DOMS IPO: A Deep Dive into the Offering

The initial public offer (IPO) of DOMS Industries Ltd is creating a buzz in the primary market and is set to close on December 15. The firm seeks to raise Rs 1,200 crore through this offering, with a price range of Rs 750-790 per share.

DOMS IPO Timeline & Details: Everything You Need To Know

• DOMS IPO Price: DOMS Industries has set a price band of Rs 750 to Rs 790 per share for its IPO.
• DOMS IPO Opening Date: Subscriptions for the IPO commenced on December 13.
• DOMS IPO Size: The firm aims to raise Rs 1,200 crore through its initial public offer, consisting of a fresh issue of Rs 350 crore and an offer for sale (OFS) of Rs 850 crore.
• How to Apply for DOMS IPO: Prospective investors can bid in lots, with each lot comprising 18 shares of the company. To apply for the IPO, the minimum investment is set at Rs 14,220 (calculated as 790 x 18).
• Allotment Timeline: As per the IPO schedule, the DOMS IPO share allotment is expected to be finalised on December 18.
• DOMS IPO Listing Date: The public offer is anticipated to debut on BSE and NSE on December 20, 2023.
• DOMS GMP: According to market observers, DOMS IPO is commanding a grey market premium of Rs 495 (a premium of 63% over IPO price) as of today.

DOMS Industries Anchor Round

The initial public offering raised Rs 537.7 crore on Tuesday, December 12, through the anchor book process. This anchor round saw participation from 55 anchor investors, including prominent names such as Goldman Sachs, Theleme India Master Fund, Ashoka Whiteoak Emerging Markets, Abu Dhabi Investment Authority, Fidelity Funds, and Belgrave Investment Fund.

DOMS Industries Subscription Status

The IPO of DOMS Industries was fully subscribed within just an hour of its launch. As of Wednesday, the IPO saw a subscription rate of 5.12 times, fuelled by significant interest from retail investors. The section allocated for retail individual investors was particularly popular, being subscribed 18 times over. This was followed by the employee segment with a subscription rate of 8.63 times. The portion for non-institutional investors also saw considerable demand, reaching 6.57 times its initial offering. However, the category for qualified institutional buyers attracted less interest, receiving bids only 0.05 times the available amount.

About DOMS Industries Ltd

Founded on October 24, 2006, DOMS Industries specialises in designing, manufacturing, and marketing a diverse range of stationery and art products. With a significant presence in over 45 countries, DOMS offers an extensive portfolio of over 3,800 SKUs. Its range includes scholastic stationery, scholastic art materials, paper stationery, various kits and combos, office supplies, as well as hobby, craft, and fine art products.

Strengths

• Market Dominance: As of fiscal 2023, DOMS holds a strong position as India's second-largest brand in stationery and art products, with ~12% market share by value. It leads in specific categories, with pencils and mathematical instrument boxes commanding market shares of 29% and 30% respectively.
• Robust Financial Growth: From FY21 to FY23, Revenue from Operations surged at a 73% Compound Annual Growth Rate (CAGR) and EBITDA increased at an impressive 149% CAGR. The firm saw a turnaround in FY22, turning a Rs 6 crore loss in FY21 into a Rs 17.14 crore profit, and further elevated its profit to Rs 102.9 crore in FY23.
• Increased Profitability: There was a substantial enhancement in operating margins, which rose from 10.2% in FY22 to 15.4% in FY23. Net profit margins also saw a significant boost, improving from 2.5% to 8.5%.
• Exceptional Returns: In FY23, DOMS achieved an outstanding Return on Equity of 33.5% and a Return on Capital Employed of 33.3%, outperforming many competitors.
• Investor-Friendly Company: The firm has demonstrated a strong dividend policy, distributing dividends of 1,500% for FY22 and 2,500% for FY23. 

Key Concerns 

• Reliance on Key Products: A significant portion of the firm’s Gross Product Sales comes from its main products, especially 'wooden pencils,' which alone contribute over 30% to total Gross Product Sales. A downturn in sales of these key products, particularly 'wooden pencils,' could negatively influence the company's business performance and financial stability.
• Dependence on the FILA Group: The firm relies heavily on the FILA Group, particularly for export sales, which represent more than 59% of its total exports. If FILA stops being a key promoter, it could harm the business operations, research and development, and export capabilities. Additionally, any harm to FILA Group's reputation could adversely affect the firm’s overall business health and financial outcomes.
• Dependency on Raw Material Prices: The industry's production costs and profit margins are significantly influenced by the prices of raw materials, which constitute a large part of overall production expenses. Key materials such as plastic, paper, and pigments have shown price volatility in recent years. The intense competition in the market might prevent the firm from transferring the increased costs of raw materials to the customers.
• Cash Flow Concerns: The firm has experienced negative cash flows in past financial years. Sustained negative cash flows or substantial negative cash flows in the short term could adversely affect its operational capabilities and its plans for growth.

Final Verdict: Subscribe

DOMS Industries, a key player in the Indian stationery and art materials market, has exhibited impressive performance over the past three years, evidenced by substantial increases in both revenue and profits. 

With a PE multiple of 32.4x on projected earnings for FY24, the issue seems fully priced. However, we believe the valuation is justified given the firm’s considerable market share, well-established distribution channels, capacity expansions, entry into new markets, and solid revenue and profit growth. Additionally, the grey market premium for the issue suggests a premium listing. 

Taking all these aspects into account, investors should consider subscribing to this IPO from a medium-to-long term perspective.

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