Buy Flair Writing Industries Ltd For Target Rs.409 by Prabhudas Liladhar Capital Ltd
Good margin show in an inflationary environment
In an inflationary environment, FLAIR IN reported steady margin performance with GM at 49.7% (PLe 47.8%) and EBITDA margin at 16.7% (PLe 15.0%). However, top-line growth of 10.6% was a bit modest as export revenue remained flat amid West Asia conflict. Led by operationalization of Valsad plant in 2HFY27E, healthy traction in pens portfolio (growth at a 6-quarter high); and capacity expansion in the steel bottle segment(4th line expected to be commissioned in 4QFY27E), we expectrevenue CAGR of 15% over FY26-FY28E. Further, calibrated measures like rationalization of schemes/discounts and selective price hikes is set to cushion margins from inflationary pressure. Thus, we expect EBITDA margin of 16.5%/18.3% in FY27E/FY28E respectively. The stock trades at an attractive valuation of 19x/14x over our FY27E/FY28E EPS estimates (DOMS IN trades at 64x/41x over our FY27E/FY28E EPS estimates) and we believe the recent correction offers a good entry point from a long-term perspective. Maintain BUY with a TP of INR409 (23x FY28E EPS; no change in target multiple).
Revenue increased 10.6% YoY:
Revenue increased 10.6% YoY to INR3,192mn (PLe INR3,197mn). In 1QFY27, revenue from pens segment increased 8.9% YoY to INR2,200mn (PLe INR1,949mn). Revenue from creative segment grew 23.1% YoY to INR800mn (PLe INR1,008mn) while steel bottle & houseware segment reported a healthy growth of 46.2% YoY to INR190mn (PLe INR241mn).
Gross margin at 49.7%:
Gross profit increased 10.0% YoY to INR1,586mn (PLe INR1,528mn), with a GM of 49.7% (PLe 47.8%) as compared to 50.0% in 1QFY26. Rationalization of discounts, coupled with selective price hikes, helped offset RM inflation.
EBITDA margin at 16.7%:
EBITDA grew 7.7% YoY to INR533mn (PLe INR480mn) with a margin of 16.7% (PLe 15.0%) as against a margin of 17.2% in 1QFY26. Beat at EBITDA level was mainly on account of better GM performance. PAT increased 0.5% YoY to INR291mn (PLe INR272mn) with a margin of 9.1% (PLe 8.5%) against a margin of 10.0% in 1QFY26.
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