IPO Size: Rs. 593 cr 

• Fresh Issue Rs. 292 cr for (i) capex - Rs. 56 cr greenfield and Rs. 87 cr brownfield (ii) working capital Rs. 77 cr (iii) debt repayment Rs. 43 cr, of total Rs. 127 cr debt
• Offer for sale (OFS) Rs. 301 cr by the promoters (97.5% to drop to 79.2%)

Price band: Rs. 288-304 per share

• Rs. 73 cr pre-IPO placement undertaken at Rs. 304 per share on 10th Nov

M cap: Rs. 3,204 cr, implying 18.5% dilution

IPO Date: Wed 22^nd Nov to Fri 24^th Nov 2023, Listing Tue 5^th Dec 2023

Grey Market Premium (GMP): We are strongly against ‘grey market premium’ as it is an unofficial figure, against SEBI guidelines.

Leading Pen Company

Flair enjoys 18% market share in the Rs. 6,000 cr domestic pen market and 9% in the Rs. 13,800 cr writing and creative instruments market in India, which is still 25% unorganized and expected to grow at 8% for the next 5 years. Flair derives 80% of Rs. 943 cr revenue in FY23 from pens, having two owned brands (Flair and Hauser) and one licensed brand (Pierre Cardin). It boasts of the largest domestic network of 7,700 dealers, which is 2x of Doms, 2.6x Linc and 5x Camlin.

2x Growth vis-à-vis Peers

Supported by increased distribution reach of 3.1 lakh retailers, from 1.8 lakh in FY21 and introduction of new products and categories, Flair’s revenue has grown at 78% CAGR between FY21-23, which is double the growth rate of Linc and Kokuyo, which grew at 38-39%. Fast growth can be sustained, as Flair is increasing manufacturing capacity and diversifying portfolio.

1. Undertaking Rs. 143 cr capex, over the next 24 months, which can add incremental revenue of about Rs. 350 cr (on 2.5x fixed asset turn)
2. Entered the Rs. 3,900 cr steel bottle industry, 60% of which is still unorganized, and likely to grow at 15% CAGR over the next 5 years.

Highest Margin among Peers

Integrated manufacturing facilities, coupled with presence in mid-premium (pens between Rs. 16-100 price point) and premium segment (above Rs. 100 per unit) through brands Hauser and Pierre Cardin, leads to superior margin for company vis-à-vis peers such as Linc, Kokuyo Camlin and to-be-listed Doms. Flair’s gross margin is 46%, against 37% for Kokuyo and Doms and 39% for Linc, leading to much superior net margin of 12.5% vis-a-vis Kokuyo’s 3%, Linc’s 7.6%, Doms’ 8.5%. Recently listed Cello’s gross margin is 50% and net 16% but writing instruments account for barely 16% of the revenue mix and is not a comparable peer.

In FY23, Flair’s net profit stood at Rs. 118 cr, leading to an EPS of Rs. 12.7. Q1FY24 revenue and net profit stood at Rs. 247 cr and Rs. 32 cr respectively, translating into first quarter EPS of Rs. 3.4.  

‘Left Money on the Table’

Based on FY24E EPS of about Rs. 14.75, IPO is priced at current year estimated PE of close to 21x which is lower than both the listed peers Linc (28x) and Kokuyo (36x), despite faster growth and stronger margins. Even on an absolute basis, PE multiple of 21 times is seen quite undervalued for a business clocking double digit net margin and 28% RoE. Thus, IPO pricing has left money on the table for prospective investors.