Flair Writing IPO opens tomorrow. Should you subscribe to Rs 593-crore issue?

The price band for the Flair Writing IPO, which will close on November 24, has been fixed at Rs 288-304 per share

Flair Writing Industries’ Rs 593-crore initial public offering (IPO) will open for subscription on November 22, with analysts in favour of subscribing to the issue owing to the decent financials, reasonable valuation and strong presence in the writing instruments industry.

The IPO consists of a fresh issue of 96.05 lakh shares worth Rs 292 crore and an offer-for-sale of 99.01 lakh shares worth Rs 301 crore.

The price band for the issue, which will close on November 24, has been fixed at Rs 288-304 a share. The promoters of the company are Khubilal Jugraj Rathod, Vimalchand Jugraj Rathod, Rajesh Khubilal Rathod, Mohit Khubilal Rathod and Sumit Rathod.

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Financials

Flair Writing reported a 114.3 percent jump in net profit at Rs 118.1 crore in FY23, while revenue grew 63.2 percent to Rs 942.66 crore. PAT margin stood at 12.5 percent, price to equity ratio (P/E) at 27.1x, return on equity (RoE) at 14.8 percent and return on capital employed (RoCE) at 30.8 percent.

Key Risks

(i) The company’s revenue and market share are dependent on the writing instruments industry, which may be sensitive to an economic downturn or changes in consumer preferences.

(ii) The company has not placed orders for machinery constituting 100 percent of the value of the total machinery to be purchased from the IPO proceeds. This may affect the timely implementation of expansion plans.

(iii) The company does not have long-term contracts with suppliers and depends on a limited number of supplier for certain raw materials.

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Brokerage calls

Choice: Subscribe

Flair Writing is one of the dominant players in the domestic writing instruments market. Choice expects the pen sales volume growth to moderate, compared to the growth during FY21-23, but will remain higher than the volume growth reported during FY17-23.

New product launches with innovative designs are likely to improve the blended pen's realisations. Moreover, improved penetration of other products like creative stationary items, houseware and steel bottles will further boost the top-line growth.

“At a higher price band, FWIL is demanding a TTM P/E multiple of 27.1x (to its FY23 EPS of Rs 11.2), which is at a discount to the peer average of 50.1x. Thus, we are assigning a ‘SUBSCRIBE’ rating for the issue,” analysts at Choice Equity Broking said.

Anand Rathi: Subscribe

Flair Writing commands a strong position as one of the top 3 players in India’s writing instruments industry, boasting consistent revenue growth, a diversified product range, and a significant international footprint.

“At the upper price band, the company’s market cap comes at Rs 32,040 million post-issue of equity shares and return on net worth (RoNW) at 31.1%. On the valuation front, we believe that the company is fairly priced. Thus, we recommend a ‘Subscribe – Long Term’ rating to the IPO,” said analysts at Anand Rathi.

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StoxBox: Subscribe

On the valuation front, the issue is attractively priced, which becomes compelling under the assumption of sustained profit growth and when factoring in the intrinsic value of the brand and premium valuation of the FMCG space.

“Flair Writing Industries Ltd. emerges as a relatively secure investment opportunity and we advise investors to ‘Subscribe’ to the issue with a medium to long-term horizon,” said Dhruv Mudaraddi, Research Analyst, Stoxbox.

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