Why Ambit prefers Flair Writing over DOMS Industries; check rating, targets & more

Brokerage firm Ambit has shared its views on stationary stocks including DOMS Industries and Flair Writing Industries. However, while it has a 'sell' rating on the former one, suggesting a 25 per cent downside, but it is positive on the latter one, indicating a 56 per cent upside potential in the counter.
 

The Indian stationery market, valued at approximately Rs 35,000 crore, remains a dynamic sector with writing and creative instruments occupying a niche total addressable market (TAM) of around Rs 10,000 crore. Despite high entry barriers, the sector offers significant opportunities for branded players to gain market share through premiumization and shifting consumer perceptions towards style and utility. These dynamics present a platform for growth, although players face lower pricing power compared to other FMCG sectors, said Ambit.

Ambit's recent report highlights DOMS and Flair as leaders in the writing instruments category, with a revenue compound annual growth rate (CAGR) of 23% and 14% respectively from FY15-24. DOMS has established dominance in the pencil and scholastic segments, while Flair leads in pens. The report assigns a sell rating to DOMS owing to aggressive market expectations, whereas Flair is rated a buy, given its reasonable valuations and growth potential.

Premiumization is identified as a critical growth driver in the industry, with the Indian writing instruments market being highly penetrated. However, it ranks lower in growth potential compared to other FMCG categories. The market's expansion is expected to be propelled by changing perceptions among consumers who increasingly view stationery as a style statement beyond mere utility. Brand innovation, quality products, and robust distribution networks are underscored as key success factors in this evolving landscape.

The non-paper segment of the stationery market, valued at approximately Rs 18,000 crore, offers attractive dynamics with healthy profit margins and returns on capital employed. DOMS and Flair, alongside other branded players, have gained significant market share from unorganised competitors by focusing on high-quality, cost-effective products. The pencil industry, in particular, is largely controlled by DOMS and Hindustan Pencils, which together capture more than 80% of the market.

Valuations for DOMS and Flair differ significantly, with DOMS trading at about 75x its forward one-year P/E ratio, reflecting its near-term growth prospects. Flair, on the other hand, trades at a more reasonable 19x forward P/E, with potential for re-rating as growth revives. Ambit anticipates continued market share gains and expansion into adjacent markets for both companies, highlighting scalability prospects despite current challenges.

Industry leaders are encouraged to maintain consistent innovation, focus on quality, and ensure wide distribution networks to maximise growth opportunities. While Flair is seen as having potential for recovery and re-rating, DOMS faces pressure to meet high market expectations. The report suggests that success in expanding beyond the traditional stationery offerings could unlock further profitability for these companies, the brokerage noted.

Ambit has a 'Sell' rating on DOMS with a target price of Rs 2,250, while it has a 'buy' rating with a target price of Rs 400 on the stock. Shares of DOMS Industries were trading around Rs 3,000 on Wednesday, while Flair Writing was around Rs 260.