CMP - Rs306 | TP - Rs400 | Maintain BUY | Upside 31%
We had initiated coverage on Flair in March with a Buy rating and a TP of Rs. 400. Flair reported 4QFY24 results in-line with our revenue estimates but beats the EBITDA margins on back of ASP increase and cost rationalisation. We continue to like Flair for its strong product portfolio, pan-India distribution network and 100% in-house manufacturing (in pens). Post IPO listing, Flair is available at discount and is a value pick with PEG ratio of ~1 and stable margins. Earnings are expected to grow at 24% CAGR over FY24-26E given its strong focus on premium and mid-premium products, exports and diversification into steel bottles. We continue to remain positive on the stock and value the company at 23x FY26E EPS maintaining our target price of Rs400 recommending a BUY rating.
FY24 Results: FY24 revenue grew by 3.8% yoy to Rs9.8bn amid weakness in exports (on back of internal restructuring at one of its OEM) with EBITDA margins maintained at 19.5%, with ASP increase of Rs5.63 FY24 vs Rs5.39 FY23. Domestic/Export own brand sales were up 12%/8% to Rs7.3bn and Rs1.05bn, respectively. OEM sales were down 27% to Rs1.38bn but export OEM recovered in 4QFY24 up 4% yoy.
Strategically focusing on premium products, expanding exports and creatives: Company continues to focus on premium products to increase margins. In exports, it aims to expand in high margin markets like Middle-east, Africa, Central and South America. Flair has launched creatives in FY21 and generated ~Rs1.5bn in FY24 (up 28% yoy). It continues to focus on creatives and has tied-up with Disney in 4QFY24. It expects creatives to grow at 28-30% in future on back of new product launches and more penetration in market.
Diversified product portfolio and strong distribution network: Flair has 770 range of products across various price points, mass, mid-premium and premium stationery products. It has pan-India presence with strong distribution network comprising of ~8,080 dealers and ~330,000 wholesalers/retailers; one of the highest amongst the organized players. Pen industry is projected to grow at a CAGR of 7.5-8.5% over FY23-28E and Flair having 18% market share domestically is expected to grow at a CAGR 11-12% over FY24-27 on back of strong product pipeline & distribution network.
Capacity expansion and diversification to aid growth: Company plans to spend ~Rs950mn in FY25 for tips manufacturing, greenfield in Valsad and brownfield expansion at Valsad, Dehradun & Daman facilities for pens and creatives. The diversification in steel bottle contributed Rs180mn in revenue in FY24. Growth will further accelerate with start of 2 more lines in FY25 at its existing facility in Valsad.
Future Outlook: Company has provided guidance for FY24-FY27 with revenue growth of 15-16% with pens/creative expected to grow 11-12%/28-30%, respectively; Steel bottle and houseware is expect to be ~Rs1-1.2bn by FY27 and overall margin of 19-20%.
Valuation: We continue to like Flair for its strong product portfolio, pan-India distribution network and 100% in-house manufacturing (in pens). Company has razor-sharp focus on premium products, exports & is diversifying into steel bottles. Post IPO listing, Flair is available at discount and is a value pick with PEG ratio of ~1 and stable margins. Its earnings are expected to grow at a CAGR of 24% over FY24-26E. On assigning 23x PE for FY26E EPS, we maintain our target price of Rs400 recommending a BUY rating.
Shares of Flair Writing Industries Limited was last trading in BSE at Rs. 284.90 as compared to the previous close of Rs. 291.60. The total number of shares traded during the day was 4338 in over 407 trades.
The stock hit an intraday high of Rs. 292.95 and intraday low of 284.05. The net turnover during the day was Rs. 1246067.00.
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