DOMS Industries shares climb 11% to hit all-time high; JM Financial retains ‘buy’ rating

Shares of the country’s leading stationery player DOMS Industries surged nearly 11 per cent in Tuesday’s trade (June 18) to day’s high price of Rs 2,130.2, which is also the stock’s all-time high price. 

Domestic brokerage JM Financial in its report dated June 15 has retained its ‘buy’ rating on the counter post its recent visit to the company’s manufacturing facility in Umbergaon, Gujarat. The brokerage has pegged the 12-month target price at Rs 2,000. Here below are detailed the key plant visit takeaways:

DOMS’ expanding capacity and capabilities:  The Umbergaon facility spans across 37 acres, making it one of India’s largest stationery manufacturing facilities. The facility is equipped with modern production processes and is backward integrated with operational processes such as procurement of raw materials, moulding, assembling, and integration of subassemblies into finished products. Thus enabling the company to gain competitive advantage by improving productivity and reducing costs. 

Focused on innovation-led growth: The company is looking at innovation-led growth which will allow better market servicing, drive growth and sustain profitability. Further, with new capacities getting added and supply constraints getting eased, DOMS will be able expand distribution (currently reaches c.125-130k outlets vs universe of c.300k). While input costs have been benign to stable which led to strong EBITDA margins (c.19% in 2HFY24), on conservative basis management expects margins to be in the range of 16-17%. Innovation remains the DNA of the company. 

A combination of strong innovation and enhanced manufacturing capabilities will enable DOMS to gain shelf space among retailers, add newer touch points and drive overall growth, added the report.

The company would be content with topline growth ‘higher-than-industry’, as per the promoter Santosh Rasiklal Raveshia, highlighted the report. The promoter hinted that the company may explore other avenues in future (indicative from entry into toys & bags segment), but would be confined to the ‘Kids’ category. 

Further, JM Financial expects the stock to trade at a premium multiple given the superior growth trajectory & healthy return ratios. It remains optimistic on the company’s ability to gain market share by focusing on innovations and leveraging end-to-end manufacturing capabilities. Any sharp correction should be used as an opportunity to add, it added.