Flair Writing Industries: Value investing

Flair Writing Industries Ltd is tapping the capital markets with its fresh issue of Rs292 crore and an offer for sale of 301 crore in a price band of Rs288-304. The issue opened on Wednesday (November 22) and would close on Friday (November 24). This is one of the four issues which are opening and closing on the same days.

The company completed allocation to anchor investors on Tuesday when 58,51,972 equity shares were allotted at Rs304 to 15 institutions comprising 23 entities. Six domestic funds through 14 schemes were allotted 47.34 per cent of the anchor allocation with the highest allocation being made to SBI mutual fund who was allotted 19.23 per cent of the anchor allocation through three schemes.

The company is one of the top three players in the writing instruments industry and the largest player in the pens segment by revenues. Flair recorded revenues of Rs750 cr in this segment in the year ended March 23. The company as part of its diversification has launched houseware products in FY21 and has recorded revenues of Rs121 cr in this segment in FY23.

The company is present in the writing instruments or pens segment in the domestic and export market. Its popular brands include Flair, Hauser and Pierre Cardin. The writing and creative instruments industry at MRP is about Rs13,800 cr industry and is expected to grow between 8-8.5 per cent over the next five years. Covid was a very bad period for the industry and sales slumped. It took the industry and Flair the next two years to recover the de-growth that happened during Covid. Suffice to say that the industry and Flair have not only recovered, but have registered a growth over the best that was achieved prior to Covid. In the first quarter FY24, the company registered revenues of Rs246.7 cr, which indicates a steady growth rate for the company.

Flair has increased the capacity of writing instruments to 2 billion pieces and the capacity utilization is at a high 75 per cent plus. They have continuous innovation, which keeps them abreast and ahead of their competitors. Over time, the use of pens is use and throw and one hardly hears of refills being replaced. In such a scenario, a customer wants change, no matter how small the variation. In this industry the organised players have the lion’s share with about 78-80 per cent of the industry controlled or dominated by them. They have a reasonable export presence with about 20 per cent plus and are continuously increasing the same as well.

The company has entered into the steel bottles business and set up a modern facility recently in the state of Gujarat. While currently the business is small as this is the first year of operation, this segment is expected to do well as people have turned cautious about using plastic bottles for drinking purposes.

Coming to financials, Flair reported revenues of Rs942 cr for the year ended March 2023. The company has EBITDA margins of close to 18 per cent and PAT margins of 9.60 per cent. The company reported an EPS of Rs12.66. Based on this EPS, the PE multiple is 22.75-24.01 for the issue.

Competitors for Flair are Doms Industries, Linc Ltd and Kokuyo Camlin Ltd. These are all in the writing instruments industry. Besides this recently listed Cello World is another competitor. The interesting part about Cello is that their dominant business is the consumer homeware business and the writing instruments business is about 15 per cent of revenues of consolidated revenues of Rs1,750 cr. Here in the case of Flair, it is the opposite where the dominant business is writing instruments. Looking at the success of Cello World and the similarity in business, the issue would do well and offer scope for appreciation in the short to medium term. Without doubt, businesses which do well in the short to medium term do well in the long run as well. This seems like a continuation of the Diwali gift from companies to investors.