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Flair Writing Industries Ltd

| Q3 & 9M FY26 Earnings Conference Call

BULLISH SENTIMENT

Report Source

⬤5th Feb 26

Summary : Flair Writing Industries delivered strong Q3/9M FY26 results, driven by Creative and Steel Bottle segments, with management confident in exceeding growth guidance and improving ROE through strategic expansion and innovation.

Management Perspective positive : We are delighted to present a strong Q3 FY '26 performance. We are confident in surpassing our guidance of 15% for FY '26. We have high growth visibility over the next 2 years and thus are confident in delivering higher growth trajectory.

Concall Report Analysis & Insights

Business Overview

  1. Flair Writing Industries reported strong Q3 FY'26 performance with 20.1% revenue growth.
  2. EBITDA increased by 25.7% and PAT by 13.2% year-on-year.
  3. 9-month FY'26 revenue grew 18.6%, surpassing the 15% CAGR guidance.
  4. Pens business grew 7.3% in Q3, maintaining leadership in India.
  5. Creative and Steel Bottle/Houseware segments showed impressive 78.5% growth year-on-year.

Future Growth Prospects

  1. Company expects to surpass its 15% CAGR guidance for FY'26 and the next two years.
  2. Focus on driving innovations, sustainable operations, and strong brand foundation for long-term growth.
  3. New Valsad facility to be partially operational in Q4, strengthening manufacturing capacity.
  4. Flomaxe Stationery JV will commence wooden pencil manufacturing, boosting capacity.
  5. Exploring opportunities for inorganic acquisitions in fast-growing segments.

Management Insights

  1. Management is delighted with strong Q3 and 9-month FY'26 performance, reaffirming business resilience.
  2. Confident in surpassing the 15% CAGR guidance for FY'26 due to sustained momentum.
  3. Approved an interim dividend of INR 0.50 per share, 10% of face value.
  4. In-house manufacturing share has risen to 75%, enhancing efficiency and quality control.
  5. Strategic collaborations with Disney and Maped France are central to momentum.

Signs of Skepticism

  1. Management declined to share specific product contribution numbers for competitive reasons.
  2. Working capital days are higher than listed peers, impacting return on capital employed.
  3. Pen segment's overall 9-month revenue growth (5%) is below the high single-digit target.
  4. Exports for Creative and Bottle segments are currently negligible despite growth plans.

Risk Factors

  1. Gross profit margin decreased by 95 bps due to a change in product mix.
  2. PAT grew slower than EBITDA due to higher other income in Q3 FY'25 and higher interest on FD.
  3. Working capital cycle increases in Q3 due to higher stocking for Chinese New Year holidays.
  4. OEM business is volatile; company is shifting focus to own branded sales.

Good To Know

  1. Received the 'Export Excellence Award '23-'25' as a Key Exporter of Writing Instruments.
  2. Introduced 28 new products in Q3, bringing total Creative offerings to 240.
  3. Total CAPEX for 9-month FY'26 at Flomaxe Surat facility is INR 9.6 crores.
  4. Invested INR 8.28 crores in a new building for Creative segment, expected by Q1 FY'27.
  5. Domestic OEM relationships have reduced to zero, but new customer engagements added INR 6 crores.

Key Drivers

  1. New product launches drive growth.
  2. Creative and Bottle segment expansion.
  3. Increased in-house manufacturing capacity.
  4. Strategic partnerships and M&A.

Key Analyst Discussions

Competitive Environment

  1. Gained market share in Pens, with own brand volume growth of 18% compared to competition.
  2. Creative segment has 18 product categories, with growth driven by innovative designs and packaging.
  3. Bottle segment's base is small compared to competitors; aiming for parity in a couple of years.
  4. Company maintains margins and profitability despite higher working capital days, a strategic choice.

Financial Highlights

  1. Q3 Creative primary sales were INR 77 crores, Steel Bottle/Household INR 25 crores.
  2. Pen segment volume grew 6% in Q3 and 3% in 9 months; own brand volume grew 18% in 3 months.
  3. Pen realization is stable at INR 5.4 per piece.
  4. Sustainable other income is expected to be INR 3-4 crores per quarter.
  5. Working capital cycle is expected to reduce by 10 days by year-end.

Product Composition

  1. Creative and Steel Bottle/Houseware segments are anticipated to contribute a progressively larger share to revenue.
  2. New product development in Steel Bottles drove Q2/Q3 growth, expanding the range for domestic market.
  3. Focus on 3 main Creative categories: scholastic, office supply, and gifting kits.
  4. Mass segment in Pens has seen a comeback, leading to stable overall realizations despite premiumization efforts.

Strategic Considerations

  1. In-house manufacturing capacity for Creative segment to increase to 80%+ in coming quarters.
  2. Flomaxe facility is already contributing to Creative revenue, with additional CAPEX planned for a new unit.
  3. Company is focusing on own branded sales over OEM due to OEM business volatility.
  4. Valsad facility commissioning will complete IPO proceeds commitment; future CAPEX will be maintenance and new product molds.
  5. Management expects ROE to improve as new segments stabilize and economies of scale kick in.