong top-line growth and the company’s focus on achieving higher degree of backward integration. Analysts of IIFL Capital Services initiate their coverage with a BUY rating and TP of Rs1,875.