What you must to know about Flair Writing IPO?

Flair Writing Industries Ltd was incorporated in the year 1976 for specifically developing and manufacturing writing instruments. Most of the writing instruments made by the company have been tailored to a continuously shifting market. FLAIR is the parent umbrella brand and under that umbrella it owns several brands like Hauser, Pierre Cardin, Flair Creative, Flare Houseware, and ZOOX. In fiscal FY23 alone, Flair Writing Industries Ltd sold more than 130.36 crore units of pens, of which 97.53 crore units (74.8%) of the pens were sold in India while the remaining 32.83 crore units were exported to other countries. Apart from writing products, which remains its bread and butter, Flair Writing Industries Ltd has also recently ventured into manufacturing a wide range of home-needs products such as casseroles, bottles, storage containers, serving solutions, cleaning solutions, baskets, and paper bins. Some of its core products include metal pens, ball pens, gel pens, fountain & roller pens, platinum series pens, refills etc.

Currently, Flair has the capacity to churn out 2 billion (200 crore) pens annually. In the past, the company has received several awards for being the Top Exporter, India’s most valuable brand, India’s most promising brand, etc. The fresh funds raised in the IPO will be used for setting up  new manufacturing facility in Valsad in Gujarat, funding capex of its subsidiary FWEPL, repayment and prepayment of loans and for working capital needs. The offer for sale is entirely by the promoter shareholders of the company. The IPO will be lead managed by Nuvama Wealth Management and Axis Capital. Link Intime India Private Ltd will be the registrar to the issue.

Highlights of the issue of Flair Writing Industries IPO

Here are some of the key highlights to the public issue of Flair Writing Industries IPO.

• Flair Writing Industries IPO has a face value of ₹5 per share and the price band for the book building IPO has been set in the band of ₹288 to ₹304 per share. The final price will be discovered within this band through the process of book building.
   
• The IPO of Flair Writing Industries Ltd will be a combination of a fresh issue and an offer for sale (OFS). As you would be aware, a fresh issue tends to bring in fresh funds into the company, but is also EPS and equity dilutive. However, OFS is just a transfer of ownership and does not entail dilution of equity or of EPS.
   
• Let us start with the fresh issue portion first. The fresh issue portion of Flair Writing Industries Ltd IPO comprises the issue of 96,05,263 shares (96.05 lakh shares approximately), which at the upper price band of ₹304 per share will translate into fresh issue size of ₹292 crore.
   
• The offer for sale (OFS) portion of the IPO of Flair Writing Industries Ltd comprises the sale of 99,01,316 shares (99.01 lakh shares), which at the upper price band of ₹304 per share will translate into an offer for sale (OFS) size of ₹301 crore.
   
• The OFS selling will be by the promoter shareholders of the company, with 5 members of the promoter group offering the total of 99.01 lakh shares in total. Since Flair Writing Industries Ltd is currently 100% owned by the promoters of the company, there will be dilution of promoter stake due to the OFS and due to the fresh issue also. Post the IPO, the promoter stake will come down to 81.06%.
   
• Therefore, the overall IPO of Flair Writing Industries Ltd will comprise of the issue and sale of 1,95,06,579 shares (195.07 crore shares approximately), which at the upper price band of ₹304 per share will translate into total IPO issue size of ₹593 crore.

While the fresh issue will be capital and EPS dilutive, the offer for sale portion will only result in transfer of ownership. The entire OFS is being offered by the promoter shareholders of the company (Rathod Family).

Promoter holdings and investor allocation quota

The company was promoted by the Rathod Family, holding 100% of the outstanding shares of Flair Writing Industries Ltd. Currently the promoters hold 100.00% stake in the company, which will get diluted post the IPO to 81.06%, yet short of the stock exchange listing criteria of 25% public ownership. As per the terms of the offer, 50% of the net offer is reserved for the qualified institutional buyers (QIBs), while 35% of the total issue size is reserved for the retail investors. The residual 15% is kept aside for the HNI / NII investors. The stock of Flair Writing Industries Ltd will be listed on the NSE and on the BSE. The table below captures the gist of the allocation to various categories.

It may be noted here that the Net Offer above refers to the quantity net of employee quota. Employees may get a discount to the IPO price, but that would be communicated separately in the application forms. The anchor portion, will be carved out of the QIB portion.

Lot sizes for investing in the Flair Writing Industries IPO

Lot size is the minimum number of shares that the investor has to put in as part of the IPO application. The lot size only applies for the IPO and once it is listed then it can be even traded in multiples of 1 shares since it is a mainboard issue. Investors in the IPO can only invest in minimum lot size and in multiples thereof. In the case of Flair Writing Industries Ltd, the minimum lot size is 49 shares with upper band indicative value of ₹14,896. The table below captures the minimum and maximum lots sizes applicable for different categories of investors in the IPO of Flair Writing Industries Ltd.

It may be noted here that for the B-HNI category and for the QIB (qualified institutional buyer) category, there are no upper limits applicable.

Key dates for Flair Writing Industries Ltd IPO and how to apply?

The issue opens for subscription on 22nd November 2023 and closes for subscription on 24th November 2023 (both days inclusive). The basis of allotment will be finalized on 30th November 2023 and the refunds will be initiated on 01st December 2023. In addition, the demat credits are expected to happen on 04th December 2023 and the stock will list on 05th December 2023 on the NSE and the BSE. Flair Writing Industries Ltd will be special for more than one reason. We are seeing the surge of mainboard issues after a long time and it will hold the key to the performance of the IPOs on the mainboard list. Let us now turn to the more practical issue of how to apply for the IPO of Flair Writing Industries Ltd.

Investors can apply either through their existing trading account or the ASBA application can be directly logged through the internet banking account. This can only be done through the authorized list of self-certified syndicate banks (SCSB). In an ASBA application, the requisite amount is only blocked at the time of application and the necessary amount is debited only on allotment. Investors can apply in the retail quote (up to ₹2 lakh per application) or in the HNI / NII quota (above ₹2 lakh). Minimum lot sizes will be known after pricing.

Financial highlights of Flair Writing Industries Ltd

The table below captures the key financials of Flair Writing Industries Ltd for the last 3 completed financial years.

Data Source: Company RHP filed with SEBI (All ₹ figures are in crores)

There are few key takeaways from the financials of Flair Writing Industries Ltd which can be enumerated as under

1. In the last 3 years, revenue growth has growing at a very rapid pace. That is evident from the expansion of the revenue pool in sync with the geometric expansion in demand the and the school demand again picking up rapidly. The focus on the home needs sector is also likely to boost sales along the way for Flair Writing Industries Ltd.
    
2. Being a FMCG stationery company, it is the net profit margin that would really matter and that has been over 10% showing good traction. Return on equity is now settled at above 25% in the latest year and that is likely to help the company to sustain valuations at higher levels.
    
3. The company has had above average sweating of assets as is evident from the asset turnover ratio. The asset sweating ratio of above 1 indicates that the company has the potential to grow its ROE in the coming years also.

Let us turn to the valuations part. On the latest year standalone EPS of 12.66, the stock is available in the IPO at a P/E of 24.01 times, which is attractive if the current growth rate can be sustained in profits and the value of the brands and the FMCG premium valuations are considered. However, on a weighted average basis, the P/E is less attractive at around 36.5X earnings. However, the positive ROE should work in favour of the company.

Flair Writing Industries Ltd brings to the table deep insights into the writing products business as well as a diversified range of products in a segment where the demand is almost perennial. It also has the benefit of scale which allows the company to keep its costs low and competitive in the market. Overall,  it looks like a relatively safe bet with attractive valuations. Investors who are prepared to wait for the long haul with a higher level of demand risk, may look at this IPO seriously.