Recently there was a run up in the stocks of the writing instruments company stocks. The reason for this is very simple the US Pen market is around 10000 crores out of which China exports Rs. 4000 crores of writing instruments whereas the total size of the Indian market is Rs. 1600 crores and the exports are just around Rs. 200 crores.
The Rs. 92.69 crore Today’s Writing Products is also looking at this export pie. Currently just 3% of its revenue comes from exports. The company wants to increase the top line and take the share of exports from 3% to 50%. All in a period of two years.
To achieve this the company is going to set up a plant with a capacity of 2 million pens per day at an investment of Rs. 58 crores. The current capacity of the company is 1.5 million pens per day. This is going to be an export oriented unit and the implementation would start this September. The best thing about this plant is that the company will employ just fewer than 50 workers whereas the current plant has a number that tops two thousand.
Besides this the advantage that the company already has is that it is a fully integrated player and has facilities for mould making through assembly. This means that the company is more profitable and the company would better absorb the impact of rising raw material cost.
The international demand will be catered to in two ways. One is that the company will act as an OEM. This is where the huge volumes are as opposed to the other strategy of selling branded products. It is already selling branded products in the retail store of UK. Wal Mart has also done due diligence with the company to outsource.
For the domestic market the company wants to enter the high value pens markets where the profitability is higher and for this they want to use the malls and department stores for distribution.
The company made a profit of Rs.7.80 crores for the fiscal 2004-05. This was on a turnover of Rs. 92.69 crores and the EPS works out to be Rs.6.5. The current market price of the share is Rs.70 and the P/E comes to around 11 times. Considering the growth plans of the company it’s a good pick for anyone who can wait for the new plant to be up and running and the export realizations to translate into profits which could start happening in about a couple of years time.
