Brokerage BNP Paribas has initiated an 'outperform' rating on Doms Industries Ltd and kept its target price to Rs 1,950 a share, up 15 percent from its current market price.
DOMS, a top school stationery and art materials firm in India, has doubled its sales in recent years without any hefty ad spending. Popular with kids, its success stems from innovation and in-house manufacturing, offering value and strong margins. BNP Paribas predicts growth in current and new product lines.
BNP Paribas commended DOMS for its robust 21 percent organic revenue growth during FY18-23, surpassing peers in stationery and FMCG sectors. They noted DOMS' strong brand recognition among children, minimal ad spending, and no credit to dealers, indicating high product demand.
With local and foreign promoters, DOMS boasts a deep understanding of the Indian market and extensive industry experience. Their strong balance sheet allows for greenfield expansion and new growth avenues like the pen category and potential acquisitions in toys and school bags. The management's focus on margins and return ratios is evident, supported by positive feedback from distributors, retailers, and factory visits, it said.
BNP Paribas noted that unlike many competitors relying heavily on a single product category for revenue, DOMS boasts a diversified profile, with pencils contributing only about 34 percent of its FY23 revenue, indicating a lower risk profile and room for market share growth across categories. DOMS has outpaced peers with sales doubling over FY16-19 and FY19-23, achieving a 21 percent sales CAGR during FY18-23. This growth is attributed to capacity expansion, distribution widening, and product innovation, enhancing market share.
Expectations for sustained revenue and EBITDA growth from FY23-26 are high. Additionally, DOMS has steadily improved profitability, with EBITDA margins rising to 17.4 percent in 9MFY24 from 12-13 percent in FY17-19, showing a 26 percent CAGR in EBITDA over FY18-23 compared to a 21 percent revenue increase.
"Over FY18-23, DOMS delivered revenue/EBITDA/EPS growth of 21 percent/26 percent/30 percent, and we expect the strong momentum to continue with 23 percent/27 percent/30 percent CAGR over FY23-26. Our growth expectation for DOMS is the highest amongst our consumer coverage. Having said that, the company was recently listed and has a limited track record as a listed company. We value DOMS at a slight premium to the FMCG companies at 52x FY26 P/E, which is in-line with its current one-year forward P/E and at 2x its PEG ratio," BNP said in its latest note.
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