What you must know about DOMS Industries IPO?

DOMS Industries Ltd was incorporated in the year 2006 as a stationery and art product company. The company is primarily engaged in designing, developing, manufacturing, and selling a wide range of stationery products under the flagship brand, DOMS. DOMS Industries Ltd is the second largest stationery player in India by volumes and in its core products like pencils and mathematical instrument boxes, it has a market share of closer to 30%. Currently, DOMS Industries Ltd has its presence in over 40 countries. In terms of its product palate; there is a wide spectrum of high-quality stationery and art materials broadly across seven categories including scholastic stationery, scholastic art materials, paper stationery, stationery kits, office supplies, hobby craft, and fine art products. FILA group of Italy has a stake in the company, and DOMS Industries Ltd also has an exclusive tie-up with the group for distribution and marketing of its products in South Asia. The company has an international multi-channel distribution network across the Americas, Africa, Asia Pacific, Europe, and the Middle East.

DOMS Industries Ltd traces its lineage back to over 40 year and was originally run under the partnership firm “RR Industries”. DOMS International Ltd has also been active in inorganic growth. They acquired Pioneer Stationery, a company engaged in manufacturing, selling, marketing and distribution of paper stationery products. In 2023, DOMS International also acquired a minority stake in ClapJoy Innovations, which is into the manufacturing and sale of toys. Later in 2023, they have also acquired a majority stake in Micro Wood, which is in the business of manufacturing tin and paper based packing material. The inorganic acquisitions are targeted at much better and deeper customer engagement. The net proceeds from the IPO fresh issue portion will be utilized for partly financing the establishing of a new manufacturing facility to expand capacity of writing instruments. The OFS portion is being entirely offered by the promoters. The IPO will be lead managed by JM Financial, BNP Paribas, ICICI Securities and IIFL Securities. Link Intime India Private Ltd will be the registrar to the issue.

Highlights of the IPO issue of DOMS Industries Ltd

Here are some of the key highlights to the public issue of DOMS Industries Ltd.

• DOMS Industries IPO has a face value of ₹10 per share and the price band for the book building IPO has been set in the band of ₹750 to ₹790 per share. The final price will be discovered within this band through the process of book building.
   
• The IPO of DOMS 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 DOMS Industries Ltd IPO comprises the issue of 44,30,380 shares (44.30 lakh shares approximately), which at the upper price band of ₹790 per share will translate into fresh issue size of ₹350 crore.
   
• The offer for sale (OFS) portion of the IPO of DOMS Industries Ltd comprises the sale of 1,07,59,493 shares (107.59 lakh shares), which at the upper price band of ₹790 per share will translate into an offer for sale (OFS) size of ₹850 crore.
   
• The OFS selling will be by the promoter shareholders of the company. Out of the ₹850 crore OFS, the corporate promoter FILA of Italy will offer shares worth ₹800 crore while the two promoter shareholders Sanjay Rajani and Ketan Rajani will offer shares worth ₹25 crore each. These 3 shareholders will account for the entire 100% of the OFS.
   
• Therefore, the overall IPO of DOMS Industries Ltd will comprise of the issue and sale of 1,51,89,873 shares (151.90 lakh shares approximately), which at the upper price band of ₹790 per share will translate into total IPO issue size of ₹1,200 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 DOMS Industries Ltd.

Promoter holdings and investor quota allocation quota

The company was promoted by the Rajani family and later had equity participation from FILA of Italy. Currently the promoters hold 100.00% stake in the company, which will get diluted post the IPO to 74.97%, just about meeting the listing requirements of the stock exchange of 25% public ownership. As per the terms of the offer, 75% of the net offer is reserved for the qualified institutional buyers (QIBs), while 10% 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 DOMS 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 are likely to get a discount of ₹75 per share on the IPO price, but that would be communicated separately in the application forms. The anchor allocation portion, will be carved out of the QIB portion.

Lot sizes for investing in the DOMS 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 DOMS Industries Ltd, the minimum lot size is 18 shares with upper band indicative value of ₹14,220. The table below captures the minimum and maximum lots sizes applicable for different categories of investors in the IPO of DOMS 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 DOMS Industries IPO and how to apply?

The issue opens for subscription on 13th December 2023 and closes for subscription on 15th December 2023 (both days inclusive). The basis of allotment will be finalized on 18th December 2023 and the refunds will be initiated on 19th December 2023. In addition, the demat credits are expected to happen on 19th December 2023 and the stock will list on 20th December 2023 on the NSE and the BSE. DOMS Industries Ltd will be special for more than one reason. It will be the first mainboard IPO to hit the market after the new T+3 listing norms for IPOs are made applicable on a mandatory basis from December 2023. Let us now turn to the more practical issue of how to apply for the IPO of DOMS 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 DOMS Industries Ltd

The table below captures the key financials of DOMS 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 DOMS Industries Ltd which can be enumerated as under

1. In the last 3 years, revenue growth has been steady and also growing. That is evident from the expansion of the revenue pool in sync with the growth in the last few years. The company has also managed to turnaround from losses in FY21 to profits in FY22 and has since seen a six-fold surge in net profits
    
2. The net margins at 8.46% in the latest year and the ROE at 30.5% in the latest year FY23 are quite attractive. However, this is based on a sharp six-fold jump in net profits in the latest year, so sustenance is the key issue here. Most of the profit growth traction has only come in the latest year.
    
3. The company has had above average sweating assets, and is now veering closer to 1.90. ROA for the latest year at 16.08% is fairly attractive, and is a key note on the utilization of assets that the company has achieved.

Let us turn to the valuations part. On the latest year EPS of ₹18.29, the stock is available in the IPO at a P/E of 43.2 times, which is fairly priced even if you reckon of the stock as an FMCG company. A lot will therefore depend on how the ROE and the profit growth is sustained so that such valuations can be justified. We are not looking at P/E based on weighted average EPS as the company has turned around in the last two years. However, even at current P/E, the stock does look fully priced.

However, DOMS Industries Ltd does bring some advantages to the table like its market leadership, brand, deep links with foreign partners, export market etc. It is likely to benefit as the stationery business moves increasingly towards the organized sector. The stock looks good fundamentally, and despite the P/E at 43.2X, there could be something for investors on the table. A long term view and a higher risk appetite would be called for, but it is a stock to participate in; at least as a proxy for the big push towards the organized sector.