Incorporated in 2016, Flair Writing Industries (Flair) is among the top three players in the overall writing instruments industry and occupy a market share of approximately 9% in the overall writing and creative instruments industry in India, as of March 31, 2023. The business of the company was originally carried on as a partnership firm under the name of M/s Flair Writing Instruments pursuant to a deed of partnership dated January 6, 1986. Khubilal Jugraj Rathod, Vimalchand Jugraj Rathod, Rajesh Khubilal Rathod, Mohit Khubilal Rathod and Sumit Rathod are the promoters of the company.

The company manufacture and distribute writing instruments including pens, stationery products and calculators. It has an extensive range of products across various price points and cater to a broad range of consumers, including students, professionals and offices. The company flagship brand Flair has enjoyed a market presence of over 45 years. It has also diversified into manufacturing houseware products and steel bottles.

The companys flagship brand Flair was established in 1976 for the manufacturing of fountain pens, ball pens and refills by M/s. Wimco Pen Co, a partnership firm which included Khubilal Rathod, one of the Promoters as partner, for manufacturing metal pens. Upon separation of businesses among the partners of M/s. Wimco Pen Co, the Flair brand was subsequently transferred in 1986 to a partnership firm established by certain Promoters, M/s. Flair Writing Instruments, which later got converted into the present Company in 2016.

The company product range includes a variety of pens (ball pens, fountain pens, gel pens, roller pens and metal pens), which is 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 launched a range of Flair Creative products in financial Year 2021 which include water colours, crayons, sketch pens, erasers, wooden pencils and geometry boxes, fine liners, sharpeners and scales. It offered 727 different products as of June 30, 2023. The company sold 344.32 million units of pens in Q1FY24, of which 279.21 million units or 81.09% was sold domestically, and 65.11 million units or 18.91% was exported globally, and it sold 1,303.60 million units of pens in FY2023, of which 975.30 million units or 74.82% was sold domestically, and 328.30 million units or 25.18% was exported globally.

In India, the company products reach consumers through a diverse nationwide sales and distribution network, consisting of super-stockists, distributors, direct dealers, wholesalers and retailers. The company has the largest distributor/dealer network and wholesale/retailer network, in the writing instruments segment in India, comprising approximately 7,700 distributors/dealers and approximately 315,000 wholesalers/retailers, as of March 31, 2023. In addition to the companys distributor/dealer network, it has 131 super-stockists in India as of June 30, 2023, which were supported by 889 sales and marketing employees. The company has a retail distributor presence in 2,424 cities, towns and villages in India, as of June 30, 2023. Besides traditional distribution channels, its products are also sold through modern retail outlets, as well as e-commerce platforms. As of June 30, 2023, it has 54 international distributors catering to a specific region or country.

Flair manufactures and distributes several brands in India and partner with various international brands in the writing instruments industry. The companys products are sold under the Flair brand, their principal brands Hauser and Pierre Cardin and they have recently introduced ZOOX in India. Flair and Hauser brands offer mass-market and premium pen and stationery products. ZOOX focusses on mid-premium and premium writing instruments, and Pierre Cardin brand offers premium pen and stationery products. It also contract manufacture writing instruments as an OEM for export and for sale in India, which contributed 16.87%, 19.94%, 33.37% and 38.67% to its revenue from operations in Q3FY2024 and the financial Years 2023, 2022 and 2021, respectively. It also provide customized corporate gifting products to its corporate customers.

The company manufacture pens and other products from 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. Total production capacity increased from 1855.32 million pieces at the end of FY2022 to 2023.68 million pieces at the end of FY2023. Capacity utilisation was 72.82% in FY2023.

The company facilities include 11 manufacturing plants in India, including 3 plants in Valsad, Gujarat, 1 plant in Naigaon, Maharashtra, 5 plants in Daman, Union Territory of Dadra and Nagar Haveli and Daman and Diu and 2 plants in Dehradun, Uttarakhand.

The company has recently 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. It intend 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. It has recently commenced manufacturing steel bottles through one of its subsidiaries, FCIPL, in March 2023. It has received a letter of intent from one of its key OEM customers with whom the company has a relationship of more than 15 years. One manufacturing line has been commissioned in the month of March 2023, and it intend on commissioning two more manufacturing lines during the Q2 of FY2024 at its manufacturing plant in Valsad, Gujarat.

The raw material used by Flair primarily includes plastic powder, metal parts, metal coils, silicon, ink, tips, followers, packaging material, wax material and foil. It also use capital goods such as moulds, tip machines, assembly machines, packing machines, refill machines and moulding machines, which are procured within India and also imported by them from countries such as Germany, South Korea, China, Spain and Switzerland. It source raw material on a purchase order basis from India or abroad, and do not enter into contractual arrangements with its suppliers. The company has had long-term relationships of 15 years or more with several of its key suppliers.

As of March 31, 2023, Flair 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.

The Offer and the Objects

The offer comprises of fresh issue of up to 9605263 equity shares at the upper price band of Rs 304 and 10138889 equity shares at the lower price band of Rs 288 aggregating Rs 292 crore and an offer for sale of up to 9901316 equity shares at the upper price band of Rs 304 and 10451389 equity shares at lower price band of Rs 288 aggregating Rs 301 crore.

The company proposes to utilize the net proceeds from the fresh issue towards setting up a new manufacturing facility for writing instruments in District Valsad, Gujarat amounting Rs 55.99 crore, funding capital expenditure of company and its Subsidiary, FWEPL amounting Rs 86.75 crore, funding working capital requirements of the company and its Subsidiaries, FWEPL and FCIPL amounting Rs 77 crore, repayment/pre-payment, in part or full, of certain borrowings availed by the company and its Subsidiaries, FWEPL and FCIPL amounting Rs 43 crore and the balance towards general corporate purposes. Total estimated cost for setting up the New Valsad Unit is around Rs 62.87 crore. The new Valsad unit is being set up by the company with an objective of leasing the new Valsad unit to its subsidiary, FWEPL on commercially acceptable terms for manufacture of a wide range of writing instruments. The company expect to complete the Valsad unit by July 2025.

Promoter group selling shareholder Khubilal Jugraj Rathod post-issue shareholding shall decrease to 16.% from 19.5% pre issue shareholding, Vimalchand Jugraj Rathod post-issue shareholding shall decrease to 12.1% from 14.6% pre issue shareholding, Rajesh Khubilal Rathod post-issue shareholding shall decrease to 7.9% from 9.7% pre issue shareholding, Mohit Khubilal Rathod post-issue shareholding shall decrease to 7.9% from 9.7% pre issue shareholding, Sumit Rathod post-issue shareholding shall decrease to 7.9% from 9.7% pre issue shareholding, Nirmala Khubilal Rathod post-issue shareholding shall decrease to 7.9% from 9.5% pre issue shareholding, Manjula Vimalchand Rathod post-issue shareholding shall decrease to 7.9% from 9.7% pre issue shareholding, Sangita Rajesh Rathod post-issue shareholding shall decrease to 3.9% from 4.9% pre issue shareholding, Shalini Mohit Rathod post-issue shareholding shall decrease to 3.9% from 4.9% pre issue shareholding and Sonal Sumit Rathod post-issue shareholding shall decrease to 3.9% from 4.9% pre issue shareholding.

Strengths

Flair has the most comprehensive product portfolio in the writing and creative instruments industry in India. They have 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 their 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 Flair offered 727 different products as of June 30, 2023.

Flair had the largest distributor/dealer network and wholesale/retailer network, in the writing instruments segment in India, comprising approximately 7,700 distributors/dealers and approximately 315,000 wholesalers/retailers, as of March 31, 2023.

Flair has established long-term relationships with international companies for which they manufacture and distribute or a contract manufacturer. Their relationship with their 5 largest customers (in terms of their contribution to the total revenue from operations, located in U.S., United Arab Emirates, Yemen, Japan, and Colombia averaged approximately 15 years.

Currently, the company has registered 151 trademarks in India. Further, they have filed 12 applications in India for registration. They have also registered certain trademarks in countries/territories such as the United States, the European Union, the United Kingdom, China, and Australia. Their applications in relation to certain trademarks including BEAST and FLAIRFUN are currently pending in India. Additionally, they have also registered 56 designs in India under the Designs Act, 2000. Further, they have filed an application for registration of 1 design, which is currently pending.

The reputation of its flagship Flair brand, which commenced as a brand for metal pens, and its acceptance by consumers and its distribution network, has permitted it to expand to premium products under its various brands and further foray into creative range of products including water colours, crayons, sketch pens, erasers, wooden pencils and geometry boxes.

Over the years, premiumisation in writing and creative instruments industry has emerged as a growth driver. The shift towards premium products (which includes both the mid-premium and premium category) is driven by the need for better quality, longevity, and improved experience.

Indian writing and creative instruments industry is expected to grow at 7.7 – 8.4% CAGR over financial Years 2023 – 28. Rising focus on education, coupled with the rising trend of parallel education in recent years, characterised by the emergence of coaching classes, training programmes, etc. is expected to provide impetus to the industry. Apart from this, demand from the office-going population is also expected to contribute to the growth of the industry going forward.

The steel bottle industry in India is projected to grow at a CAGR of 14-16% between financial Year 2023 and 2028.

Weaknesses

The Indian writing and creative instruments industry has many small, unorganized players. Competition from unorganized and organized players in the Indian writing and creative instruments industry could have a material adverse effect on business, prospects, operations or financial results.

The writing instruments industry is highly concentrated in the mass-market sub-segment and an inability to increase prices of its products or any failure to achieve high retail penetration may cause it to lose market share, which could have a material adverse effect on business, operations, prospects or financial results.

The company is required to obtain and maintain certain statutory and regulatory permits and approvals under central, state and local government rules in India, generally for carrying out its business and for manufacturing plants. If it fails to obtain, maintain or renew the statutory and regulatory licenses, permits and approvals required for business and operations, its business, operations, prospects or financial results may be materially and adversely affected.

An increase in the cost of or a shortfall in the availability of raw materials from suppliers due to various reasons could have a material adverse effect on business, operations, prospects or financial results as it may not be able to pass on such costs to its customers.

The demand of writing and creative instruments in foreign countries is subject to international market conditions that could adversely affect its business, financial condition and results of operations.

Non-compliance with and changes in, safety, environmental and labour laws and other applicable regulations, may materially and adversely affect its business, operations, prospects or financial results.

A significant portion of the raw materials are derived from crude oil. So, an increase in crude oil prices can result in higher production costs for the company.

Rapid digitization is a risk to the industry as the consumption of pens/ink would reduce.

Valuation

For FY2023, consolidated sales were up by 63% to Rs 942.66 crore. OPM rose 260 bps to 19.5% which led to 88% increase in operating profit to Rs 183.51 crore. Other income increased 14% to Rs 11.63 crore while interest cost fell 10% to Rs 9 crore and depreciation increased 12% to Rs 27.34 crore. PBT increased 116% to Rs 158.8 crore. Tax expenses were 122% higher at Rs 40.7 crore. Net profit increased 114% to Rs 118.21 crore.

FY2023 EPS on post-issue equity works out to Rs 11.2. At the upper price band of Rs 304, P/E works out to be 27.1

As of 20 November 2023, its listed peers such as Linc trades at TTM P/E of 25.4, Kokuyo Camlin trades at TTM P/E of 36.3 and Cello World trades at TTM P/E of 59.

For FY2023, Flair Writing Industries Ebitda margin and ROE stood at 19.5% and 31.2% respectively, compared to 12.6% and 23.4% for Linc, 7% and 9.7% for Kokuyo Camlin and 24.3% and 23.2% for Cello World.