Writing Instrument Cos To Pen 14-16% Revenue Growth Again: Crisil

The revenue growth of the writing instruments industry will continue to be in double digits this fiscal, Crisil Ratings has said. It added that the strong demand from the domestic market following increasing user base for the organised segment, together with rising premiumisation, will lift revenues by 14 to 16 per cent– similar to last fiscal– even as exports remain subdued.

Higher revenues and stable raw material prices will improve profitability to 11 to 12 per cent from 10.5 per cent last fiscal. The resultant higher cash flows will limit reliance on external debt to fund capital expenditure (capex), thereby supporting credit profiles over the medium term.

The agency added that the revenue growth is expected to be driven by two key factors. First, continuous investment by organised players in strengthening distribution and retail channels alongside offering diverse products at competitive pricing, which has led to better penetration. Second, steady government focus on education through schemes such as Samagra Shiksha, PM-Poshan, and the National Education Policy. 

Notably, the increasing budgetary allocation for education, at a compound annual growth rate (CAGR) of 5.3 per cent over the past five fiscals, will also support domestic demand, which accounts for 75 per cent of the industry revenue.

However, exports, which comprise a quarter of the sector’s revenues, will grow marginally on-year as demand from key markets of North and South America recovers. Overall volume will be 8 to 10 per cent higher this fiscal.

The focus of the organised segment on quality and its ability to charge a premium as the purchasing power and per capita income increase, has allowed average selling prices to increase from Rs 4.9 to Rs 5.6 per unit, at a CAGR of 4.5 per cent, over the last three fiscals. Consumer preference for premium products will continue to drive the realisations up by 4 to 6 per cent this fiscal as well.

Himank Sharma, Director, Crisil Ratings said, “Premiumisation and better demand will continue to drive the revenues of the writing instrument makers, this fiscal. This in turn, will improve the profitability of writing instrument makers as costs remain stable while better revenues lead to higher cost absorption and operating leverage. Operating margins will increase 75-100 basis points on-year to 11 to 12 per cent this fiscal.”

As revenues and margins expand, the resultant higher cash flows will allow the manufacturers to continue to invest in capacities. Increasing demand is encouraging the makers to backward integrate into key components to reduce import dependence and improve working capital cycles.

Rushabh Borkar, Associate Director, Crisil Ratings, “Writing instrument makers plan to add almost 30% of their existing fixed asset base on-year to enhance production and reduce import dependence. These capacities are expected to be funded through strong business cash flows, thereby limiting external debt and reining in working capital requirements. The self-funded capex and reduced working capital cycles will result in continued improvement in credit profiles over the medium term.”

According to the Crisil, total outside liabilities to adjusted networth and interest coverage ratios for players rated by CRISIL Ratings will remain comfortable at 0.6 time and 14.5 times, respectively, for fiscal 2025, against 0.8 and 12.3 times, respectively, the previous fiscal.

"The impact on domestic demand due to changing consumer preferences and on profitability on account of volatility in raw material prices will bear watching," it added.