Flair Writing Industries IPO - Investment Rationale, Issue Details, Financials, Peer Comparison: Motilal Oswal

Motilal Oswal Report

Flair Writing Industries Ltd.'s issue opened for subscription on November 22 and the issue will be closed on Nov 24. The company has set a price band in the range of Rs 288 to Rs 304 per equity share. The minimum order quantity is 49 shares and in multiple thereof.

The Rs 5.9 billion IPO consists of fresh issue of 9.6 milllion shares and offer for sale of 9.9 million shares by promoters. The funds raised will be utilised for capital expenditure, debt repayment and funding of working capital requirement. The market cap post listing would stand at Rs 32 billion.

Financials:

Flair has witnessed robust growth in its financial performance with revenue/profit after tax compound annual growth rate of 78%/9.9 times over FY21-23. Its Ebitda margin improved sharply from 7.7% in FY21 to 21.2% in Q1 FY24. It has capacity of 200 crore pens annually which post expansion will increase to 235 crore pens. Its return ratios are healthy with return on equity/return on capital employed of 20%/36% post dilution.

Our view:

Flair Writing is a frontrunner in the market with consistent healthy financial performance. Its vertical expansion into houseware products would further boost its revenues benefitting from its existing large distribution network.

The stock is priced at 24.9 times Q1 FY24 price/earning (on diluted and annualised basis) which is discount to its peers.

Hence, we recommend 'Subscribe'. Given the strong brand name, pan-India presence, robust financials and expansion plans, it makes Flair a compelling proposition.

Risk and concerns

• ~82% of the revenue comes from the top three brands. Any harm to such brands or reputations may adversely affect business, financial conditions, cash flows and result of operations.

• The company’s business depends on the ability to respond and adapt to consumer needs and maintain an optimal product mix in terms of production volumes and profitability in the writing instruments industry.

• The writing instruments industry has many small, unorganised players, hence is a highly competitive.

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