Linc Pen & Plastics Ltd Research ReportCo.Update

Increasing share of value added products to benefit… Linc Pen & Plastics (Linc) reported a stable Q4FY19 performance. Net sales for the quarter were at | 106.2 crore, up 2.7% YoY. EBITDA was at | 7.5 crore with corresponding EBITDA margins at 7.0%, down 120 bps YoY. Ensuing PAT was at | 0.6 crore vs. | 3.1 crore in the base quarter (Q4FY19). Lower PAT was impacted by higher effective tax rate due to tax outgo for arrear years. On a full year basis, in FY19, Linc clocked sales of | 367 crore, up 11% YoY; EBITDA of | 25.7 crore (EBITDA margins 7%, down 80 bps YoY) and PAT of | 5.4 crore. During the year, Linc launched an innovative, newgeneration product i.e. “Pentonic” that is gaining good demand traction domestically and is well poised to attain sales of ~| 100 crore in FY20E. Digitisation takes toll, limited volume growth on offer Linc is a writing instrument player manufacturing pens and associated consumables domestically. It derives ~75% of its sales from the domestic market and the rest ~25% of sales from exports. With increasing penetration of digitisation, the core writing instrument market is not growing globally with growth limited to ~10% in the domestic market, the size of which is pegged at ~| 4,100 crore (FY17). Domestic growth is supported by rising literacy rates and higher share of school going population. Going forward, we expect the trend to continue with the domestic industry growing at ~10% CAGR in the next five years. This bodes well for Linc, which has a strong brand presence in the east as well as rising penetration elsewhere.