ProsperoTree.com recommended Linc Pens at Rs. 95-100 on 02-Sep-2014. Currently Linc is trading at Rs. 170 giving 73% returns within a year.

Recently, Linc Pens announced its Q1FY16 quarterly results. In the current quarter, sales grew by 9% YoY to Rs. 77.5 cr and its profits grew by 14% to Rs. 3.7 crores. We recommend a Hold on the stock at current levels of Rs. 170.

Below is the update on Linc Pens:

1. Nearly Double Digit Growth After 8 Quarters: It was after 8 quarters that Linc saw decent revenue growth. Growth was subdued in the past mainly because the phasing out certain low priced products and exports being affected due to political problems in certain countries. Q1FY16 sales growth of 9% YoY was driven by 18% YoY growth in pens priced Rs. 10+ and 12% exports sales growth. The strategy of the company to focus on higher margin pens seems to be paying off.

2. Expanding Geographical Presence: Being Kolkata based, Linc has a better presence in Eastern and Northern India. However, the recent advertisement initiatives and widening of distribution network has helped the company achieve 25% YoY sales growth in Southern region of India. The growth rate in new territories will likely remain higher.

3.Improvement in Margins Despite Higher Advertisement Cost: The operating profit margins (EBITDA) stood at 8.1% as against 8% in Q1FY15. This is in spite of much higher advertisement cost that increased from Rs. 1.4 cr in Q1FY15 to Rs. 2.9 cr in Q1FY16.

4. Margin Improvement to Continue: There is further scope to increase margins in Linc due to:

• Cost saving from increased in-house assembling: Linc enhanced its in-house assembling capacity by 50 lakhs units per month leading to a total capacity of around 1.4 crores units per month. Due to this, the production costs are expected to come down.
• Reduced crude price: Reduced crude prices should eventually translate into further savings from raw material costs.
• Moving up the value chain: The focus of the company towards selling pens prices Rs. 10 and above will further help the company to improve margins. After super success of Linc Twin Pen, it is going to launch Linc Touch Pen which is priced at Rs. 20 and has pen on one side and a stylus on other side.
   

Valuations: We maintain a Buy on Linc Pens at CMP of Rs. 167 and a market cap of Rs. 247 cr. With the company now debt free, we think that Linc’s strategy to focus on high value pens, brand strengthening exercise along with improvement in distribution network and exports thrust will eventually help the company to achieve much better results in times to come.

Here is the list of reports written before on Linc Pens for your reference:
1. Linc: Set to Write a New Chapter

2. LINC: Marketing Strategy

3. LINC Pen: Channels Checks; Maintain View

4. Linc: Beneficiary of Crude Price Fall

5. Linc: Margin Showing Strength

6. Linc Pen: Moving Up The Value Chain


 

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Dhruvesh Sanghvi is a Research Analyst registered with SEBI having registration No: INH000000875.

Definitions of Rating system:

• Fresh Recommendation Reports: These reports are first-time initiation reports on the concerned stock. Usually these reports are followed by updates on the same.
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