DOMS Industries Limited ($DOMS)

Ladies and gentlemen, good day, and welcome to the DOMS Industries Limited Q4 FY '26 Conference Call hosted by ICICI Securities Limited. This presentation, which DOMS Industries Limited has uploaded on the stock exchange and their website and the discussions during this call contains or may contain certain forward-looking statements concerning DOMS Industries Limited business prospects and profitability, which are subject to several risks and uncertainties, and the actual results could materially differ from those in such forward-looking statements. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Anirudh Joshi from ICICI Securities. Thank you, and over to you, sir.

Yes. Thanks, Arun. On behalf of ICICI Securities, we welcome you all to Q4 FY '26 and FY '26 Results Conference Call of DOMS Industries Limited. We have with us today senior management represented by Mr. Rahul Shah, Chief Financial Officer. Now I hand over the call to Rahul bhai for his initial comments on the quarterly performance, and then we will open the floor for question-and-answer session. Thanks, and over to you, Rahul bhai.

Thank you, Anirudh bhai. Good afternoon, and a very warm welcome to everyone. Thank you for taking the time to join our Q4 and FY '26 earnings call. Joining me on this call is the team from Marathon Capital, our Investor Relations adviser. I hope that everyone had an opportunity to go through the investor presentation and the results release that has been uploaded on the exchanges and our company's website. To begin with, let me take you through the highlights for Q4 and FY '26 performance. I am pleased to share that we have closed the year on a positive note, delivering steady performance across key metrics. Our revenue for the year grew by 21.6%, surpassing our full year guidance. Some of the key drivers aiding the growth were: first, new product launches across categories with attractive ergonomic and user-friendly designs that resonated strongly with consumers and gained strong traction. These new launches include pencil, pencil boxes and well-designed school bags in time for the BTS season, exciting new range of pens and mechanical pencils, stampeds in the office supply segment and a number of differentiated SKUs in scholastic stationery, scholastic art, hobby and craft and kids and combo packs. The new range of paper stationery products with fresh designs were also well appreciated by our consumers. Secondly, we witnessed sustained growth across all our product categories. Growth in certain categories, which were aided by capacity additions during the year outpaced the growth in other categories. Nevertheless, through improvement in our product offering and increase in ASPs, we were happy to state that other categories where no substantial capacity additions were made during the past year also delivered positive sales growth. Thirdly, the demand scenario in the domestic market continues to remain buoyant and was a key contributor to growth, underpined by strong entrance distribution network, robust brand equity and a well-diversified product portfolio. At the same time, exports also delivered steady double-digit growth despite global uncertainties, including trade tensions, geopolitical conflicts and regional instability, reflecting continued demand for our products in international markets as well. The love, trust and acceptance that our consumers have shown towards the brand and products is unparalleled. Building on this, we continue to focus on strong consumer engagement through active participation in events, conferences, exhibitions in India as well as globally. I'm pleased to share that our social media community has scaled significantly. YouTube subscribers have now crossed 4 million and Instagram followers are over 170,000, reinforcing DOMS as one of the most admired brands in stationery and art materials. Coming to the details of our financial performance. Firstly, on Q4 performance. Revenue for Q4 FY '26 grew by 18.7% to INR 604 crores, highlighting a sustained growth trajectory, primarily led by demand scenario in the domestic market with higher growth coming from office supplies, hobby and craft and back-to-school, aided by increased capacities and new launches. On consumption margins remained broadly stable despite raw material volatility linked to the West Asia crisis intensified in the later part of the quarter. The consumption was primarily of lower cost inventory built as a part of our strategic stocking. EBITDA for Q4 FY '26 grew by 14.4% to INR 100.9 crores with an EBITDA margin at 16.7% in Q4 FY '26 as compared to 17.3% in Q4 FY '25. The moderation in EBITDA margin is partly due to the onset of the seasonal slowdown in the baby hygiene segment, which impacted fixed cost absorption. Further, the increase in contribution of e-commerce sales in the baby hygiene segment also led to higher advertising and marketing and freight expenses. grew by 13.5% to INR 58.2 crores and PAT margin for the same period stood at 9.6% compared to 10% in Q4 FY '25. Coming to our performance for the financial year. Revenue from operations for financial year 2026 grew by 21.6% to INR 2,324 crores as compared to FY '25, surpassing our guided range led by healthy growth both from domestic market as well as direct export of branded range of stationery products. Consumption margins were broadly consistent for FY '26 at 43.6% similar to FY '25. We are pleased to report an EBITDA growth on an absolute basis of 15.5% for the full year to INR 40.6 crores with EBITDA margin at the higher end of our guidance. The EBITDA margin softened to 7.3% as compared to 18.2% in FY '25 on account of higher contribution in the overall consolidated operations. PAT for FY '26 grew by 12.2% to INR 239.6 crores. PAT growth was relatively lower than revenue growth primarily due to decline in other income. This was a result of higher utilization of cash towards capital expenditure, which aligns with our disciplined growth-focused capital allocation strategy. Despite this, PAT margin for the year remained healthy at 10.3%, reflecting the underlying strength of our core operations. Coming to our expansion initiatives, we continue to focus towards building the base for our future growth in terms of capacity creation and expansion. Our CapEx was primarily towards the development of our 45-acre land parcel, acquisition of additional land parcels, both in Umbergaon and Jammu for our future expansion as well as procurement and installation of plant and machinery in the existing infrastructure as well as for the commercialization of the 45-acre facility. The company totally spent around INR 292 crores in FY '26 towards these objectives. As a part of the phased development of our 45-acre facility, the first building is on track for completion in June 2027 with commercial production expected to commence towards the end of Q2 FY '27. Significant investment were also done in expansion of our molding capacities, writing instruments as well as in the adhesive manufacturing infrastructure. Speaking about our outlook, as we enter the new financial year, we do so in an environment of elevated uncertainty and volatility primarily stemming from the ongoing developments in West Asia, which has resulted in significant increase in prices of raw material. As a part of our operating network framework, we have initiated a set of calibrated measures to minimize the impact of such geopolitical disruptions. Our first priority is to maintain continuity of our manufacturing and safeguard our supply chain. We are actively working to minimize any margin impact and have started implementing focused measures as the situation evolves. These include balanced and gradual approach to pricing and continued focus on cost efficiencies. The overriding principle is that any pricing action must be taken in a way that does not impact our market share or competitive positioning. Our approach continues to be measured and disciplined, drawing on past experience in navigating periods of disruption where a focused and prudent response has supported sustainable growth over time. With our strong brand, distribution reach, new products pipeline and capacity investments underway, we believe we are well positioned to deliver on consistent growth. Therefore, despite the current geopolitical and regulatory uncertainties, we have lined up a CapEx plan between INR 250 crores to INR 275 crores for FY '27. Thank you. And with this, I would now request to open the floor for question and answers.

[Operator Instructions] Our first question comes from the line of Aradhana Jain with 360 ONE Capital.

Congratulations on the continued good set of performance. My first question is the core stationery segment delivered 19% growth this quarter. Could you help us understand whether there was any element of channel stocking ahead of the raw material price increases that led to this kind of growth or it was entirely driven by the underlying consumption demand? And related to that, how was the secondary sales trend versus the primary sales during the quarter? With this, also, if you could highlight which are the specific categories or SKUs where we are seeing those kind of price hikes currently? And how much is the price hike that we've taken? That's my first question.

Aradhana, in Q4 FY '26, revenues from operations were about INR 604 crores total, growing at about 18.7%. Our core stationary business also grew at similar levels. This was not a part of any channel stocking or anything because we closely monitor our primary sales vis-a-vis the primary and our secondary sales. This was, I think it's the back-to-school season and in the season, there is always an undercurrent for higher demand of products. So that was what we've seen and nothing with respect to any channel stocking for expected price rise or something like that. In terms of your second question with respect to raw material -- to mitigate the impact of raw material prices, there are -- the company has seen -- the company has taken certain calibrated steps where we are gradually passing on some of this to our consumers. As a first step, what we've done is we -- wherever we could believe we could rationalize our channel margins or we could rationalize the schemes and discounts, we've taken that step, which has resulted in about 4% to 5% increase, which has been passed to consumer, and this is across different products, not any specific SKU or product category.

Understood. And the second question is, so if the current geopolitical situation sustains for, say, another 2 to 3 months and the crude yield inflation remains at the current elevated levels that they are, would -- could the EBITDA margins take a hit going forward? Or would we still continue to guide at the 16.5% to 17.5% band?

So the near-term environment remains uncertain. A significant portion of our input basket is directly linked to crude derivatives, which makes cost trends especially sensitive and highly volatile to the developments in the West Asia conflict. While the situation has improved versus the peak uncertainty in the month of April, the environment is still very volatile and far from stable. On an average, we have seen our raw material cost increase by approximately 15% to 17%, while the pricing actions taken so far are around 4% to 5%, which naturally creates a near-term gap. But given the current commodity environment and the volatility arising, we do expect margins in Q1 to remain slightly under pressure versus the corresponding period last year. But we do not view this as a structural revision of our margin -- long-term margin profile, but more of temporary. Our focus currently is to maintain healthy growth momentum, ensure we protect and improve our market share while simultaneously driving cost efficiencies through calibrated pricing actions. Hence, providing a definitive margin profile for FY '27 at this point of time would be a little difficult. But in the near term, we might see certain impacts. But in the long term, we believe that structurally, the company would continue to do the same sort of a margin profile.

Understood. Last question from my end. On the office supply side, we've delivered very great growth over the last few quarters. What are the major growth drivers in the office supplies, which is leading to -- I mean, I know it's pens, but if you could throw some light of how the pain segment has been performing? And also, if you could help us understand what is our current market share in the organized office supply space, specifically pens? And how do we see that evolving over the next 3- to 5-year period?

Aradhana, along with [indiscernible], as you rightly said, another category within the office supplies broad category was highlighters, again, a product which we launched towards the end of last financial year. That product category has also done well. So highlighters along with ball pens has helped to increase or resulted in the increase in sales of the office supplies segment. We continue to invest significantly in our writing instruments segment, especially ballpoint pens and highlighters. We believe both these segments have a huge headroom for growth. And once the new capacity additions come in plus the capacity additions that happened towards the later half of the year last year when they are available for utilization throughout the current year, we believe these segments to continue to grow. We typically don't evaluate or measure the market share or the size of the market number, so would not be able to share absolute details on it. But we believe there is significant headroom to grow in the office supply segment and the company is taking the required capital plans to increase capacities in this segment.

The next question comes from the line of Percy Panthaki with IIFL Securities.

Just wanted to get a sense in the last such inflation that we saw, which was around the Ukraine war, I think, FY '23. If you can just tell us what was the total price increases over whatever 12-, 15-month period that you had pushed through at that point of time compared to the 4% to 5% that we have taken now?

Percy, I will not have a definite answer to what we did in the past in terms of the exact numbers. But the approach was very similar. It was an approach which was taking calibrated and gradual measures. The first thing that we typically do in such a scenario is try to figure out what scheme discount or margin rationalization that we can do. Second is then we do selective and gradual MRP increases. These are done only after the scheme rationalization, margin rationalizations are done. So we evaluate and then take selective balance and gradual direct MRP increases. In the branded product segment like ours, sometimes it becomes very difficult to take any immediate and frequent price changes. So hence, we believe that MRP changes should be triggered only when you exhausted all other options.

No, I get the broad approach, Rahul, but since you were there at that time, even if you don't know the exact number, some kind of ballpark idea you would have what kind of price increases, including scheme rationalization, et cetera, at a net realization level, what was the increase that we have taken?

At that point of time, Percy, one, our dependence on polymers in our total raw material basket was not that very large because we were just about to enter the pet segment that time. That time, primary sales used to come from scholastic stationery and scholastic art. So the dependence was less. But having said that, at that point of time also, we've taken about 4% to 5% increase across the impacted products. And what happens is certain [indiscernible] are structural and driven by long-term demand supply imbalances, while others are more event-driven and volatile like what we are seeing right now. So in such an environment, our pricing actions have always been in a phased manner rather than abrupt price increases. So similar action we have taken during the Ukraine-Russia war as well as if you see during the COVID disruption, where for some time, the prices had increased significantly. And what we've seen in the past that whenever we've taken aggressive pricing moves can sometimes lead to loss of shelf space to new entrants and existing competitors. Hence, we would want to be a little balanced and gradual in this approach which we believe will support long-term sustainable growth both in revenues and margins.

And if there is a gap between the cost inflation and the price increase you have taken and there is margin pressure on account of that, what are the drivers or levers that you have in order to sort of at least partially mitigate that margin pressure? And to what extent you can mitigate, supposing if the overall gross margin is down by X percent, I mean, x amount, will it be half of that, that can be mitigated? Or is it 75% or roughly what amount can you mitigate of the pressure?

Percy, eventually, we believe that we will be able to mitigate all of these pressures, but it will have to come in a gradual manner. That is what we are trying to say. First thing what we typically do is evaluate that in our current margin profile, operating structure, what are the cost efficiencies we can get, restrict certain expenses like marketing, advertising, be very efficient in such time you try to be efficient with these spends. Then like I said, we work very closely with our channel partners and with constant interaction and a consultative process with them, we try to rationalize the schemes, rationalize the product offering and then look at MRP increases. In the past also when there has been a sustained price increase and after the -- they had stabilized towards the higher end of the increase, then we have taken calls to increase our MRP of our products also. That's how pencil moved from INR 55 a pack to INR 60.

The next question comes from the line of Jinesh Joshi from PL Capital.

Sir, my first question is on the RM basket. Can you share what proportion of our RM basket is crude linked? And secondly, out of the INR 377 crores of inventory on the balance sheet, can you share how much of it is the RM inventory?

Jinesh, basically, to answer your first question, we would categorize our raw material basket into 3 segments. One would be about -- which has a direct link to crude and its derivatives, which would be roughly about 40-odd percent there is about 30%, which is indirect linkage. When I mean indirect linkage means probably in manufacturing of that raw material, there are some crude derivatives which are used. And third would be having something like a minimalistic impact. So that's how the raw material basket is structured. When I compare the data from the time this geopolitical tension started till about 15th of May on a weighted average basis, we think that there has been an inflation of about 15% to 20% in the raw material basket putting across the weights in the purchase. Jinesh, your second question was, sorry?

RM inventory out of that INR 377 crores of inventory that we have.

So out of the INR 377 crores of about INR 140 crores would be in terms of raw material and packing material around INR 55 crores would be in terms of work in process and the rest is finished goods, stocking trade, et cetera.

Understood. How are we trying to tackle this RM inflation [indiscernible] So I believe we operate at price points, which is INR 5 and INR 10. Now even if I randomly assume a 10% hike, the revised MRP could be [indiscernible]. And these price points may not be very convenient to operate given the change issue. So I mean, is it safe to assume that we are absorbing the polymer inflation in the category?

So what has happened is if you see the market has evolved a lot. Definitely earlier times, the market was where single paint used to be sold. But over a period of time and especially with what we've done is, let's say, we made which is one of our high-selling SKUs today is that if you remember earlier also, the 5 pieces packs were always priced at INR 30. That seems to be like a INR 6 per pen. But the way it was structured in the market was as if it was a INR 5. So such decisions that we had taken in the past has really helped us because now you just need to revise that to like a INR 6 MRP product, right? So that is what -- that's how the margin rationalization in the channel helped us in the initial phase of this uncertainty like a INR 30 pack, then you'll make it like if you have to further increase it, you make it a INR 35 pack. So then you, in a way, try to mitigate the impact of [indiscernible]

Okay. Sir, just one follow-up on this. I mean, what proportion of our pens are sold in the packs that you mentioned? And one related bit on the RM inflation is that while we have seen inflation hit us in the month of March, we have seen gross margins expand on Y-o-Y basis, but EBITDA margin has compressed. So if you can just explain this [indiscernible]

Sorry, can you hear me?

No, sir, I did not hear your response.

Okay. So gross margins for the quarter were largely steady, but EBITDA declined due to higher operating costs. The main reason was increased contribution from e-commerce sales in our baby hygiene business, which is done through Uniclan, which has this business, the e-commerce business has a slightly higher selling and distribution cost structure, including digital marketing spend. While we take very -- we are happy that e-commerce business is growing because it shows that the repeat order levels have increased. But at the same time, because of this, there was slight EBITDA margin compression despite stable gross margins. And going forward, once the Uniclan business becomes like a steady business, then this would also get absorbed.

The next question comes from the line of Sneha with Nuvama Wealth Management.

You mentioned a lot on Unique that margins have actually deteriorated. One of the reasons is Uniclan operations. So where are we in terms of margins only on the Uniclan basis?

Where are we on the margin profile?

[indiscernible] Yes, for the quarter.

So in Q4, Uniclan revenues were about INR 55.9 crores and EBITDA margins were close to 6.3%.

Which last quarter was more than 7%, right?

Which was around 7.5% -- last quarter, fourth quarter of FY '25, right?

Quarter-on-quarter, third quarter?

Yes. Third quarter because this is -- it was much higher, close to 10% because Uniclan is a seasonal business. The third quarter is the strongest for the company and is the highest EBITDA. So in that quarter, the EBITDA was close to 12% actually, which is now at about 6.3%.

Understood. So that explains some increase in your cost.

And if you compare it with the previous year, fourth quarter of previous year, there also the margins, EBITDA margins in Uniclan were around 7.5%, which has come down to 6.3% on account of, like I said, increasing e-commerce sales. And as this business evolves, we will try to mitigate this impact.

Understood. And while a lot has already been discussed on the raw material pricing and margins taking a hit and of course, you're not giving any guidance at this point of time for FY '27. Can you just get some indication that we have already been in this for close to 40, 50 days now. What would have been the current margin levels for the company? Like on a gross margin level, how much is the impact you're seeing? I understand you're partially passing it on and it's an ongoing process where MRPs could be changing gradually or changing the discounting system. But if I have to make something, where are we currently in terms of passing it on?

See you very well know the volatility is still high. There has been high increases followed by substantial decreases also and again, certain prices starting to increase again. And it's in a way, always like a catch-up approach that we have to do because on the raw material prices increase and then you take actions in terms of pricing. So from that perspective, it becomes a little difficult to forecast something on sitting today. But like I said, we've seen about 15% to 20% inflation and 4% to 5% has already been passed and this 15% to 20% was peak inflation. After that, we've also seen some amount of decrease in prices also. But like I said, current focus is maintain the growth. And more importantly, in this time, we believe maintaining the market share and trying to increase it is a prudent strategy from long-term sustainable growth and margins will definitely follow.

Got that. Lastly, Rahul, anything on the top line guidance? Are you maintaining the similar guidance of 20% growth for the next 1, 2 years on the top line?

At consolidated level with the planned capacity expansion and the current demand trends, we expect revenue to grow by 17% to 20% in FY '27 is the same guidance that we had in the previous call.

The next question comes from the line of Mosam Shah with Wealthguardian.

Congratulations on a good set of numbers. My question is related to CapEx that you just estimated around INR 250 crores, INR 275 crores. Can you just help for what product category we are planning our CapEx and the time lines and when it will be operational?

So this is -- this CapEx is generally going towards increasing our capacities for molding and a lot of other writing instrument products that we planned, plus a large part of it will also go towards the construction of facilities for a lot of land that we acquired in the current financial year. But a lot of our molding capacities are interchangeable. So exactly giving the name of the products would be a little difficult. We've lined up significant CapEx also for wooden pencils, a segment where we've not done CapEx in a very long time now. So in this year as well as next year, we'll do some CapEx there also. So it's going to be across a host of products.

Okay. And the current ongoing CapEx that we will be commercializing from quarter 2 onwards, that was particularly for writing instruments, right?

Yes, it was for writing instruments. But it's a large facility, and we had that time thought of developing a part of it. Now we are -- as this capacity comes into commercial production, we'll start the development for other parts of it.

And do you want to comment on any particular time line or something?

So this is like going to be an ongoing project. We believe that it will take another 3-odd years for the company to complete the construction potential at the 45-acre plant. And based on the current demand trends, what we believe the company can achieve, we think that every year, we'll end up doing a similar level of CapEx for the next few years to completely utilize the 45 acres plus some new land that we purchased around it and close to our current flagship plant. So it's going to be an ongoing project with next 3 years, the company will be in that high CapEx cycle. And I'm sure as things evolve, we will start planning our next phase of development.

Okay. Okay. And my second question is regarding Uniclan integration. So once this year was some full year of integration, right? So what would be the projected margins that you guide for Uniclan 1 or 2 years?

So again, like DOMS, Uniclan is also a product -- the diapers are also product where the contribution of crude derivatives is very high. So in this segment also, we'll see some softness in the margins in the near term. But going forward, basis our current operating plan for Uniclan, we believe in this segment also from a revenue basis, we'll be able to maintain a growth of close to 20% and then again start planning for additional capital expenditure to increase the growth further and in terms of margins from a long-term perspective, we believe in this segment, we'll be happy to achieve a 10% sort of an EBITDA and stay at that level, maximizing revenue growth.

The next question comes from the line of Jayant Parasramka with 3P Investment Management.

Just a couple of questions on CapEx. So we've increased our CapEx guidance to about INR 250 crores to INR 275 crores versus, let's say, a previous call of somewhere between INR 225 crores to INR 250 crores. Just to understand, is it because of rising cost of materials over there? Or are we bringing forward some of our CapEx? That's my first question.

So it accounts for a little bit of increase in cost also. And at the same time also, like I said, there are some multiple new land parcels also which the company acquired, which is strategically located near our flagship unit in Umbergaon, current flagship in Umbergaon and also in our flagship unit in Jammu. So we have a large plant in Jammu next to that plant, we were able to find a large parcel, which we've acquired. So we'll be doing certain capacity enhancements there as well as in addition to the development that is happening at the 45-acre plant, we've acquired certain land parcels close to our existing plants, which were available strategically. So we'll simultaneously develop them also. So because of that, we've increased our capital outflow for the projected capital outflow for the coming financial year. And there is some amount of increase in prices also. So it accounts for both of them.

Sure. And the second question is from the pens business, I believe most of your RM pressure on the pens business is due to the rise in polymer prices. So from a strategic point of view, are we also now focusing on increasing mix to the INR 10 price point versus, let's say, earlier our -- I believe our majority of our sales was happening in the INR 5 price point. Are we trying to also shift the mix to the INR 10 price point?

So historically, you've always seen across all our products, SKU, our margin profile has always been similar. So irrespective, I was selling a INR 5 or INR 5 pencil vis-a-vis INR 10 pen or INR 10 pencil, the margins were pretty much similar, the EBITDA margins around that 17-odd percent sort of a level. So it really doesn't make a lot of difference at what price point we are selling the product. But we believe there is enough scope still this is like a temporary cycle. We don't see these prices to be at the elevated levels, the elevated levels for a very long time. There would be some amount of correction that would happen, plus the calibrated increases that we've done in selling prices that we'll come back to our original levels of EBITDA margin. It will take some time, but we'll come back to that level. And like I said, what we did in the past also when we launched our INR 5 pens, after that, we started packing them in packs of INR 5 and that packet of INR 5 was priced at, let's say, INR 30. So as such, the price per pen was INR 6. But in the market, it operated as if you're selling a INR 5 product. That's how our selling price was. That's how the channel margins and schemes and discounts were given. So now it becomes a little easier to go back to the INR 6 price point because consumers are always aware this is a INR 6 product.

The next question comes from the line of Kunal Vora with BNP Paribas.

First question, what is the extent of Chinese imports in stationery industry? And how does the 20% depreciation of rupee against RMB impact the competition in various areas in which you face Chinese competition? Is there a market share gain opportunity? And like on the similar lines, does this also have some impact on your CapEx as you are looking to import machinery for your new factories? That's the first one.

So yes, there is some amount of imports that come from China, Vietnam, a few other countries also in India. To what extent, what percentage that's a little difficult to judge. I honestly don't have an answer in terms of percentage. But there are a decent amount of imports that happened. The currency fluctuation probably has made imports slightly expensive. This gives a good opportunity for a branded company likes to -- with their aggressive pricing decision, you can probably reduce or discourage such imports, which can eventually result in market share gains. So we are -- in a way, that should benefit the company. With respect to in terms of imports becoming expensive for us both on the raw material as well on capital goods, we have a natural hedge -- there is exports also that the company does. Most of our imports are in U.S. dollars, so are our exports. So in a way, they should partially offset each other.

Understood. That's clear. Second one is, would you expect a stronger second half of FY '27, considering that by that time, the full benefit of pricing will be there, you'll have higher capacities which you are adding and potentially you'll also have some moderation in commodity costs. While in the first half, you are taking the hit in terms of margins because the commodity costs have increased and you've not taken the full like pricing. And again, like on similar lines, would you say look to bridge the gap? Currently, you mentioned about 5% price hike against 15% cost inflation. So would you look to bridge that if the commodity cost remains high?

Yes. So, basically, times are still uncertain. I don't know when this is going to end when it started, everybody was talking 15 days -- it's been more than 45 days still there is no uncertainty. The near-term environment continues to be very fluid. And given that a significant portion of our input basket is directly linked to crude and the volatility that we are seeing, there would be some impact, which will gradually be passed to our consumers through calibrated balance and gradual increase. But when that happens, a little difficult to say and in how much time will it get covered, it's a little difficult to project at this point of time.

But in second half, you will have a much larger capacity and [indiscernible]?

So capacity will come, new capacities will come. And like I said, that will be a very good moment for the company to again focus on gaining more market share. Historically, we've seen that when there have been uncertain times, it has more impacted the unorganized players and importers rather than branded large companies. So this gives time for market share gains. So we would like to focus more on this opportunity to gain market share, which will eventually help us in long-term growth in our revenues and margins as well. So historically, also after COVID, if you see the company's margin profile pre-COVID and post-COVID, you will see that there has been certain change similarly pre-Ukraine, post-Ukraine. So these times, if you follow a balanced approach, which is something more long term -- with a long-term strategy, I think it will greatly benefit the company.

Understood. That's clear. And just one last question, if I can. One is on Uniclan, like what's the numbers which you've done for FY '26 full year revenue and margin? And what's the outlook for FY '27?

So FY '26 on a full year basis, we've done a revenue of around INR 203 crores at Uniclan [indiscernible] for Uniclan, this represents close to a 23% growth over the base year revenue. In terms of margins, the margins have been around 8.6% [indiscernible], we've been talking about Uniclan since the time we acquired this company. And like we said that our idea when we acquired this company was a 4%, 5% EBITDA margin and was to gradually increase it to 10%. We've reached about 8.6%. And we believe with the new -- with the increasing revenues and certain new product SKUs that we'll be launching at Uniclan very soon, improvement in the product that we've been doing with this, we'll be able to maintain a 20% sort of a growth rate at Uniclan also. And eventually, the margins on a long-term basis will stabilize around 10%, which has been our target.

The next question comes from the line of Nikil Sudhirkumar with Vista Ventures.

So my question is regarding the capacity expansion...

Sorry to interrupt, not quite clear. Could you please use your phone on the handset mode in case if you are using it in a hands-free mode.

Yes. So with respect to the capacity expansion, so I just want to know what is the capacity expansion percentage that is are we adding another 50% or 100% capacity expansion to the existing facilities? Or is it like SKU-wise? So just want to know an idea on that. And my second question is regarding the distribution channel growth plan. So what is the company looking at for the current financial year?

Nikil, honestly, we never looked at capacity from a perspective at the product level because we would want to be agile towards the requirements of the market, not commit anything in terms of specific products. But yes, I can give you a certain flavor where the capacity is dedicated for certain products like for pencils for the wood and pencils, the capacity right now is around 5.8 million pieces, which eventually once the new plant is entirely ready to 8 million. Other than that, there are a lot of molding capacity that we are adding and molding is in a way interchangeable, which can be used for a host of products like pen, highlighters, markers, sketch pad, sharpeners, scales, et cetera. So depending on the market requirement, we would want to be flexible, how do we add those -- which products we add capacities. But having said that, today, our operations are spread across close to 2 million square feet of built-up area. And what we are constructing in 45 acres eventually once all the phases of construction are over would be again close to 2 million. So in a way, it would be doubling our reach in terms of manufacturing infrastructure in the next few years. To answer your second question with respect to the distribution network, so you could -- historically, if you would have seen DOMS has never been in terms of specifically targeting a number to grow in terms of its distribution reach. We've always been focused on maximizing the throughput where we believe that when we get into a relationship or a partnership with a particular retail store, it is more important to ensure that we have maximum shelf space in their store. Till their demand is not fulfilled, we would really not want to go in an adjacent store and try to keep 2 people waiting for products. So from that perspective, we are actually not from a number perspective. But this entire universe of stationary outlet is close to about 300,000 to 350,000 stores in India. Out of this, we believe the directly serviceable stores are around 25,000 stores Beyond these numbers, they are either located in remote geographies or it really doesn't make economical sense to cater them on an individual basis, and these stores are very well catered to the wholesale segment, which is a good segment for DOMS also. So our universe to target would be about direct target, direct reach about 225,000 stationery stores. And by that time, I think our distribution through Uniclan in the general merchant outlet would have also reached a substantial point, which is basically into Kirana stores. And that's when we will also start cross-selling a lot of stationery products in that distribution network also. So both ways, we believe there is still significant headroom to grow our network, both in the stationary store segment as well as in the general merchant outlet segment.

The next question comes from the line of Priyank Chheda with Vallum Capital.

Rahul, just clarification. You gave a guidance of 17%, 18%. This doesn't include the new plant that will get operationalized from H2, right?

No, no. So Priyank, this is an annual guidance of close to 17% to 20%, which includes the new capacities coming in from H1 for the new plant. It will be a gradual end of H1 from the new plant. It will be a gradual ramp-up in capacities that will come in the 45 acres. So that has been considered while guiding for around 17% to 20% growth for FY '27.

Just reconciling the numbers it's INR 450 crores or higher for the Phase 1 of this plant?

No, no, no. So we've done a CapEx of close to INR 292 crores in this financial year, FY '26. And for FY '27, the CapEx plan is around INR 250 crores to INR 275 crores -- INR 250 crores to INR 275 crores.

I'm asking for the whole of this new expansion. Earlier, we had guided for total CapEx of INR 450 crores and 2x asset turnover. Now is that any change in the numbers with respect to additional land and anything coming?

Priya, this entire project of 45 acres starting from the land that we purchased to full development of the construction and development of plant and machinery, the total CapEx would be close to INR 850 crores to INR 1,000 crores. We've done a substantial part of it from the proceeds that we raised from IPO. There will be certain other investment that we'll continue to do from our internal accruals. So eventually, the total investment in this plant over the next -- considering we bought this land in June -- sorry, January 2023 to another 3-odd years of complete development would be close to INR 850 crores to INR 1,000 crores.

Phase 1 is what you said was INR 550 crores, right, INR 290 crores plus INR 250 crores.

No, no. So we started investing in this plant. INR 290 crores is the total CapEx that we've done at the company level. This includes a lot of capital expenditure that happened in our current infrastructure, capital expenditure that happened at our subsidiary levels and capital expenditure that happened in the 45-acre project plus the new land that we purchased also in both Umbergaon and Jammu. So at a company level, we did INR 292 crores. It's not that separately. This 45 acres is like a separate project why we are discussing because it was a part of our IPO document where the object was to raise funds for the development of this land.

Got it. And one last question on exports to FILA, which has fairly remained flat over the last 2, 3 years, while the third-party exports have grown this year. How should we look at this element of exports to FILA as well as third party with new capacity coming in over whatever time line you still want to guide?

So yes, exports to FILA were a little lower than expected in the last year. And the key reason for that was at least the initial period was on account of the higher tariffs that were imposed by the U.S. government, a large portion of intercompany export happens to U.S. plus there was some amount of decline in demand in European countries also and these economies also struggled a bit. So overall, the intercompany exports were a little lower. But having said that, the outlook with now tariffs being done away with our entity -- FILA Group entity in U.S. also recalibrating their pricing structures, we believe this business to pick momentum again. So these exports would increase. Also with the new capacity addition that we are lining up, especially for the wooden pencil segment, where a lot of goods are sold to FILA and FILA Group companies, the capacity addition in wooden pencil will also help in the FILA Group intercompany exports.

The next question comes from the line of Badal Rawat with TrustPlutus.

So actually, most of my questions got answered. So yes, that was related to capacity [indiscernible]

The next question comes from the line of Aradhana Jain with 360 ONE Capital.

Just a couple of questions. One, the CapEx that we plan to do of around INR 500-odd crores for the next 2 years, would we continue with the stance that all of that will be funded through internal accruals or we plan to take some debt for it because we see that this year, we've already reduced our debt quite a bit compared to last year. So how would the CapEx be funded going ahead?

So it would depend upon, one, the utilization of funds that we generate as free cash flows for the company. If there are free cash flows available, we'll definitely want to utilize them for capital expenditure rather than distributing it as higher than our stated policy of 10% of stand-alone profits to be distributed as dividend. So for that. And there's a lot of headway available to take a little bit of additional debt if required. So it will be a prudent decision-making depending upon the capital allocation and how the company sees the use of funds.

Okay. Because the question -- the reason I was asking is because this year, we were not able to generate any free cash flow.

Because of the CapEx, we did a little higher-than-expected CapEx if you -- when we started the year, we were looking at around a figure of INR 225 crores to INR 250 crores, which eventually got increased to about INR 290-plus crores. And there were certain good assets in terms of land parcels, which were available in absolute vicinity of the company's operations, which we believe were strategically made sense to acquire them. So that's why it was a little higher.

Understood. Sir, second, on [indiscernible] Seven SpA, if you could throw some light as to how has the performance been of -- so specifically this quarter because of the back-to-school season? And second, where are we progressing on the [indiscernible]

So revenue for the quarter was about INR 4.5 crores as compared to INR 2.8 crores in the same period previous year, which is a 60-plus percent year-on-year growth. This growth was primarily on account of the successful launch of backpacks that we did in -- so last year for the branded products. And as we go ahead, we are now even team and -- so team have started discussing multiple projects together. At the same time, we plan to do some amount of additional capital expenditure at -- so in terms of buying new land and constructing new factory premises to increase our production capacities there significantly. For a full year sort of a basis, if you look, the revenues increased from INR 9 crores to INR 14 crores. But we are still learning this business. The management of Ski has exceptional talent in terms of product design and product engineering using the DOMS brand, the DOMS design philosophy and the distribution reach. We believe this business will grow significantly in the coming few years and benefit from the association with Seven SpA also. In terms of our JV formation with Seven SpA, we are in the process of formation of the joint venture entity, and this should be completed before the end of June 2026.

Ladies and gentlemen, that was the last question for today. I would now like to hand the conference over to the management for the closing remarks.

Thank you. Thank you once again for joining us. We appreciate your continued support and confidence in our journey. Should you have any further questions, please reach out to our Investor Relations team. Thank you once again, and have a great day ahead.

Thank you, sir. Ladies and gentlemen, on behalf of ICICI Securities, that concludes this conference call. Thank you for joining us, and you may now disconnect your lines.