DOMS Industries: New product lines, capacities to support DOMS’ growth

ET Intelligence Group: DOMS Industries, a writing instruments and stationery supplier, has shown resilience on bourses amid heightened market volatility with an 8% gain since February 3 when it declared the third quarter numbers. The company is expected to fare better in the long term given capacity expansion plans, and add new product lines through the inorganic route and international distribution partnerships.

In September 2024, it completed the acquisition of a majority stake in Uniclan Healthcare, which produces baby diapers, wipes, and other baby hygiene products. The acquisition enables DOMS to diversify its portfolio by reducing exposure to a single line of products.

The company’s consolidated revenue grew by 35% year-on-year to ₹501.1 crore in the December quarter. Uniclan formed 10% of the total revenue. Excluding that, comparable consolidated revenue grew by 21.4% to ₹451.1 crore. The operating margin (EBITDA margin) declined by 120 basis points to 17.5% from the year-ago period due to higher sales and distribution expenses, which increased due to the consolidation of Uniclan and the impact of ESOPs granted during the quarter. However, the margin remained above the company’s guided range of 16-17%.

Uniclan’s margins at single digits are lower than the overall margin but DOMS expects to rise to 7-8% and then double digits in the long term.

The company installed a third diaper production line, boosting baby diaper capacity to 650 million units from 400 million. Additionally, a 1 MW solar plant was commissioned at the Umargam, Gujarat facility. In the first nine months of FY25, the company invested over ₹100 crore in construction, plant and machinery purchases, and solar plant installation. Additionally, Uniclan allocated ₹11.5 crore to expand diaper manufacturing capacity.

The proportion of exports in total sales fell by 510 basis points year-on-year to 17.3% of total sales in the third quarter of FY25 following geopolitical tensions in the Middle East. To boost exports, DOMS is entering into distribution agreements with Italy’sFILA and its group companies.The stock of DOMS has outperformed peers including Kokuyo Camlin, Linc and Flair Writing Industries over multiple timeframes. While it has lost nearly 2% in one month, the peer group stocks have lost 11-17%. In a recent note, PL Capital stated that DOMS’ valuations remain justified as the market would have corrected any significant overvaluation in the current bearish environment. “We believe DOMS is not a plain vanilla stationery company but a quasi-consumer discretionary proxy and will continue to command premium valuations,” the brokerage said. It expects earnings to grow by 27% annually between FY25 and FY27 and values the stock at FY27 expected price-earnings multiple of 60 with a target price of ₹3,370.