Writing instrument makers will see a 13-15% revenue increase and 150-200 bps operating margin expansion: CRISIL

According to a report by CRISIL Ratings, India's writing instrument industry is likely to witness revenue growth of 13-15% on-year this fiscal year due to increasing exports led by rising demand from the US and a continuous uptick in demand from the education sector as students return to the physical mode. It also stated that this follows a 33% growth seen in the previous fiscal year. In the long run, the sector will also benefit from India's demographic dividend and rising proportion of organised players.

Due to decreasing raw material prices, the operating margin will increase by 150-200 basis points (bps) year-over-year to around 13% in this fiscal year. The CRISIL report added that investments in new product development and capacity expansion will encourage manufacturers to borrow. However, strong cash flows and balance sheets will provide an offset against incremental debt and support credit profiles.

To report the results, CRISIL Ratings examined five manufacturers that accounted for half of the revenue in the organised market.

In this context, it is anticipated that exports are expected to increase by 15-20% this fiscal year, supported by partnerships with global brands for US sales as a de-risking tactic from China.

India's demographic dividend will continue to be a major tailwind for the writing instrument industry. With a median age of 28, there is a sizable student body and workforce available as the manufacturing and service industries grow.

Manufacturers of writing instruments in the organised segment, which make up over 80% of the market, will benefit from this. Organised manufacturers' market share increased from approximately 65% to almost 80% of the Rs. 10,000 crore (US$ 1.20 billion) industry in the last three fiscal years.

Their ability to offer superior quality writing material at a lower price point than competitors has been made possible by their growing economies of scale. After the Goods and Services Tax was implemented, unorganised producers—who had previously relied on cost arbitrage through lower import prices from China—lost their advantage and are now unable to compete with branded manufacturers in a market that is becoming more and more quality-conscious, according to the report.

Due to the drop in the price of essential raw materials (lead for pencils and polypropylene for pens) by approximately 15% over the previous fiscal year, operating profitability is predicted to increase by 150-200 basis points to approximately 13% this fiscal year. This, it was stated, is important because 60-65% of the entire cost is attributed to raw materials.

Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.