Unlisted Shares

About

• Deepak Houseware and Toys (DH&T) is primarily involved in the business of manufacturing and selling a diverse product portfolio of toys such as plastic-made toys (including heavy toys like Mercedes, BMW Bikes, etc), electronics toys, and roll plays. DH&T sells its product under the brand name “Urban Tots”.

Strength

• Production Capacity: Urban Tots has set up a manufacturing plant spanning over 36,000 sq.yd. in Bhiwadi, Rajasthan, which comes under the PLI scheme by the government of India. It has a current active workforce of > 350 individuals. The company has its heavy machinery including 55 imported from abroad, which makes it self-reliant and independent.
• Distribution Channel: The company's forte is its notable 'presence' in diverse modern retail platforms like Reliance Retail, Hamleys, Dmart, Spencer, and Vmart, along with its modern foothold on e-commerce platforms. 
• Order Book Value: Urban Tots has an order worth ₹ 750 Cr (primarily from Hasbro Inc. worth ₹ 250 Cr, Indian Armed Forces worth ₹ 135 Cr, Anganwadi worth ₹ 75 Cr, Patanjali worth ₹ 100 Cr, and additional orders from various other sources such as Flipkart, Amazon, and First cry worth of ₹ 100 Cr).
• 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. Moreover, it has applied to the PLI scheme to the central government, aiming to potentially qualify for its associated benefits. (Under this scheme, if the company invests ₹ 25 Cr. in PPE, the government will reimburse 67.5% of the initial investment, totaling ₹ 16.88 Cr. (67.5% of ₹ 25 Cr) within 4 years. The Urban Tots has already allocated approximately ₹ 26 Cr. toward its PPE investment.).
• Market Share: India was a net importer of toys by a big margin. Well, learning from the US, Europe, Korea, and China, India finally began experimenting with a host of non-trade barriers to reduce imports. Combined with the import duty imposed on toy imports, the quality standards set by the Govt led to a radical fall in toy imports. Hence, the same has started giving more and more market share to the domestic players. The Indian Toy industry is characterized as fragmented, with 90% of the market being unorganized. Urban Tots hold less than 1% of the total market share of the Indian Toy Industry.

Timeline

(A=Actual, P=Provisional, E=Expected) 

Financial Performance

• Urban Tots achieved remarkable growth of 67.3% growth in revenue, i.e. 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 expansion of product base.
• The company's net profit margin is 12.2% which has grown 138% from ₹ 4.2 Cr in FY23 to ₹ 9.78 in FY24. The company's net profit margin has grown by 3.2% from 9% in FY23 to 12.2% in FY24 due to the effective utilization of its labour and fixed assets.

Expansion Strategy

• The company plans to conduct a pre-IPO round of ₹60 Cr at a valuation of ₹555 Cr in 2024. The net proceeds will be utilized in capex to increase production capacity, aiding in achieving and bolstering the top line from ₹200 Cr in FY25 to ₹400 Cr by the end of FY26, with a bottom line ranging from ₹65 Cr to ₹80 Cr.
• Following the pre-IPO round, the company also intends to launch an IPO in 2026 to raise funds totaling ₹200 Cr at a forward PE of 30x, driving the valuation to ₹2,100 Cr (with a 10% dilution of shareholding). These funds will be directed towards further investment in capex to expand production capacity by establishing another manufacturing plant in Madhya Pradesh, addressing the escalating demand, and fulfilling the order book value (primarily for fulfilling the order book value of Hasbro). The IPO round is expected to propel the company towards achieving a top line of ₹800 Cr by the end of FY28, with a bottom line ranging from ₹150 Cr to ₹180 Cr.
• In 2028, the company intends to come up with an FPO aimed at raising ₹800 Cr at a forward PE of 50x, thereby increasing the valuation to ₹7,500 Cr (with a 10.6% dilution of shareholding). These funds will be allocated towards establishing two new manufacturing plants in distinct regions of India, enhancing distribution networks, and meeting working capital needs. It is expected that this FPO will propel the company towards achieving a top line of ₹2,000 by the culmination of FY31, with a bottom line ranging from ₹370 Cr to ₹400 Cr.

Investment Thesis

• As mentioned above, India was a net importer of toys by a big margin. In FY22, India imported more than Rs. 22,000 Cr. worth of toys majorly from China, Indonesia, Taiwan, etc. To stop the same firstly, the govt has imposed an import tax (basic custom tax increased from 20% to 60%), and secondly to boost domestic production government has placed its focus on toy manufacturing and intends to incorporate it into the proposed PLI scheme. The government plans to reimburse 23% of the investment made in machinery by the promoters. This reimbursement is primarily aimed at initiating the substitution of more than ₹3,000 Cr. worth of toy imports to India annually.
• Building upon a well-defined strategic framework and a bedrock of financial strength, as evidenced by sustained high-performance returns over the past years, the company is presently valued at ₹555 Cr with a forward PE of 19x as of March 2025 which is undervalued as compared to sector forward PE of 73x.
• It's important to highlight that during FY24, 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 12.2% NPM and a bottom line of ₹9.78 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 363x in FY24, with a TTM bottom line of ₹1.1 Cr (equating to a 0.6% NPM).
• Considering a conservative approach and forward PE of 50x with a PAT of ₹150 Cr for FY28, the company is valued at ₹7,500 Cr with a share price of ₹ 1087, making Urban Tots an enticing investment opportunity with a potential 11x return approx. within 4 years. Hence, today’s investment of ₹ 10 Lakh can result in a return of ₹ 1.1 Cr in the next 4 years.
• Considering a conservative approach and forward PE of 50x with a PAT of ₹400 Cr for FY31, the company is valued at ₹ 20,000 Cr with a share price of ₹ 2620, making Urban Tots an enticing investment opportunity with a potential 26x return approx. within 7 years. Hence today’s investment of ₹ 10 Lakh can result in ₹ 2.6 Cr in the next 7 years.