Buy DOMS Industries Ltd for the Target Rs. 2,845 by JM Financial Services Ltd
DOMS 1QFY26 earnings print was tad better than our expectations. On the revenue front, the construct was better vs. previous quarter - Core stationery business growth was c.18% (inline & better than 14% seen in 4Q) and incremental growth was led by higher sales from recently acquired Uniclan business. Within core business, while combined gross revenue of Scholastic stationery, Scholastic art material & Kits & combos (together accounted for c.64% of gross sales) grew by 6.4% (recovery vs. marginal decline in 4QFY25), strong momentum in Pens, Paper stationery and Hobby & craft resulted in high teen’s growth for overall stationery business which is a key positive. Uniclan performance was on expected lines aided by additions in capacity & channel partners. Operating performance was tad better - our est. indicate base business margin at c.18.3% and Uniclan margins at c.6.8%. Management on conservative basis is looking at consol. sales growth of 18-20%, EBITDA margin of c.16.5- 17.5% & PAT margin of 10% (Uniclan acquisition led amortisation impact of c. INR 45mn/year) for FY26E. We like DOMS’ execution so far as well as its strategy of increasing TAM and extending to additional categories (like toys, bags, baby care etc.). Going ahead pace of commissioning of new capacities will be key for acceleration in writing instruments. Execution on Paper stationery & Uniclan business (distribution expansion) over medium term will be another key monitorable. We tweak our est. factoring tad higher discounts & lower margins, roll forward to Sep 27E EPS & retain Buy with unchanged TP of INR 2,845.
* Core stationery business sales growth (+18%) recovers vs. moderation seen in 4Q: Consol. revenue grew by 26.4% yoy to INR 5.6bn (inline). LTL sales (in Core stationery business) growth of c.18% yoy is an improvement vs. 14% seen in 4QFY25. On Segmental basis, strong growth was seen in gross sales for Paper stationery (+27%), Kits & combos (+53%), Office supplies (+83%) and Hobby & Craft (2.8x of LY). Scholastic stationery (+1.8%) and Scholastic art Material (flat) sales were muted on account of capacity constraints, higher rebates/discounts and increased preference for Kits & Combos. Recently acquired Uniclan Healthcare business reported sales of INR 360mn (lower vs. 2HFY25 runrate due to seasonality) led by capacity additions and increased penetration due to addition of new channel partners. Exports grew c.19% yoy during the quarter with strong traction for DOMS branded products.
* Margin delivery inline with management guidance: Gross margins were down 96bps yoy/180bps qoq (consolidation of Uniclan and weaker mix in stationery) to 42.1% (lower than our estimate of 43.2%). Staff cost and other expenses grew by c.25% and c.40% resulting into EBITDA growth of 14.3% to INR 987mn (c.3% above est.). EBITDA margin contracted by 185bps yoy to 17.6% (tad better vs. our est. and closer to the upper end of management’s guidance of 16.5-17.5%). On Segmental basis, the core stationery business EBITDA margins stood at c.18% while Uniclan business EBITDA margins are lower at 6.8%. Reported PAT grew 10.5% to INR 573m (6% above our est.) due to higher depreciation (+38% yoy, includes impact of additional amortisation due to Uniclan consolidation) and lower other income (utilisation of funds partly towards capex).
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