Curious case of DOMS

A few weeks ago I wrote about my conversation with my daughter regarding her opinion towards DOMS and Camel (Father Daughter Interesting Conversation). This conversation came back to me last week when I went to an art & craft event where my daughter was taking part. Among all the colourful art supplies being used by the participants, one brand that I noticed prominently was – DOMS.

At first, I thought I was noticing DOMS more due to the recency effect of our conversation (the Baader-Meinhof phenomenon)! Or perhaps DOMS has a particularly strong presence in Pune, making it more noticeable!

But then I thought: could it be that DOMS is genuinely gaining market share faster than its competitors. This curiosity led me to dig deeper. Since DOMS is a listed company, getting its data was easier, just like with Kokuyo Camlin. But testing my hypothesis looking at just these two companies wouldn't give the full picture. They also sell products like paper stationery and writing instruments. Hence the revenues reported would be consolidated across all products. So, I decided to look at the whole category – both paper and non-paper stationery products!

Broadly there are 15 prominent brands in the market:

Not all these brands are listed companies, so I had to rely on Tofler. Tofler aggregates financial data from annual filings that companies make with the MCA. The most recent available data is up to March 2023. While slightly dated, it is sufficient for trend analysis.

The other complication of pulling data from Tofler was that was that not all these brands are independent companies! For instance; brands like Classmate, Fevycryl, UnoMax and Navneet are part of larger listed diversified companies. To analyze these brands, needed to examin segment reporting data from the quarterly reports / investor presentations of their parent companies.

Classmate is the only brand for which I couldn’t estimate revenue over the years. I couldn’t find any segment-level data in ITC’s quarterly reports or investor presentations. Various reports suggest the brand could be around ?1500 crores, and has about 20% share of the market. However, I kept it out of the analysis due to the lack of concrete data.

Also, due to some technical issues Hindustan Pencil's latest report is still not available on Tofler! So, I simply assumed 50% growth over FY22 to arrive at their 2023 revenue.

Excluding Classmate, the category appears to be around ?8100 crores (this includes exports as well). The category was pretty stagnant during FY19 to FY22, but it saw a strong growth of about 46% in FY23 compared to FY22!

And this is how the market share of various brands moved during this period. And what! DOMS has been clearly the fastest-growing brand in the category, with almost a 4.5 percentage point share gain over the 5-year period.

UNOMAX, the brand with which Cello re-entered the category after selling their writing instrument business to BIC between 2009 to 2015, has also seen strong momentum. Most other brands in the category have either lost share or remained stagnant.

Another noteworthy point about DOMS that I noticed was about its EBITDA margin and its Cash Conversion Cycle! It has one of the best EBITDA margins at 15.5%, among its larger peers like Cello and Flair (23% and 20% respectively)! This also compares well against Global players like BIC’s Stationery Business (@7.2%); Kokuyo’s Stationery business (@8.1%) and F.I.L.A. (@15.5%) which incidentally holds approx 30% stake in DOMS.

Also, its cash conversion cycle at 55 days as against category average of 100days+ is one of the best among its peers. This is mostly due to its control on Inventory and receivable days. This means DOMS is able to rotate its investment more than 2 times faster than its competitors!

Incidentally, DOMS doesn’t seem to spend very heavily on Advertising! Its reported advertising and promotional spends for FY23 were just 3.3Crs (0.3% of revenue) compared to 12.2 Crs of Camlin (1.6%); 13.8 Crs by Linc (2.8%) and 11.8 Crs by Flair (1.3%)!

As far as the physical availability goes, DOMS has a smaller footprint with 120K+ retail outlets compared to Camlin's 300K+, Linc's 250K+ and Flair's 330K+ retail outlets.

While the data somewhat corroborated my original thesis, it opened another intriguing issue. DOMS has gained market share, outpacing competitors that have larger retail footprints and bigger advertising budgets. So, what’s the key to DOMS rapid market share gain?

It brings me to my favourite ‘P’ of marketing – the PRODUCT and the most important ‘C’ – the CONSUMER. Could it be that in this category, consumer experience with the product drives stronger mental availability than advertising.

With a stronger consumer pull, the rotation per point of sale would definitely be higher, leading to favourable trade terms, more shelf space, better placement and visibility at the point of sale, and even push from the retailers themselves which would further aid mental availability!

May be some industry veteran could throw some light on this!

P.S. : This article is purely for educational purpose, written out of personal curiosity. This is not meant to be any financial or investment recommendation. I don't have any active investment in DOMS or any of the brands/companies in this sector!