DOMS IPO: 10 key risks from RHP to consider before subscribing to the IPO

Ten key risks highlighted by DOMS Industries in its Red Herring Prospectus, or RHP, include

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Product concentration risk -DOMS derived a significant portion (approximately 60%) of its Gross Product Sales in each of the last three Fiscals from the sale of its key products and a significant portion (more than 30%) of its Gross Product Sales in Fiscal 2023 is attributable to the sale of ‘wooden pencils’. Any decline in the Gross Product Sales of its key products in general or specifically ‘wooden pencils’ could have an adverse effect on our business, results of operations and financial condition.

Distribution risk – DOMS Industries is dependent on its ‘general trade’ distribution network for a significant portion (more than 70.00%) of Gross Product Sales in each of the last three Fiscals. Failure to manage its ‘general trade’ distribution network efficiently could have an adverse impact on our business, results of operations and financial condition

Brand and counterfeiting risk -Any deterioration of its brand image, reputation and its consumer’s awareness of  brand and products could have a material adverse effect on DOMS business, results of operations and financial condition. Further, the availability of look-alikes, counterfeit products, primarily in our domestic market, manufactured by other companies and passed off as its products, could also adversely affect its goodwill and results of operation

Dependence on natural resources for raw materials -Some of the raw materials used in its production processes are natural resources and therefore DOMS is subject to the risk of depletion of such natural resource

Supply risk – DOMS has not entered into any formal contracts or exclusive arrangement with its suppliers from whom it procures materials consumed by the company for the manufacturing process. Further, DOMS is dependent on certain limited suppliers for some of its raw materials. In the event, DOMS is unable to procure such materials at terms favourable to it, or at all, its business, financial condition and results of operations may be adversely affected

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Pricing pressure from suppliers -Increase in costs of raw materials or its inability to fully pass on costs to its customers, may impact its revenue from operations and profitability and may result in a materially adverse effect on its business, results of operations and financial condition.

Inability to assess consumer preference and demand -DOMS success depends on its ability to promptly identify and respond to changing consumer preferences or evolving trends and successfully launch new products or SKUs in the market. Failure to do so may decrease the demand for company’s products among its consumers, which may adversely affect its business, results of operations and financial condition.

Inventory risk -Failure to correctly assess the demand for its products and maintain optimal inventory levels could increase its inventory holding costs and adversely affect its business, results of operations and financial condition.

Dependence on FILA for export sale -DOMS is dependent on the FILA Group for its export sales (export sales to FILA Group contribute to more than 60%of its total export sales in each of the last three Fiscals). Any damage to the reputation of the FILA Group may adversely affect DOMS business, results of operations and financial condition.

Loss -DOMS has incurred loss in the past. DOMS recorded a loss of ₹60.26million in Fiscal 2021. Such loss was predominantly due to COVID-19 related lockdown, which resulted in the closure of domestic and export markets, especially educational institutions, offices and workplaces and retail outlets.

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Published: 14 Dec 2023, 10:17 AM IST