Why Urban Tots Share Could Be the Next Big Growth Story in India’s Toy Industry

Do you know in 2022, ~Rs. 22,000 crores worth of toys has been imported mainly from China, Taiwan, Indonesia to India. Shocking, right?

In the BJP Election Manifesto 2024, the government has shown its great interest to make India a manufacturing hub. As a result, the commerce and industry ministry has recommended an outlay of Rs 3,489 crore for the PLI scheme for toys, to provide a necessary boost to the domestic manufacturers. A significant focus is placed on transforming India into a global hub for toy manufacturing to substitute the imports. Apart from this, a significant increase in customs duty on toy imports, raised from 20% to 70% in recent years, to safeguard the interest of domestic manufactures. Resulting, according to the data, imports of toys have decreased by 52%, while exports have surged by an impressive 239% from FY 2014-15 to FY 2022-23. 

This initiative aims to boost the toy sector and support companies engaged in toy manufacturing across the country. One such prominent player in this evolving landscape is Urban Tots, a leading brand under Deepak Houseware and Toys (DH&T).

Urban Tots: A Leader in Toy Manufacturing

Urban Tots, a prominent brand under DH&T, has established itself as a key player in the toy manufacturing industry in India. Known for its diverse product range, Urban Tots specializes in plastic toys, including heavy-duty models like Mercedes and BMW bikes, as well as electronic toys and role-play items. Urban Tots has established a manufacturing plant that covers an area of 36,000 square yards in Bhiwadi, Rajasthan, as part of the PLI scheme initiated by the Indian government.

Industry - Problems & Solutions

The Indian toy industry, while growing, faces challenges such as dependence on foreign raw materials and stiff competition from low-cost imports.  Urban Tots addresses these issues head-on by leveraging government schemes like the Production Linked Incentive (PLI) and collaborating with local artisans to reduce import reliance. 

Business Model 

Urban Tots operates on a multifaceted business model, manufacturing and selling a diverse range of toys through esteemed retail outlets like Hamleys, FirstCry, DMart, and Reliance Retail, as well as online giants such as Flipkart and Amazon.  They also take pride in their retail outlet, aptly named Urban Tots. 

In January 2023, Indian Oil Corporation (IOC), signed an exclusive Memorandum of Understanding (MOU) with Deepak Houseware and Toys Pvt Ltd., which operates under the brand Urban Tots. According to this agreement, Urban Tots will set up toy shops and kiosks at IOC retail outlets all over India.

Order Book Value:

Urban Tots received an order total of ₹ 750 Cr, with a major contribution of ₹ 250 Cr coming from Hasbro Inc. The Indian Armed Forces have a value of ₹135 Cr, while Anganwadi is valued at ₹75 Cr and Patanjali at ₹100 Cr, with additional orders from sources like Flipkart, Amazon, and First cry worth ₹100 Cr. 

Strategic Retail & Online Presence

Urban Tots has built an extensive retail network and a robust online presence. The brand has exclusive agreements with major retailers and sells its products on popular platforms like Amazon and Flipkart. This  approach ensures that Urban Tots' products are accessible to a wide audience, enhancing its market reach and customer base.

State-of-the-Art Manufacturing Facility

Urban Tots has established a manufacturing plant  that covers an area of 36,000 square yards in Bhiwadi, Rajasthan, which comes under the PLI scheme by the government of India. It has a current active workforce of more than 350 individuals. The company has its heavy machinery including 55 imported from abroad, which makes it self-reliant and independent.

PLI Scheme: 

Presently, the company has received approval for a 5% subsidy on working capital from the Department of Industry and Commerce, Government of Rajasthan, equating to an annual benefit of ₹ 50 lakhs. Additionally, it has submitted an application for the PLI scheme to the federal government in hopes of meeting the requirements for its corresponding benefits.

(Under this scheme, if the company invests ₹ 25 Cr. In PPE, the government will reimburse 67.5% of the initial cost, amounting to ₹ 16.88 Cr. Within a span of four years, 67.5% of ₹ 25 Cr will be utilized. The Urban Tots has already allocated approximately ₹ 26 Cr. toward its PPE investment.)

Impressive Financial Performance

Urban Tots experienced a significant increase of 67.3% in revenue, specifically from ₹ 49.2 Cr. in FY23 to ₹ 80 Cr in FY24, and achieved profitability on account of strong book value, the new acquisition of customers and the expansion of its product base. Furthermore, the company's net profit has increased, which has grown by 138%, from  ₹ 4.2 Cr in FY23 to ₹10.15 Cr in FY24. The company's net profit margin has grown by 3.2% , from 9% in FY23 to 12.2% in FY24 on account of the effective utilization of its labor and fixed assets. 

In comparison, Urban Tots recorded revenue of ₹125 crore & PAT of ₹13 Cr. in FY25 and is currently valued at ₹445.6 crore, indicating a significant undervaluation relative to its peer on a revenue and valuation basis.

Urban Tots and Mahindra: A Strategic Alliance

The collaboration with Mahindra is a leap forward for Urban Tots, aligning with the BJP's manifesto to make India a toy hub. This partnership underscores Urban Tots' commitment to innovation and quality, as they bring to life miniature Mahindra tractors, resonating with both the young and the young-at-heart. 

The partnership with Mahindra marks a significant milestone in Urban Tots' global outreach, with an order for 2,000 Mahindra tractor toy models monthly, adding Rs 1 crore to their top line and showcasing their capability to meet global demands. 

But that's not all! The company has also signed an MoU to manufacture XUV700 and Thar toys! With a planned ramp-up to 25,000 units (including tractors) within the next 6 months, Urban Tots is set to become a major player in the premium toy segment.

Future Expansion Plans

Urban Tots is well-positioned for future growth, supported by favorable government policies, including subsidies under the DIC scheme and the PLI scheme. The company has plans to open up 2 more similar plants to penetrate in other areas and substitute the exports.  It has plans for retail expansion and innovative marketing initiatives. Urban Tots presents a promising investment opportunity, projecting significant returns and planning for an IPO within the next 3 years.

Investment Potential

Urban Tot’s share price is currently  ₹100 per share.  Urban Tots' strong financial performance and growth prospects make it an attractive investment opportunity. It's important to highlight that during FY23, the majority of companies within the sector faced operational challenges, some even ending up with net losses. In contrast, Urban Tots managed to achieve a 9% NPM and a bottom line of ₹4.2 Cr during the same period. Notably, one of its primary competitors, Ok Play India Ltd, which is listed on the domestic bourses (NSE), is trading at a TTM PE ratio of 131x in Q3 FY24, with a TTM bottom line of ₹3.2 Cr. 

Investors seeking exposure to the thriving toy industry in India may find Urban Tots a promising investment opportunity, given its proven track record and strategic growth plans.  Investors looking for getting  in-depth analysis of Urban Tots' share price, industry statistics, and for investment in unlisted shares of Urban Tots refer this valuable resource of research report - Urban Tots.