IPO: Flair Writing Industries

IPO Details

Risk report

Company and business

• Are Flair Writing's earnings before tax more than Rs 50 crore in the last 12 months?
  Yes. The company's profit before tax for FY23 was Rs 159 crore.
• Will Flair Writing be able to scale up its business?
  Yes. The company focuses on expanding its existing sales and distribution network in India. Moreover, it has recently forayed into manufacturing a wide range of houseware products and steel bottles to leverage its manufacturing capabilities. It also intends to expand its product portfolio by diversifying its product range, primarily by introducing art materials and stationery products. These factors will help the company to scale up its business.
• Does Flair writing have recognisable brands with client stickiness?
  Yes. The company offers products under well-recognised brands such as 'Flair', 'Hauser' and 'Pierre Cardin'. It also recently introduced the 'ZOOX' brand in India.
• Does the company have a credible moat?
  No. While Flair does have some recognisable brands in its portfolio, it also faces stiff competition from peers, which renders the brand without any meaningful competitive advantage.

Management

• Do any of the company's founders still hold at least a 5 per cent stake? Or do promoters have over a 25 per cent stake in the company?
  Yes. Post-IPO, promoters' stake will increase to 79.2 per cent.
• Do the top three managers have over 15 years of combined leadership at Flair writing?
  Yes. The top three managers have been with the company since inception.
• Is the management trustworthy? Is it transparent in its disclosures, which are consistent with SEBI guidelines?
  Yes. There is no information to suggest otherwise. However, Pentel Stationery (India) Private Limited (PSIPL), a promoter group company engaged in manufacturing and trading writing instruments and stationery, poses a potential conflict of interest as it competes directly with Flair and its subsidiaries. Certain promoters are directors of PSIPL, and the promoters, together with certain members of the promoter group, hold 48.72 per cent of the paid-up equity share capital of PSIPL.
• Is the company's accounting policy stable?
  Yes. There is no information to suggest otherwise.
• Is Flair writing free of promoter pledging of its shares?
  Yes. The company is free of promoter pledging its shares.

Financials

• Did the company generate a current and three-year average return on equity of more than 15 per cent and a return on capital employed of more than 18 per cent?
  Yes. The company's three-year average ROE and ROCE are 16.8 and 16.2 per cent, respectively. In FY23, the company's ROE and ROCE were 31.2 and 31.2 per cent, respectively.
• Was the company's operating cash flow positive during the last three years?
  Yes. The company generated positive cash flows from operations in the last three years.
• Is the company's net debt-to-equity ratio less than one?
  Yes. The company's net debt-to-equity ratio was 0.3 times as of June 2023.
• Is Flair Writing free from reliance on significant working capital for day-to-day affairs?
  No. The company's business affairs are working capital intensive. The company average had inventories as a percentage of total assets at about 30 per cent. As a result, it also suffers from a high cash conversion cycle.
• Can the company operate without external funding in the next three years?
  Yes. The company has been consistently generating positive cash flows.Thus, business is less capital intensive. Moreover, the company has an asset turnover ratio of over one and debt-to-equity of less than one. Since it will be using IPO proceeds for capex, Flair will not need external funding for expansion, either.
• Is Flair Writing free from meaningful contingent liabilities?
  Yes. Contingent liabilities as a percentage of equity stood at around 2 per cent.

Valuations

• Does the stock offer an operating earnings yield of more than 8 per cent on its enterprise value?
  No. The stock will offer an earning yield of 4.7 per cent.
• Is the stock's price-to-earnings less than its peers' median level?
  Yes. The company will trade at a price-to-earnings ratio of 27.1 times compared to its peers' average of 37 times.
• Is the stock's price-to-book value less than its peers' average level?
  Yes. The company will trade at a price-to-book ratio of 4.2 times compared to its peers' average of 6 times.

Disclaimer: This is not a stock recommendation. Do your due diligence before investing.

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