BNP Paribas initiates coverage on this newly listed stock with 'outperform' rating; here are the key factors

Global brokerage BNP Paribas is bullish on this recent D-Street debutant which after listing in December 2023 has more than doubled investors' wealth. The brokerage has initiated coverage on the counter with an outperform rating and a target of Rs 1950 per share. This suggests a potential upside of 13 per cent.

The stock here we are talking about is DOMS Industries and currently it is only second to ITC commanding the bigger pie of the Indian stationery market.

"Despite negligible advertisement spends, its products are popular with children. The company’s strength has been innovation and end-to-end manufacturing, due to which it can offer greater value to consumers, while having attractive margins and ROE, added the brokerage.

Further, the brokerage lists the reasons as to why it is bullish on the counter:

1) strong organic revenue growth of 21% during FY18-23, well ahead of stationery and FMCG peers;

2) strong brand awareness amongst children, which can be leveraged to drive sales of new products;

3) minimal spend on advertisements and zero credit to stockists, which indicates strong demand for its products; 

4) local promoters with a strong understanding of the Indian stationery market and a foreign promoter (F.I.L.A.) that has 100+ years multi-country experience in the industry; 

5) strong balance sheet with cash, which the company is looking to deploy in greenfield expansion; 

6) new areas of growth including the Pen category as well as small acquisitions in the toys and school bags space;

7) management’s strong focus on margins and return ratios; and

8) positive feedback from distributor and retailer visits as well as DOMS factory visit.

The brokerage stated that DOMS is an earnings compounding story and while it over FY18-23, delivered revenue/EBITDA/EPS growth of 21/26/30%, it expects it to maintain the strong momentum with 23/27/30% CAGR over FY23-26E. Our growth expectation for DOMS is the highest amongst our consumer coverage, it added. The brokerage values DOMS at a slight premium to the FMCG companies at 52x FY26E P/E, which is in-line with its current 1Y forward P/E and at 2x its PEG ratio.

DOMS is a leading school stationery and art materials company in India. The company designs, develops, manufactures, and sells a wide range of products, primarily under its flagship brand ‘DOMS’, in the domestic as well as international (c45 countries) market. Its products occupy leadership positions in multiple product categories in India. In the branded stationery and art materials market, DOMS has the second-highest market
share after ITC. The company has improved its market from c8% in FY22 to c12% in FY23, on a revenue basis.