DOMS Industries - Product Differentiation Is Key To Success; ICICI Securities Initiates Coverage With Buy

ICICI Securities Report

DOMS Industries Ltd. has emerged as one of the strongest stationery and art products players in India with ~12% market share in FY23 from negligible share in FY10. Key reasons:

1. Product differentiation. It has introduced multiple value-added products after identifying gaps in the product offerings of other players,

2. strong investments in manufacturing and backward integration,

3. strategic partnership with FILA, which has helped DOMS in accessing global products, markets and augment research and development capabilities,

4. strong brand (Doms, C3) with a sub-segmentation strategy (Amariz, Fixy Fix) and

5. established distribution network of more than 0.12 million outlets.

It also has the most diversified revenue stream versus peers (i.e. presence across all major sub-segments), indicating low product concentration risk. We expect DOMS to further strengthen its position by-

1. entering into adjacent business/product categories,

2. expansion of manufacturing capabilities, and

3. higher exports.

We model DOMS to report revenue/profit after tax compound annual growth rate of 24.4%/29% over FY24-26E.

We note it has been steadily generating EVA over FY14-FY24E.

We initiate coverage on the stock with Buy rating and discounted cash flow based target price of Rs 1,825 (implying 48 times FY26E earnings).

Key risks

• Higher dependence on key products like pencils and mathematical instrument boxes could increase product concentration risk. Any impact of businesses on these products may impact the company’s earnings estimates.

• The company is dependent on its global partner for exports. Any discontinuation of agreement between both the parties may impact the company’s earnings estimates.

• Any technological and innovation change in the industry that may not be well adopted by the company may impact its earnings estimates.  Steep increase in commodity prices and competitive pressures.

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