Buy DOMS Industries Ltd For Target Rs. 2,883 by Prabhudas Liladhar Capital Ltd
Near term margin headwinds on the cards
DOMS IN reported an in-line performance with revenues of Rs6,040mn (PLe Rs5,951mn) and EBITDA margin of 16.7% (PLe 16.3%) aided by healthy performance in the stationary division. Led by new launches in categories like pencils, pens, erasers, and bags, the stationary division reported a 19.0% YoY growth in top line with EBITDA margin of 18.5%. Aided by capacity expansion in core stationery business (production at Umbergaon is expected to commence from 2QFY27E) and widening product basket (SKU count is up by ~400 in last 1 year) we expect sales/PAT CAGR of 20%/23% over FY26-FY28E. However, given increasing volatility in RM prices, we expect EBITDA margins to dip 50bps YoY to 16.8% in FY27E. Nonetheless, calibrated price revision and stabilization in RM prices should result in a recovery in EBITDA margin to 17.7% in FY28E. DOMS IN trades at 53x/39x our FY27E/FY28E EPS. We broadly retain our estimates and maintain BUY with a TP of Rs2,883 (50x FY28E EPS; no change in target multiple).
Revenue increased 18.7% YoY:
Top line increased 18.7% YoY to INR6,040mn (PLe INR5,951mn) as against INR5,087mn in 4QFY25. In 4QFY26, hygiene revenue increased 16.4% YoY to INR559mn (PLe INR531mn), contributing 9.3% to the topline, with an EBITDA margin of 6.3%. Stationery revenue was up 19.0% YoY to INR5,482mn (PLe INR5,419mn), contributing 90.7% to the topline, with an EBITDA margin of 18.5%.
EBITDA/PAT up 14.4%/17.1% YoY:
EBITDA increased 14.4% YoY to INR1,009mn (PLe INR968mn) with a margin of 16.7% (PLe 16.3%) as against 17.3% in 4QFY25. PAT after MI increased by 17.1% YoY to INR567mn (PLe INR525mn) with a margin of 9.4% (PLe 8.8%) as compared to a margin of 9.5% in 4QFY25.
Con-call highlights:
1) Capex for FY27E is pegged at INR2,500-2,750mn.
2) Against an RM cost inflation of ~15- 20%, DOMS IN has taken a price hike of ~4-5% by rationalizing channel margins and reducing schemes & discounts.
3) Margins in 1QFY27E are likely to be under pressure due to RM inflation.
4) ~40%/~30% of RM cost has direct/indirect crude linkage.
5) EBITDA margins in the hygiene business declined due to higher selling & distribution expenses in the e-comm channel.
6) Topline in the hygiene business is expected to register a growth of 20% in FY27E, while EBITDA margins are expected to improve to ~10% over long-term.
7) The current production capacity is spread across ~2mn sq. ft. of built-up area. Upon completion of the expansion on entire 45-acre land parcel, an additional ~2mn sq. ft. of area will get added.
8) DOMS IN’s current retail touchpoints are at ~145,000. However, addressable target market stands at ~225,000, indicating significant growth potential.
9) Total capex for 45-acre expansion project is estimated at ~INR8,5bn-10bn.
10) SKIDO’s quarterly revenue grew ~60% YoY to ~INR45mn.
11) Out of INR3,770mn worth of inventory on the BS, ~INR1,400mn pertains RM & packing material, ~INR550mn pertains to WIP and balance pertains to FG.
12) Additional 13-acres of land parcel has been acquired for future expansion.
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SEBI Registration No. INH000000271Accumulate Paradeep Phosphates Ltd For Target Rs.141 by Prabhudas Liladhar Capital Ltd
