Add DOMS Industries Ltd For Target Rs. 2,875 By JM Financial Services
Stationery business stable; margin delivery surprises positively
DOMS 2QFY26 earnings print was better than our expectations both on revenue and profitability. Despite, GST-led transition impact, revenue trajectory/construct was healthy – Core stationery business grew by 17.4% while Uniclan sales were up 3.3x YoY (seasonally strong quarter, base quarter had 14 days of consolidation). Within core business, while combined gross revenue of scholastic stationery, scholastic art material and kits & combos (together account for c.64% of gross sales) grew by c.5% (vs. c.6% in 1Q), strong momentum in pens, paper stationery and hobby & craft resulted in high teen’s growth for overall stationery business. We believe DOMS is well placed to achieve higher end of its consol. sales growth guidance of 18-20% and EBITDA margin of c.16.5-17.5% for FY26E. We like DOMS’ execution so far, as well as its strategy of increasing TAM. Going ahead pace of commissioning of new capacities in writing instruments, sustained execution on paper stationery & Uniclan business will be key monitorables. Maintain ADD with revised TP of INR 2,875 (60x Sep’27E).
* Revenue performance - Stationery business delivery largely inline while hygiene business surprises positively: Consolidated revenue grew by 24.1% YoY to INR 5.7bn (3-4% above our and street est.). We note that the quarter had an impact of transitory disruptions on account of GST rationalisation (we estimate c.2-2.5% impact on growth). Transition-led impact was seen in both stationery as well as hygiene business. Core stationery business grew 17.4% YoY to INR 5.2bn, while recently acquired hygiene business (Uniclan) tripled YoY (base quarter includes consolidation for only 14 days) and reported sales of INR 474mn (tad lower vs. 2HFY25 runrate). Gross sales grew by 27% YoY while net sales growth was lower at 24.1% YoY due to higher rebates/discounts vs. base quarter.
* Segmental performance: Segmentally, strong momentum in gross sales continued for categories like kits & combos (+41% YoY), paper stationery (+27% YoY), office supplies (+84% YoY) and hobby & craft (3.8x of LY). Within core categories, scholastic stationery (-1.2%) and scholastic art Material (+1.3%) sales were muted on account of capacity constraints and increased preference for kits & combos. From distribution perspective, exports grew c.18% YoY with strong traction for DOMS branded products. Within the domestic markets, general trade grew 16.7% YoY, while modern trade (+1.5x) and other channels (+1.2x) are delivering robust growth, albeit on a low base.
* Margin delivery ahead of expectations and at the top end of management guidance: Gross margins improved 39bps YoY/166bps QoQ to 43.8% (better vs. our estimate of 42.5%). This was largely offset by elevated staff cost (+32.6% YoY) and other expenses (32% YoY). Resultant EBITDA growth of 15.8% YoY to INR 995mn was lower vs. revenue growth but still 6-7% above our and street estimates. EBITDA margin contracted 125bps YoY to 17.5% (tad better vs. our est., inline with management guidance). On Segmental basis, the core stationery business EBITDA margins stood at 19.6% (-90bps YoY), while Uniclan business EBITDA margins are lower at 8.1% (+94bps YoY). Reported PAT grew 13.5% to INR 583m (11% above our est.) due to higher depreciation (+37% YoY, includes impact of additional amortisation due to Uniclan consolidation) and lower growth other income (utilisation of funds partly towards capex).
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SEBI Registration Number is INM000010361
