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DOMS Industries, India’s second-largest pencil maker, is set to file draft papers for a ₹1,200 crore initial public offering (IPO) with the Securities and Exchange Board of India (Sebi) in the second week of August, two investment bankers aware of the development said.
Italy’s F.I.L.A. Group, which owns a 51% stake in DOMS, plans to offer shares worth ₹800 crore in the issue. The company’s Indian promoters include the Raveshia and Rajani families.
The company will use the proceeds to establish one of the largest single-location manufacturing facilities in the stationery industry across the Asia Pacific region. It has allocated a capital expenditure of ₹800 crore for the same during the period from FY23 to FY28, one of the investment bankers said. The investment aims to transition the current plant from leased to owned facilities, increase production capacities, establish plants for new products, and refurbish older machinery.
The company has hired JM Financial Ltd, ICICI Securities Ltd, IIFL Capital Ltd, and BNP Paribas as bankers to the issue.
DOMS will be the second company in the stationery industry to file for an IPO recently. Earlier this month, pen-maker Flair Writing Industries Ltd filed preliminary papers with Sebi to raise ₹745 crore through an IPO.
A query emailed to DOMS remained unanswered.
The stationery market has surged after the covid-19 pandemic, as evident from a 77% increase in revenue for the pencil maker, which closed FY23 with a revenue of ₹1,212 crore, against ₹683 crore in FY22. This growth was primarily driven by strong demand for their pencil segment, leading to a substantial volume increase of over 59%.
According to a Crisil report, DOMS’ revenue growth has resulted in better-fixed cost absorption, allowing the company to increase prices and achieve an estimated operating margin of over 15% for FY23.
DOMS currently boasts a capacity of 6.5 million pencils per day, making it the second-largest after Hindustan Pencils Pvt. Ltd, the maker of Natraj and Apsara pencils.
Earlier this year, DOMS acquired a 30% stake in toy maker Clapjoy, expanding its presence into new segments.
The company has a network of over 100 super stockists, 3,500 dealers or distributors, and over 100,000 wholesalers and retailers. Operating under two brands, DOMS and C3, it caters to both premium and economy segments.
According to Crisil, the company has a comfortable capital structure and debt protection metrics. Its limited reliance on external debt for working capital and capex needs has resulted in a low total outside liabilities to adjusted net worth (TOLANW) estimated at 0.86 times on a healthy net worth base, estimated above ₹340 crore as of 31 March 2023. Its debt protection metrics are healthy, with an interest coverage ratio and net cash accruals to adjusted debt estimated above 15 and 1.35 times, respectively.
With estimated cash accruals of over ₹130 crore in FY23, DOMS had cash and cash equivalents of ₹40 crore as of 31 March 2023 and is projected to generate cash accruals of over ₹160 crore over the medium term. It also has access to fund-based limits of ₹67 crore, with utilization at 37% on average over the 12 months ended March 2023. Crisil Ratings believes the group has sufficient accruals and cash and cash equivalents to meet the term debt repayment, part-finance its capex requirements, and fulfil incremental working capital needs next year.
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