Flair Writing Industries
- Flair Writing Industries is coming out with a 100% book building; initial public offering (IPO) of 2,05,90,270 shares of Rs 5 each in a price band Rs 288-304 per equity share.
- Not more than 50% of the issue will be allocated to Qualified Institutional Buyers (QIBs), including 5% to the mutual funds. Further, not less than 15% of the issue will be available for the non-institutional bidders and the remaining 35% for the retail investors.
- The issue will open for subscription on November 22, 2023and will close on November 24, 2023.
- The shares will be listed on BSE as well as NSE.
- The face value of the share is Rs 5 and is priced 57.60 times of its face value on the lower side and 60.80 times on the higher side.
- Book running lead managers to the issue are Nuvama Wealth Management and Axis Capital.
- Compliance Officer for the issue is Vishal Kishor Chanda.
Profile of the company
Flair Writing Industries is among the top three players in the overall writing instruments industry and occupy a decent market share in the overall writing and creative instruments industry in India. The company is also among the top two organized players which have seen faster growth in revenue as compared to overall writing and creative instrument industry growth rate. The company’s flagship brand “Flair” has enjoyed a market presence of many years. It has an extensive range of products across various price points and cater to a broad range of consumers, including students, professionals and offices. It manufactures and distributes writing instruments including pens, stationery products and calculators. Leveraging on its manufacturing capabilities, and its existing customer base in the writing and creative instruments business, it has also diversified into manufacturing houseware products and steel bottles.
The company manufactures and distributes several brands in India and due to its ability to manufacture quality products and its distribution and retail capabilities, it is able to partner with various international brands in the writing instruments industry. The company’s products are sold under its “Flair” brand, its principal brands “Hauser” and “Pierre Cardin” and it has also introduced “ZOOX” in India. Its brands “Flair” and “Hauser” offer mass-market and premium pen and stationery products, its brand “ZOOX” focusses on mid-premium and premium writing instruments, and its “Pierre Cardin” brand offers premium pen and stationery products. It also contracts manufacture writing instruments as an OEM for export and for sale in India. It also provides customized corporate gifting products to its corporate customers.
The company’s product range includes a variety of pens (ball pens, fountain pens, gel pens, roller pens and metal pens), which is its largest category in terms of number of products offered, stationery products (mechanical pencils, highlighters, correction pens, markers, gel crayons and kids’ stationery kits) and calculators. It has also forayed into manufacturing a wide range of houseware products including casseroles, bottles, storage containers, serving solutions, cleaning solutions and basket and paper bins, through one of its Subsidiaries, FWEPL (Flair Writing Equipments Private Limited). It intends to utilize a portion of the proceeds from the Offer for funding capital expenditure of FWEPL for purchase of machinery and moulds to expand its manufacturing capacity for writing instruments.
Proceed is being used for:
- Setting up a new manufacturing facility for writing instruments in District Valsad, Gujarat (New Valsad Unit)
- Funding capital expenditure of the company and its Subsidiary, FWEPL
- Funding working capital requirements of the company and its Subsidiaries, FWEPL and FCIPL
- Repayment/pre-payment, in part or full, of certain borrowings availed by the company and its Subsidiaries, FWEPL and FCIPL
- General corporate purposes
Industry Overview
The writing and creative instruments segment comprises of writing equipment such as pens, pencils, markers and highlighters; and art and hobby equipment such as crayons, sketch pens, colour pencils, brushes, and accessories such as erasers, sharpeners. Among the writing and creative instruments industry pens account for a major share. The writing and creative instruments industry in India has experienced consistent growth between Financial Years 2018 to 2020, driven by product innovation, design modifications, brand development by leading players, and high demand. The industry has witnessed a shift in its structure, with large organised players gaining market share over unorganised, smaller players. Large, organised players have been able to grow faster than the industry average by diversifying their product portfolios and expanding distribution channels. However, in Financial Year 2021 due to the Covid-19 pandemic there was closure of schools and institutions resulting in a subdued demand for products, leading to a 39% decline in Financial Year 2021. As offices reopened and schools restarted, the industry started witnessing a pick-up in demand in Financial Year 2022, with industry surpassing pre-pandemic levels, in Financial Years 2023. Overall, the industry expanded at a CAGR of 38.3% between Financial Years 2021 and 2023.
Pens are among the most used tools for writing on paper. The Indian pen industry is characterised by offerings across different price points and different value propositions. As of Financial Year 2023, pens occupy a larger share of 44% in the writing and creative instruments industry in value terms. Broadly, the pen segment can be classified into three major sub-segments, based on product price point. Typically, pens priced up to Rs 15 are referred to as mass-market pens, and pens priced between Rs 16 to 100 are referred as midpremium pens while the pens above Rs 100 are classified as high-value pens/ premium pens. Mainly driven by students, the mass-market sub-segment is highly competitive with price denominations also playing a crucial role in saleability. Meanwhile, in the case of mid-premium / premium pens, brand creation and product differentiation are key to success.
Following recovery from pandemic-related stress, the pen segment is projected to clock 7.5 to 8.5% CAGR between Financial Years 2023 and 2028.This growth will be driven by factors such as increasing disposable income leading to preference for premium pens, rising literacy rates, government initiatives to improve education penetration, and a growing young population in India. Furthermore, the shifting preference towards pens as a writing instrument over pencils is also contributing to the growth in the industry. It is also to be noted that the perceived magnitude of the threat posed by digital education has subdued than initially anticipated during the pandemic with prominent online education platforms shifting towards establishing physical coaching centres, indicating unlikely displacement of offline education.
Pros and strengths
Among the top three players in the overall writing instruments industry in India: The company is among the top three players in the overall writing instruments industry with a revenue of Rs 9,155.5 million in Financial Year 2023 and occupy a market share of around 9% in the overall writing and creative instruments industry in India, as of March 31, 2023, according to CRISIL. The company is also among the top two organized players which have seen faster growth in revenue as compared to overall writing and creative instrument industry growth rate, i.e., while the industry grew at a CAGR of 5.5% between Financial Year 2017 and 2023, It grew at a CAGR of around 14% during the same period. During the three-month period ended June 30, 2023, it sold 344.32 million units of pens, of which 279.21 million units or 81.09% was sold domestically, and 65.11 million units or 18.91% was exported globally, and in Financial Year 2023, it sold 1,303.60 million units of pens, of which 975.30 million units or 74.82% was sold domestically, and 328.30 million units or 25.18% was exported globally.
Diversified range of products across various price points: The company has the most comprehensive product portfolio in the writing and creative instruments industry in India, according to CRISIL. It has an extensive product range across various price points and consumer segments, including pen products (ball pens, fountain pens, gel pens, roller pens and metal pens), which is its largest category in terms of number of products offered, creative and stationery products (mechanical pencils, highlighters, correction pens, markers, gel crayons, colouring range, erasers, geometry boxes and kids’ stationery kits), calculators, and it offered 727 different products as of June 30, 2023. It focuses on providing quality products to consumers, including students, professionals and offices. It offers products at prices ranging between Rs 5 and Rs 3,000. Expansion within each price segment is crucial to tap demand at various price points. Its goal is to cater to consumers in its target segments, from writing instruments priced between Rs 5 and Rs 15 (Mass Segment), priced between Rs 16 and Rs 100 (Mid-premium Segment) and priced above Rs 100 (Premium Segment).
Largest Pan-India distributor/dealer network: The company’s multi-tiered nationwide domestic sales and distribution network enables its products to reach a wide range of consumers and help to ensure effective market penetration across geographies. Despite the growing share of modern retail formats, the writing instruments industry in India heavily relies on the traditional manufacturer-distributor-retailer model. Vintage, brand recognition, price position and exclusive selling rights (in some cases) play a crucial role in expanding footprint. Compared with other key organized players in the writing and creative instruments industry such as DOMS, Camlin, Linc and Luxor, the company had the largest distributor/dealer network and wholesale/retailer network, in the writing instruments segment in India, comprising around 7,700 distributors/dealers and around 315,000 wholesalers/retailers, as of March 31, 2023. As of June 30, 2023, it had 131 super-stockists in India (including Flair Sporty), supported by its sales and marketing employees, and a retail presence in 2,424 cities, towns and villages in India.
High quality manufacturing at a large scale: As of June 30, 2023, the company had 11 manufacturing plants located in Valsad, Gujarat; in Naigaon (near Mumbai), Maharashtra; in Daman, Union Territory of Dadra and Nagar Haveli and Daman and Diu; and in Dehradun, Uttarakhand. During this period, its capital expenditure comprising injection moulding machines, ancillary machines, moulds and other capital expenditure was Rs 1,240.86 million. Meanwhile, the company has introduced automatic and semi-automatic assembly and packing machines used for manufacturing and assembly of pens and endeavor to control its manufacturing processes through increasing backward integration through the manufacturing of certain components in-house, which has increased efficiency and quality in a cost-effective manner.
Risks and concerns
Maximum revenue from Flair, Hauser and Pierre Cardin brands: Most of the topline of the company comes from its Flair, Hauser and Pierre Cardin brands. In FY23, revenue from Flair was Rs 471.94 crore (50.06%), Hauser Rs 217.07 crore (23.03%) and Pierre Cardin Rs 55.76 crore (5.92%). In FY22 the revenue was Flair was Rs 251.19 crore (43.51%), Hauser Rs 86.11 crore (14.91%) and Pierre Cardin Rs 37.60 crore (6.51%). The concentration of a majority of its products under the Flair, Hauser and Pierre Cardin brands may also expose it to unforeseen risks if such brands become undesirable to its customers, or if its competitor brands become more desirable to customers. If it is unable to maintain its reputation, enhance brand recognition or increase positive awareness of its products, it may be difficult to maintain and grow its consumer base, and its business operations, financial condition, cash flows and results of operations may be adversely affected.
No supply contracts with any of its raw material suppliers: The company does not enter into supply contracts with any of its raw material suppliers. The absence of long-term contracts at fixed prices exposes it to volatility in the prices of raw materials that it requires and it may be unable to pass these increased costs onto its customers, which may reduce its profit margins. It endeavours to have a cordial relationship with its raw material suppliers, but they are not under an obligation to have an exclusive relationship with the company and they can have a similar relationship with its competitors. The company faces a risk that one or more of its existing suppliers may discontinue their supplies to it, and any inability on its part to procure raw materials from alternate suppliers in a timely fashion, or on commercially acceptable terms, may materially and adversely affect its operations.
Significant dependence on distribution network in India and overseas: For sales and distribution in India, the company has a multi-tiered network comprising super-stockists, distributors, direct dealers, wholesalers and retailers. For exports, it engaged with third-party distributors on a country-wise or regionwise basis. For certain countries, it may appoint a single distributor for an entire region, for instance, its distributor in Panama handles sales of its products in 19 countries in North America. The super-stockists and such overseas distributors are not under an obligation under the terms of its agreements with them to have an exclusive relationship with it and they conduct business with its competitors as well. Any disruption in its distribution network could have a material adverse effect on its business, operations, prospects or financial results.
Competition from unorganized and organized players: The Indian writing and creative instruments industry has many small, unorganised players. These smaller players typically offer low-value products and operate in specific geographies. While the market shares of organized players, in Financial Year 2023 was 78-80%, the market share of unorganized players, during the same period, was 20-22%. In addition, organized players are expected to experience significant faster growth when compared to unorganized players between Financial Year 2023 and 2028. The company’s ability to compete depends on a number of factors beyond its control, including the ability of its competitors to attract, train, motivate and retain highly skilled technical employees, the price at which its competitors offers comparable products and the extent of its competitor’s responsiveness to dealer needs. The company’s inability to adequately address competitive pressures from the organized and unorganized players, may have a material adverse effect on its business, operations, prospects or financial results.
Outlook
Flair Writing Industries is among the top three players in the overall writing instruments industry and occupy a market share of around 9% in the overall writing and creative instruments industry in India, as of March 31, 2023. The company is also among the top two organized players which have seen faster growth in revenue as compared to overall writing and creative instrument industry growth rate, i.e., while the industry grew at a compounded annual growth rate of 5.5% between Financial Year 2017 and 2023, the company grew at a compounded annual growth rate of approximately 14% during the same period. On the concern side, the company derives a significant portion of revenue from the sale of its products under the Flair, Hauser and Pierre Cardin brands, and any harm to such brands or reputation may adversely affect business, financial condition, cash flows and results of operations. Moreover, the company is dependent on its distribution network in India and overseas to sell its products and any disruption in its distribution network could have a material adverse effect on its business, operations, prospects or financial results.
The issue has been offered in a price band of Rs 288-304 per equity share. The aggregate size of the offer is around Rs 593 crore to Rs 626 crore based on lower and upper price band respectively. Minimum application is to be made for 49 shares and in multiples thereon, thereafter. On performance front, the company’s total income increased by 62.39% to Rs 9,542.91 million in the Financial Year 2023 from Rs 5,876.42 million in the Financial Year 2022. This increase in total income was primarily due to increase in its revenue from operations. Moreover, its profit after tax increased by 114.14% to Rs 1,181.00 million in the Financial Year 2023 from Rs 551.51 million in the Financial Year 2022.
The company has a wide range of product offerings and, as a result, it has the ability to scale-up or refine a specific product line in response to market demands and the evolving consumer base. Moreover, the government measures to improve literacy such as the introduction of the National Educational Policy and the increasing spend on education by the government is likely to increase the demand for writing and creative instruments. In addition, the growing share of young population in India and growth in the Indian MSME sector workforce coupled with increasing literacy level, the shift in consumer trends towards premiumization and people returning to offices post COVID-19 pandemic, is expected to increase the writing instruments and stationery market size. Going forward, the company aims to strengthen and expand its existing product portfolio with a focus on ZOOX pens, Flair Creatives, range of houseware products and steel bottles, by leveraging the Flair, Hauser and “Pierre Cardin” brands to create customer base for such businesses.
