Flair Writing Industries Ltd. (FWIL) emerges as a stalwart in India's writing instruments sector, commanding a substantial market share of about 9% as of March 31, 2023. The company's trajectory is marked by a stellar growth rate, outpacing the industry average with a commendable Compound Annual Growth Rate (CAGR) of approximately 14% between FY17 and FY23, a significant leap from the industry's 5.5% CAGR during the same period. This remarkable growth is the fruit of FWIL's strategic emphasis on innovation, brand cultivation, and a discerning approach to market expansion.

Key Drivers of FWIL's Success:

1. Innovation Hub: FWIL has positioned itself as an innovation hub within the industry. Consistent infusion of new ideas and creative solutions underscores its commitment to staying ahead of the curve.

2. Brand Brilliance: The flagship brand "Flair" stands as a testament to FWIL's brand-building prowess. Carrying a legacy of over 45 years, "Flair" has become a household name, synonymous with quality writing instruments in India.

3. Diverse Product Portfolio: FWIL's extensive product portfolio caters to a broad spectrum of consumers, ranging from students and professionals to offices and institutions. This diversity ensures a comprehensive market reach.

Pen Sales Performance:

In the fiscal year 2022-23, FWIL achieved remarkable pen sales, reaching a staggering 1,303.6 million units. A well-balanced distribution saw 74.82% of these sales within the domestic market, while 25.18% ventured into the global arena through exports. This places FWIL at the forefront, not just domestically but on the international stage as well.

Expansive Distribution Network:

With the largest distributor network in India, FWIL boasts over 7,700 distributors and an extensive retail presence comprising 315,000 retailers. This expansive network ensures that FWIL's products are accessible across the length and breadth of the Indian market.

International Collaborations and OEM Expertise:

FWIL's manufacturing proficiency and widespread distribution make it a trusted partner for several international brands in the writing instruments industry. Beyond marketing products under its own brands like "Hauser," "ZOOX," and "Pierre Cardin," FWIL excels as an Original Equipment Manufacturer (OEM) for writing instruments. This dual role contributed significantly to revenue, with 16.87%, 19.94%, 33.37%, and 38.67% during the three-month period ended June 30, 2023, and the fiscal years 2022-23, 2021-22, and 2020-21, respectively.

Strategic Manufacturing Presence:

Operating 11 manufacturing plants across India, strategically located in Valsad, Naigaon, Daman, and Dehradun, FWIL ensures operational efficiency and swift response to market demands. This strategic footprint enhances the company's agility in meeting consumer needs.

In essence, Flair Writing Industries Ltd. is not merely a participant but a trailblazer in India's writing instruments industry. Its commitment to innovation, brand excellence, global collaborations, and strategic manufacturing solidify its position as a key player poised for continued success in the ever-evolving market landscape.

IPO Obejctive

Offer for Sale (OFS):

• Proposed OFS size: INR 301 crores
• Impact on Promoter Stake: Reducing from 63.3% (pre-issue) to 51.7% (post-issue)
• Impact on Promoter Group Shareholding: Decreasing from 34.1% (pre-issue) to 27.5% (post-issue)

Fresh Issue:

• Fresh Issue Size: INR 292 crores
• Objectives of the Fresh Issue:
  • Setting up a new manufacturing facility for writing instruments in District Valsad, Gujarat (New Valsad Unit) - INR 55.9 crores
  • Funding capital expenditure of the company and its subsidiary, FWEPL - INR 86.75 crores
  • Funding working capital requirements of the company and its subsidiaries, FWEPL and FCIPL - INR 77 crores
  • Repayment/pre-payment, in part or full, of certain borrowings availed by the company and its Subsidiaries, FWEPL and FCIPL - INR 43 crores
  • General corporate purposes

Industry Outlook:

• Indian writing and creative industry growth expectation: CAGR of 7.7% - 8.4% over FY2023-28
• Steel bottle industry growth expectation: 14% - 16% over FY2023-28

Valuation:

• IPO Price: INR 304 (upper band)
• Valuation Metrics: PE ratio of 27x, compared to the industry average of 45x

Recommendation:

• Given the favorable prospects in the Indian writing and creative industry and the expected growth in the steel bottle industry, Flair is positioned for potential benefits.
• At the IPO price of INR 304 (upper band), Flair is valued at a PE of 27x, which is relatively conservative compared to the industry average of 45x.

This recommendation is based on the perceived growth potential, the strategic allocation of funds for expansion, and the conservative valuation metrics relative to industry standards. Investors are advised to conduct their due diligence and assess their risk tolerance before making investment decisions.

Growth Strategies:

1. Diversification of Product Portfolio:

   • The company aims to broaden its product range to drive revenue growth.

2. Focus on Premium Products:

   • By increasing revenue from premium products, the company aims to enhance profit margins.

3. Capital Expenditure for Capacity Expansion:

   • Significant capital expenditure is planned to boost production capacity, supporting increased market demand.

4. Market Position Strengthening:

   • Prioritizing superior product quality to reinforce and improve the company's market position.

5. Innovation through R&D:

   • Continuous investment in research and development to foster innovation and introduce new products.

6. Building Strong Partner Relationships:

   • Establishment and maintenance of strong relationships with distributors and partners to enhance market reach.

Key Risks and Concerns:

1. Dependency on Consumer Preferences:

   • The company's business is reliant on consumer choices, and failure to align with new trends may significantly impact revenue.

2. Regulatory Compliance:

   • Adherence to various statutory and regulatory licenses, permits, and approvals is essential for conducting operations.

3. Raw Material Price Fluctuations:

   • Any significant change in raw material prices could affect operations and profitability.

4. Brand Dependency:

   • The company depends heavily on its top three brands for a substantial portion of its revenue.

These growth strategies and associated risks underline the company's commitment to adaptability, innovation, and quality assurance in a dynamic market environment. Investors should consider these factors in their assessment of the company's future performance and risk mitigation measures.

Investment Rationale:

1. Diversified Product Range:

   • Flair, a leading player in the writing instruments industry, boasts a diversified product portfolio spanning various price points. With offerings ranging from pen products to creative and stationery items, the company provides 727 different products, catering to a wide consumer base.

2. Market Leadership and Growth:

   • Flair holds a significant position as one of the top three players in the writing instruments industry, securing a market share of around 9%. Notably, it has outpaced industry growth, achieving a CAGR of 14% between FY2017-23, compared to the industry's CAGR of 5.5%.

3. Comprehensive Product Portfolio:

   • Offering products at prices ranging from Rs. 5 to Rs. 3,000, Flair strategically targets different consumer segments. Its focus on quality appeals to students, professionals, and offices. The company categorizes its products into Mass Segment, Mid-premium Segment, and Premium Segment, employing competitive pricing and robust marketing strategies.

4. Extensive Distribution Network:

   • With the largest distributor/dealer network in the writing instruments segment in India, Flair's reach is substantial. Approximately 7,700 distributors/dealers and 315,000 wholesalers/retailers contribute to its robust domestic sales network. The company's products are available in 2,424 cities, towns, and villages in India.

5. International Presence and Partnerships:

   • Flair's strong international presence is facilitated by relationships with 54 international distributors across 77 countries. The company has long-standing associations with key international customers, with an average relationship duration of approximately 15 years. The US, UAE, Yemen, Colombia, and Japan are significant contributors to export revenue.

6. Focus on Brand Presence:

   • Employing competitive pricing and aggressive marketing for the Mass Segment and emphasizing brand building and product differentiation for the Mid-premium and Premium Segments, Flair strategically enhances its brand presence across different market segments.

7. Stable Customer Relationships:

   • The company has maintained stable relationships with its top five customers, spanning the US, UAE, Yemen, Japan, and Colombia. These relationships, averaging approximately 15 years, signify reliability and trust in Flair's products.

In conclusion, Flair's strategic positioning, diversified product offerings, extensive distribution networks, and international partnerships position it as an attractive investment opportunity in the dynamic writing instruments industry.

Management Review

• Khubilal Jugraj Rathod:

  • Position: Promoter, Chairman, Whole-time Director
  • Experience: Over 48 years in the writing instruments industry.

• Vimalchand Jugraj Rathod:

  • Position: Promoter, Managing Director
  • Experience: Over 40 years in the writing instruments industry.

• Rajesh Khubilal Rathod:

  • Position: Promoter, Whole-time Director
  • Experience: Over 33 years in the writing instruments industry.

• Mohit Khubilal Rathod:

  • Position: Promoter, Whole-time Director
  • Experience: Over 23 years in the writing instruments industry.

• Sumit Rathod:

  • Position: Promoter, Whole-time Director
  • Experience: Over 15 years in the writing instruments industry.

• Punit Saxena:

  • Position: Independent Director
  • Experience: A superannuated professional with previous associations including UTI Infrastructure, Technology and Services Ltd, Unit Trust of India, Jaipur Development Authority, and others.

• Rajneesh Bhandari:

  • Position: Independent Director
  • Experience: Re-appointed on the Board from May 4, 2022. Originally appointed from August 9, 2018, to June 17, 2020.

• Bishan Singh Rawat:

  • Position: Independent Director
  • Experience: Re-appointed for 5 consecutive years from August 9, 2023. Initially appointed for 5 years from August 9, 2018.

• Manoj Vinod Lalwani:

  • Position: Independent Director
  • Experience: Associated with Nakoda Sales Corporation, Stylex International FZC. Currently a partner at J.K. Lalwani & Brothers.

• Sheetal Bhanot Shetty:

  • Position: Independent Director
  • Experience: Previously associated with ESAB India Ltd, The Indian Hotels Co Ltd, Intrex India Ltd, IMS Health Information and Consulting Services India Pvt Ltd, Edelweiss Rural & Corporate Services Ltd.

• Mayur Dhansukhlal Gala:

  • Position: Chief Financial Officer
  • Association: Associated with the company since June 1, 2017. Appointed as CFO on August 9, 2018.

• Vishal Kishor Chanda:

  • Position: Company Secretary, Compliance Officer
  • Appointment: Originally appointed as Company Secretary from August 9, 2018, to August 12, 2020. Re-appointed as Company Secretary on July 25, 2022, and appointed as Compliance Officer on June 9, 2023.

Sales and Distribution Network Overview:

1. Nationwide Presence:

• Products are distributed through an extensive nationwide network including super-stockists, distributors, direct dealers, wholesalers, and retailers.
• Diverse network enables a better understanding of consumer preferences and facilitates market feedback.

2. Super-Stockists:

• As of June 30, 2023, the company had 131 super-stockists in India, including an in-house super-stockist for the Mumbai region operated by the Flair Sporty division.
• Supported by 889 sales and marketing employees.

3. Long-term Relationships:

• Average relationship with the Top-5 super-stockists, in terms of contribution to revenue, is approximately 25 years.

4. Retail Distribution Presence:

• Retail distributor presence in 2,424 cities, towns, and villages across India as of June 30, 2023.

5. Diversification Channels:

• Beyond traditional channels, products are also sold through modern retail outlets and e-commerce platforms.

6. International Reach:

• As of June 30, 2023, the company has 54 international distributors catering to specific regions or countries.
• Products sold in 77 countries globally.

7. Marketing Initiatives:

• Marketing and brand-building initiatives serve a dual purpose of reaching end consumers and strengthening relationships with distribution partners.

8. Market Feedback:

• The diversified network not only facilitates sales but also provides valuable market feedback, aiding in strategic decision-making.

9. E-commerce Presence:

• The company embraces modern distribution channels, including e-commerce platforms, aligning with evolving consumer preferences.

10. Global Market Expansion:

• International distributors and a presence in 77 countries signify a robust global market strategy and expansion.

11. Consumer and Distribution Partner Focus:

• Marketing strategies are designed to resonate with both end consumers and distribution partners, fostering a holistic approach to brand building and market penetration.

Key Business Strategies:

1. Product Portfolio Growth and Diversification:

   • Focus on expanding the existing product portfolio, emphasizing "ZOOX" pens, "Flair Creatives," houseware products, and steel bottles.
   • Leverage established brands ("Flair," "Hauser," and "Pierre Cardin") to create a diverse customer base.
   • Diversify into art materials and stationery products to access a wider consumer demographic, including students.

2. Mid-premium and Premium Segment Emphasis:

   • Concentrate on increasing sales of Mid-premium and Premium Segment products (₹20 to ₹100 for "Flair," "Hauser," and "ZOOX" and ₹100 onwards for "Pierre Cardin").
   • Higher-margin products enhance shelf visibility, brand positioning, and corporate gifting business.
   • Initiatives include dedicated sales teams, marketing efforts, and technological upgrades like laser engraving and multi-color printing machines.

3. Capacity Expansion and Utilization:

   • Focus on increasing production capacity and enhancing utilization rates.
   • Develop innovative technology, automation, and innovative design across all segments.
   • Invest in automatic and semi-automatic assembly and packing machines, upgrading existing machinery, and purchasing new machinery.

4. Geographical Presence and Export Expansion:

   • Leverage award-winning export status to deepen presence in existing international markets and enter new ones.
   • Build on long-term relationships with key customers in the U.S., UAE, Yemen, Japan, and Colombia.
   • Explore markets in Africa, Central America, and South America for higher-margin opportunities.
   • Increase sales of "Pierre Cardin" and "ZOOX" brands in Middle East markets.

5. Sales and Distribution Network Strengthening:

   • Expand the Indian sales and distribution network by collaborating with more super-stockists and distributors.
   • Cultivate existing relationships and create new distribution channels to reach underserved areas, with a focus on Eastern and Western zones.
   • Enhance interaction through sales and marketing employees and information technology platforms.

6. Brand Strengthening:

   • Allocate significant resources to establish and reinforce flagship brand "Flair" and principal brand "Hauser."
   • Increase visibility for "Flair Creative," "Pierre Cardin," and "ZOOX" brands globally and in India.
   • Enhance brand awareness and customer loyalty through mass media activities, celebrity endorsements, advertisements, and social media outreach.
   • Implement direct outreach activities using billboards, posters, danglers, streamers, catalogues, and pamphlets.
   • Launch advertisement campaigns with celebrity endorsements for "Flair" and "Hauser" brands.

Competition Analysis:

Market Overview: The company operates in the highly competitive Indian writing instruments industry, with a specific focus on the mass-market segment. This segment, catering to products priced up to ₹15, poses challenges for companies attempting to increase prices, especially for items aimed at students.

Key Competitors in Different Business Segments:

1. Writing and Creative Instruments:

   • Key Competitors: BIC Cello, Camlin, DOMS, Hindustan Pencils, Linc, Luxor, and Reynolds.
   • Analysis: The writing and creative instruments segment is intensely competitive, with various established players offering a diverse range of products. The challenge lies in product differentiation and meeting the specific needs of consumers.

2. Homeware Industry:

   • Key Competitors: Borosil Ltd, Cello Household Products Pvt Ltd, Hamilton Housewares Pvt Ltd, and Placero International Pvt Ltd.
   • Analysis: Beyond writing instruments, the company competes in the homeware industry. This requires a strategic approach to diversification and a comprehensive understanding of consumer preferences in this category.

3. International Competitors:

   • Key Competitor: Pentel Stationery (India) Pvt Ltd (Group Company and Promoter Group entity).
   • Analysis: The presence of an international competitor adds another layer of complexity, necessitating an understanding of global market dynamics and trends.

Former Competitors: Certain entities that were once active in manufacturing writing instruments, including Flair Pens Ltd, Stypen Manufacturing Co (India) Pvt Ltd, M/s. Flair Writing Aids, M/s. Flair Pen and Plastic Industries, M/s. Rathod N Rathod, M/s. Royal Pen and Plastic Industries, have ceased their operations. They have formally committed not to compete with the company.

Competitive Landscape Analysis:

• Pricing Challenges: The mass-market segment's pricing limitations necessitate a focus on cost-efficiency, innovation, and effective marketing to maintain competitiveness.
• Diverse Competitor Portfolio: The presence of diverse competitors across different business segments requires strategic differentiation and adaptability to changing market demands.
• International Dimension: The inclusion of international competitors adds a global perspective to the competitive landscape, requiring the company to stay informed about international trends.
  
  

Financial Analysis - overall financials look great considering post the rise in the business seeing margin expansion and sales growth on back of new product launches




The balance sheet is stable with a decent debt-to-equity ratio and considerable shareholder funds




Promoters' stake reduced due to OFS and IPO

Conclusion: Operating in a highly competitive industry, the company must continually innovate, understand consumer trends, and implement effective marketing strategies to maintain and grow its market share, particularly in the challenging mass-market segment.