Flair Writing IPO review (Apply)

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Review By Dilip Davda on November 18, 2023

•    FWIL is one of the leading player in writing instruments enjoying around 9% market share.
•    It has diversified into housewares, steel bottles and appliances. 
•    With vast product offerings, it has posted good financial performances for the reported periods.
•    Based on annualized FY24 earnings, the issue appears fully priced. 
•    Investors may park funds for the medium to long-term rewards.

PREFACE:
The company did a pre-IPO placement worth Rs. 73 cr. (2401315 shares at Rs. 304 per share in November 2023 to Volrado Venture Partners, and has reduced the fresh equity share issue by such numbers. It enjoys good market share in domestic as well as global sales. Diversification in housewares, steel bottles, appliances augurs well as the segment has bright prospects ahead. 

ABOUT COMPANY:
Flair Writing Industries Ltd. (FWIL) is among the top three players in the overall writing instruments industry and occupy a market share of approximately 9% in the overall writing and creative instruments industry in India, as of March 31, 2023, according to CRISIL. According to CRISIL, FWIL is also among the top two organized players which have seen faster growth in revenue as compared to overall writing and creative instrument industry growth rate, i.e., while the industry grew at a compounded annual growth rate of 5.5% between Financial Year 2017 and 2023, the company grew at a compounded annual growth rate of approximately 14% during the same period. It reported the highest operating and net income margins of 17.8% and 9.6%, respectively, in Financial Year 2022 among other key writing instruments players, according to CRISIL.

FWIL's flagship brand "Flair" has enjoyed a market presence of over 45 years. It has an extensive range of products across various price points and cater to a broad range of consumers, including students, professionals and offices. The company manufactures and distributes writing instruments including pens, stationery products and calculators. Leveraging on its manufacturing capabilities, and existing customer base in the writing and creative instruments business, it has also diversified into manufacturing houseware products and steel bottles.

During the three-month period ended June 30, 2023, it sold 344.32 million units of pens, of which 279.21 million units or 81.09% was sold domestically, and 65.11 million units or 18.91% was exported globally, and in Financial Year 2023, it sold 1,303.60 million units of pens, of which 975.30 million units or 74.82% was sold domestically, and 328.30 million units or 25.18% was exported globally, compared with other key organized players in the writing and creative instruments industry such as DOMS, Camlin, Linc and Luxor, the Company had the largest distributor/dealer network and wholesale/retailer network, in the writing instruments segment in India, according to CRISIL, comprising approximately 7,700 distributors/dealers and approximately 315,000 wholesalers/retailers, as of March 31, 2023. It occupied a market share of 7.1% in the export of writing and creative instruments industry, in Financial Year 2023, according to CRISIL.

FWIL manufactures and distributes several brands in India and due to its ability to manufacture quality products and distribution and retail capabilities, it is able to partner with various international brands in the writing instruments industry. Its products are sold under "Flair" brand, its principal brands "Hauser" and "Pierre Cardin" and it has recently introduced "ZOOX" in India. Its brands "Flair" and "Hauser" offer mass-market and premium pen and stationery products, brand "ZOOX" focusses on mid-premium and premium writing instruments, and "Pierre Cardin" brand offers premium pen and stationery products. 

The company also contract manufactures writing instruments as an OEM for export and for sale in India, which contributed 16.87%, 19.94%, 33.37% and 38.67% to revenue from operations in the three-month period ended June 30, 2023 and the Financial Years 2023, 2022 and 2021, respectively. It also provides customized corporate gifting products to corporate customers. Its product range includes a variety of pens (ball pens, fountain pens, gel pens, roller pens and metal pens), which is largest category in terms of number of products offered, stationery products (mechanical pencils, highlighters, correction pens, markers, gel crayons and kids' stationery kits) and calculators. The company launched a range of "Flair Creative" products in Financial Year 2021 which include water colours, crayons, sketch pens, erasers, wooden pencils and geometry boxes, fine liners, sharpeners and scales. It offered 727 different products as of June 30, 2023.

It has recently forayed into manufacturing a wide range of houseware products including casseroles, bottles, storage containers, serving solutions, cleaning solutions and basket and paper bins, through one of its Subsidiaries, FWEPL. It intends to utilize a portion of the proceeds from the Offer for funding capital expenditure of FWEPL for purchase of machinery and moulds to expand its manufacturing capacity for writing instruments. FWIL intends to leverage the strength of the "Flair" brand and manufacturing and distribution capabilities to expand and optimize the business of houseware products and steel bottles, which is expected to be a key area of growth going forward. 

It has recently commenced manufacturing steel bottles through one of its Subsidiaries, FCIPL, in March 2023. According to CRISIL, the steel bottle industry in India is projected to grow at a CAGR of 14-16% between Financial Year 2023 and 2028. It has received a letter of intent from one of its key OEM customers with whom the Company has a relationship of more than 15 years. One manufacturing line has been commissioned in the month of March 2023. The company intends on commissioning two more manufacturing lines during the third quarter of Financial Year 2024 at manufacturing plant in Valsad, Gujarat.

It manufactures pens and other products from 11 manufacturing plants located in Valsad, Gujarat; in Naigaon (near Mumbai), Maharashtra; in Daman, Union Territory of Dadra and Nagar Haveli and Daman and Diu; and in Dehradun, Uttarakhand. As of June 30, 2023, it had 5,899 full-time employees of which 3,318 were woman employees, which formed approximately 56% of the total workforce in the Company.

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with a maiden book building route IPO of fresh equity shares issue worth Rs. 292 cr. (approx. 9605274 shares at the upper cap) and an Offer for Sale (OFS) of Rs. 301 cr. (approx. 9901332 shares at the upper cap), thus the overall size of the issue is worth Rs. 593.00 cr. (approx. 19506606 shares at the upper price band. It has announced a price band of Rs. 288 - Rs. 304 per share of Rs. 5 each. The issue opens for subscription on November 22, 2023, and will close on November 24, 2023. The minimum application is to be made for 49 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE and NSE. The issue constitutes 18.51% of the post-IPO paid-up equity capital of the company. From the net proceeds of the fresh equity shares issue, it will utilize Rs. 56 cr. for setting up of new Valsad Unit, Rs. 86.75 cr. for capex on subsidiary and the company, Rs. 77.00 cr. for working capital, Rs. 43.00 cr. for repayment/prepayment of certain borrowings and the rest for general corporate purposes.  

The company has allocated not more than 50% for QIBs, not less than 15% for HNIs and not less than 35% for Retail investors. 

The two joint Book Running Lead Managers are Nuvama Wealth Management Ltd., and Axis Capital Ltd., while Link Intime India Pvt. Ltd. is the registrar of the issue. 

Having issued initial equity shares at par value, the company issued further equity shares in the price range of Rs.304.00 - Rs. 10872.50 between November 2017 and November 2023. It has also issued bonus shares in the ratio of 7 for 1 in August 2018, and 1 for 1 in March 2023. The average cost of acquisition of shares by the promoters/selling stakeholders is Rs. 4.59 per share.

Post-IPO, FWIL's current paid-up equity capital of Rs. 47.90 cr. will stand enhanced to Rs. 52.70 cr. Based on the upper cap of IPO price band, the company is looking for a market cap of Rs. 3204.02 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has (on a consolidated basis) posted a total income/net profit of Rs. 310.87 cr. / Rs. 1.00 cr. (FY21), Rs. 587.64 cr. / Rs. 55.15 cr. (FY22), and Rs. 954.29 cr. / Rs. 118.10 cr. (FY23). For Q1 of FY24 ended on June 2023, it earned a net profit of Rs. 32.14 cr. on a total income of Rs. 248.50 cr. 

For the last three fiscals, the company has reported an average EPS of Rs. 8.32 and an average RoNW of 21.94%. The issue is priced at a P/BV of 6.04 based on its NAV of Rs. 50.34 as of June 30, 2023, and at a P/BV of 3.84 based on its post-IPO NAV of Rs. 79.24 per share (at the upper cap). 

If we annualized FY24earnings and attribute it to post-IPO paid-up equity capital of the company, then the asking price is at a P/E of 24.92.

For the reported periods, the company has posted PAT margins of 0.33% (FY21), 9.55% (FY22), 12.53% (FY23) and 13.03% (Q1-FY24), similarly RoACE margins of 0.14%, 17.41%, 31.24% and 7.64% for the corresponding periods respectively. 

DIVIDEND POLICY:
The company has not declared any dividends for the reported periods of the offer document. It has already adopted a prudent dividend policy in June 2023, on the basis of its financial performance and future prospects. 

COMPARISON WITH LISTED PEERS:
As per the offer document, FWIL has shown Linc Pen, Kokuyo Camlin, and Cello World as their listed peers. They are trading at a P/E of 25.95, 43.13, and 424.35 (As of November 17, 2023). However, they are not comparable on an apple-to-apple basis. 

MERCHANT BANKER'S TRACK RECORD:
The two BRLMs associated with the issue have handled 60 public issues in the past three financial years, out of which 20 issues closed below the issue price on listing date.

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