1QFY2017 Result Update | Writing Instruments
August 11, 2016
Linc Pen & Plastics
ACCUMULATE
CMP
`260
Performance Highlights
Target Price
`283
Quarterly Data
Investment Period
12 months
(` cr)
1QFY17
1QFY16
% yoy
4QFY16
% qoq
Revenue
87
79
9.9
105
(17.2)
Stock Info
Sector
Writing Instruments
EBITDA
8.4
6
29.9
11
(21.0)
Market Cap (` cr)
36
Margin (%)
9.6
8.1
149bp
10.1
(46bp)
Net Debt (` cr)
16
Adj. PAT
4
4
17.3
6
(30.2)
Beta
1.1
Source: Company, Angel Research
52 Week High / Low
293 / 136
For 1QFY2017, Linc Pen & Plastics Ltd (LPPL)’ results have come in in line of
Avg. Daily Volume
4,089
our estimates on the top-line as well as the bottom-line front. Its top-line grew
Face Value (`)
10
10% yoy while on the operating front, the company reported
BSE Sensex
27,775
margin improvement, primarily on account of lower raw material costs. Further,
Nifty
8,575
the net profit grew by ~17% yoy to `4.4cr aided by higher sales growth and a
Reuters Code
LINC.BO
strong operating performance.
Bloomberg Code
[email protected]
Top-line grew 10% yoy: The top-line grew by ~10% yoy to `87cr on the back
of good growth in the domestic as well as the exports segment.
Shareholding Pattern (%)
PAT grew ~17% yoy: On the operating front, the company reported margin
Promoters
60.4
expansion by 149bp yoy to 9.6%, primarily on account of lower raw material
MF / Banks / Indian Fls
0.0
costs. The reported net profit grew by ~17% yoy to `4.4cr aided by higher sales
FII / NRIs / OCBs
0.2
growth and a strong operating performance.
Indian Public / Others
39.4
Outlook and valuation: Going ahead, we expect LPPL to report a top-line CAGR
of ~10% over FY2016-18E to ~`420cr owing to strong domestic as well as
Abs. (%)
3m 1yr 3yr
export sales. On the bottom-line front, we expect the company to report ~13%
Sensex
7.8
(1.2)
46.6
CAGR to `23cr over FY2016-18E. This would be on account of expansion in
LPPL
36.1
36.1
622.0
operating margin on the back of lower material prices and higher exports (which
is a high margin business). We recommend an Accumulate rating on the stock
3-year price chart
with a target price of `283.
350
Key financials
300
Y/E March (` cr)
FY2015
FY2016
FY2017E
FY2018E
250
200
Net sales
318
344
382
420
150
% chg
1.3
8.1
10.9
10.0
100
Net profit
14
18
20
23
50
0
% chg
24.4
27.9
8.7
16.6
EBITDA margin (%)
7.9
9.1
9.3
9.5
EPS (`)
9.7
12.4
13.5
15.7
Source: Company, Angel Research
P/E (x)
26.9
21.0
19.3
16.5
P/BV (x)
4.4
3.8
3.3
2.9
RoE (%)
16.2
18.0
17.1
17.3
RoCE (%)
18.3
19.2
20.6
21.4
EV/Sales (x)
1.3
1.2
1.1
1.0
Amarjeet S Maurya
022-39357800 Ext: 6831
EV/EBITDA (x)
15.9
13.2
11.5
10.1
[email protected]
Source: Company, Angel Research, Note: CMP as of August 10, 2016
Please refer to important disclosures at the end of this report
1
Linc Pen & Plastics | 1QFY2017 Result Update
Exhibit 1: Quarterly performance
Y/E March (` cr)
1QFY17
1QFY16
% yoy
4QFY16
% qoq
FY2016
FY2015
% chg
Net Sales
87
79
9.9
105
(17.2)
344
318
8.1
Consumption of RM
55
51
8.3
66
(16.9)
219
210
4.0
(% of Sales)
63.5
64.4
63.3
63.6
66.1
Staff Costs
5
4
3.8
5
(11.8)
19
17
6.2
(% of Sales)
5.2
5.5
4.9
5.4
5.5
Operating Expense
19
17
8.5
23
(17.5)
75
65
15.7
(% of Sales)
21.6
21.9
21.7
21.9
20.5
Total Expenditure
79
73
8.1
94
(16.8)
313
293
6.7
Operating Profit
8
6
29.9
11
(21.0)
31
25
24.2
OPM (%)
9.6
8.1
10.1
9.1
7.94
Interest
1
0
166.6
1
(21.2)
2
1
3.4
Depreciation
2
2
21.9
2
17.2
6
6
1.7
Other Income
0
0
82.0
1
(97.3)
1
0
155.2
PBT
6
5
26.6
9
(33.4)
25
18
35.3
(% of Sales)
6.9
6.0
8.5
7.2
5.7
Provision for Taxation
2
1
61.9
3
(40.8)
6
4
62.5
(% of PBT)
26.6
20.8
29.9
25.7
21.4
Minority Interest
0
0
0
0
0
Reported PAT
4.4
3.7
17.3
6
(30.2)
18
14
27.9
PATM
5.0
4.7
6.0
5.3
4.5
Source: Company, Angel Research
August 11, 2016
2
Linc Pen & Plastics | 1QFY2017 Result Update
Top-line grows 10% yoy
The top-line grew by ~10% yoy to `87cr, with the company posting good
growth in the domestic as well as the exports segment.
Exhibit 2: Top-line growth trend
120.0
50
40
100.0
30
80.0
20
60.0
10
0
40.0
(10)
20.0
(20)
0.0
(30)
Net sales
QoQ growth (%)
Source: Company, Angel Research
Operating margin expansion due to falling material prices
On the operating front, the company reported margin expansion by 149bp
yoy to 9.6%, primarily on account of lower material and staff costs as a
percentage of sales.
Exhibit 3: Operating profit and margin trend
12.0
12
10.0
10
8.0
8
6.0
6
4.0
4
2.0
2
0.0
0
Operating Profit
Margin (%)
Source: Company, Angel Research
August 11, 2016
3
Linc Pen & Plastics | 1QFY2017 Result Update
PAT grew ~17% yoy
The reported net profit grew by ~17% yoy to `4.4cr aided by higher sales
growth and a strong operating performance.
Exhibit 4: Net Profit and growth trend
7.0
100
6.0
80
60
5.0
40
4.0
20
3.0
0
2.0
(20)
1.0
(40)
0.0
(60)
Net Profit
QoQ growth (%)
Source: Company, Angel Research
August 11, 2016
4
Linc Pen & Plastics | 1QFY2017 Result Update
Investment rationale
Lower raw material price and product mix change to expand
margins
Going forward, we believe that the company would be able to increase its margins
owing to soft raw material prices including that of high density polyethylene,
polyethylene, nylon etc. which are linked to crude prices. Also, the company is now
targeting higher margin segments like >`10 pens.
Increased focus on western & southern regions coupled with
recovery in export business to accelerate top-line growth
We expect LPPL to report a healthy recovery and post a top-line CAGR of ~10%
over FY2016-18E, on the back of various triggers. These include (a) its increased
focus on southern and western regions which should contribute additionally to the
overall top-line, (b) it enjoys a strong brand recall and is consistently incurring
significant ad spends to boost sales growth which has enabled it to capture a
market share of 10%, (c) an expected recovery in exports (d) the company’s strong
distribution network coupled with continuous new product launches.
August 11, 2016
5
Linc Pen & Plastics | 1QFY2017 Result Update
Outlook and valuation
Going ahead, we expect LPPL to report a top-line CAGR of ~10% over FY2016-
18E to ~`420cr owing to strong domestic as well as export sales. On the bottom-
line front, we expect the company to report ~13% CAGR to `23cr over FY2016-
18E. This would be on account of expansion in operating margin on the back of
lower material prices and higher exports (which is a high margin business). We
recommend an Accumulate rating on the stock with a target price of `283.
Company Background
LPPL is an India-based company engaged in writing instruments and stationery
business. Its stationery products include pencils (wooden and disposable), sketch
pens, geometry boxes and erasers. The company’s domestic pens portfolio is
divided into ball point pens and gel pens, and comprises of brands like Signature,
Ivy, Royale, Carbon, Elegant, Sleek, Siren and Soffy. Its international pens include
Gliss, Flotech, Gripex, Mission, Orion, Safron Ball, Smartex, Success and Topper.
The company uses plastic granules, ball pen tips, ink, packaging material, springs
and stamping foil as its raw materials. Its manufacturing facilities are located in
Falta (SEZ) and Serakole, both located on the outskirts of Kolkata, and its products
are sold in over 45 countries.
August 11, 2016
6
Linc Pen & Plastics | 1QFY2017 Result Update
Profit & Loss Statement
Y/E March (` cr)
FY13
FY14
FY15
FY16
FY17E
FY18E
Total operating income
305
314
318
344
382
420
% chg
11.0
2.9
1.3
8.1
10.9
10.0
Total Expenditure
292
292
293
313
346
380
Cost of Materials
216
216
210
219
245
269
Personnel Expenses
16
17
17
19
21
24
Others Expenses
60
60
65
75
79
86
EBITDA
14
22
25
31
35
40
% chg
34.4
62.1
14.5
24.3
13.0
12.4
(% of Net Sales)
4.5
7.0
7.9
9.1
9.3
9.5
Depreciation& Amortisation
4
5
6
6
6
7
EBIT
9
17
19
25
29
33
% chg
56.8
86.1
14.1
31.1
14.6
13.7
(% of Net Sales)
3.0
5.4
6.1
7.4
7.6
7.9
Interest & other Charges
2
2
1
2
3
2
Other Income
0
0
0
1
0
0
(% of PBT)
5.4
0.6
1.6
3.0
1.1
1.0
Share in profit of Associates
-
-
-
-
-
-
Recurring PBT
7
15
18
25
27
31
% chg
220.0
109.2
23.6
35.3
9.3
16.6
Prior Period &
-
-
-
-
-
-
Extraord. Exp./(Inc.)
PBT (reported)
7
15
18
25
27
31
Tax
2
3
4
6
7
8
(% of PBT)
23.0
21.9
21.4
25.6
26.0
26.0
PAT (reported)
5
12
14
18
20
23
Add: Share of earnings of asso.
-
-
-
-
-
-
Less: Minority interest (MI)
-
-
-
-
-
-
PAT after MI (reported)
5
12
14
18
20
23
ADJ. PAT
5
12
14
18
20
23
% chg
218.8
112.4
24.4
27.9
8.7
16.6
(% of Net Sales)
1.8
3.7
4.5
5.3
5.2
5.5
Basic EPS (`)
3.7
7.8
9.7
12.4
13.5
15.7
Fully Diluted EPS (`)
3.7
7.8
9.7
12.4
13.5
15.7
% chg
218.8
112.4
24.4
27.9
8.7
16.6
August 11, 2016
7
Linc Pen & Plastics | 1QFY2017 Result Update
Balance Sheet
Y/E March (` cr)
FY13
FY14
FY15
FY16
FY17E
FY18E
SOURCES OF FUNDS
Equity Share Capital
15
15
15
15
15
15
Reserves& Surplus
56
64
73
87
102
120
Shareholders Funds
71
79
88
102
116
135
Minority Interest
-
-
-
-
-
-
Total Loans
32
34
18
31
25
20
Deferred Tax Liability
2
2
2
2
2
2
Total Liabilities
104
115
108
135
144
157
APPLICATION OF FUNDS
Gross Block
61
68
72
77
82
87
Less: Acc. Depreciation
32
35
41
47
54
60
Net Block
29
33
30
29
28
26
Capital Work-in-Progress
0
1
0
14
14
14
Investments
-
-
-
-
-
-
Current Assets
118
123
117
135
157
179
Inventories
66
70
64
74
80
89
Sundry Debtors
44
41
40
45
49
54
Cash
0
0
2
0
2
3
Loans & Advances
5
6
5
8
12
17
Other Assets
3
5
7
8
13
17
Current liabilities
44
42
40
45
56
65
Net Current Assets
75
81
77
91
101
115
Deferred Tax Asset
0
0
0
0
0
0
Total Assets
104
115
108
135
144
157
August 11, 2016
8
Linc Pen & Plastics | 1QFY2017 Result Update
Cashflow Statement
Y/E March (` cr)
FY13
FY14
FY15
FY16
FY17E
FY18E
Profit before tax
7
15
18
25
27
31
Depreciation
4
5
6
6
6
7
Change in Working Capital
(12)
(8)
5
(15)
(9)
(13)
Interest / Dividend (Net)
2
2
1
2
3
2
Direct taxes paid
(1)
(3)
(5)
(6)
(7)
(8)
Others
(0)
1
(0)
-
-
-
Cash Flow from Operations
1
11
25
11
20
19
(Inc.)/ Dec. in Fixed Assets
(40)
(1)
(4)
(19)
(5)
(4)
(Inc.)/ Dec. in Investments
(35)
8
-
-
-
1
Cash Flow from Investing
(5)
(9)
(4)
(19)
(5)
(5)
Issue of Equity
20
-
-
-
-
-
Inc./(Dec.) in loans
(11)
2
(15)
13
(6)
(5)
Dividend Paid (Incl. Tax)
(1)
(2)
(3)
(5)
(5)
(6)
Interest / Dividend (Net)
(3)
(3)
(1)
(2)
(3)
(2)
Cash Flow from Financing
5
(2)
(20)
7
(14)
(13)
Inc./(Dec.) in Cash
0
(0)
1
(1)
2
1
Opening Cash balances
0
0
0
2
0
2
Closing Cash balances
0
0
2
0
2
3
August 11, 2016
9
Linc Pen & Plastics | 1QFY2017 Result Update
Key Ratios
Y/E March
FY13
FY14
FY15
FY16
FY17E FY18E
Valuation Ratio (x)
P/E (on FDEPS)
70.9
33.4
26.9
21.0
19.3
16.5
P/CEPS
38.9
23.2
19.1
15.8
14.6
12.8
P/BV
5.4
4.9
4.4
3.8
3.3
2.9
Dividend yield (%)
0.6
0.8
1.0
1.2
1.3
1.6
EV/Sales
1.4
1.3
1.3
1.2
1.1
1.0
EV/EBITDA
30.5
18.9
15.9
13.2
11.5
10.1
EV / Total Assets
2.8
2.7
2.7
2.3
2.0
1.8
Per Share Data (`)
EPS (Basic & fully diluted)
3.7
7.8
9.7
12.4
13.5
15.7
EPS (Adjusted)
3.7
7.8
9.7
12.4
13.5
15.7
Cash EPS
6.7
11.2
13.6
16.4
17.8
20.3
DPS
1.5
2.0
2.5
3.2
3.5
4.1
Book Value
47.7
53.2
59.6
68.8
78.7
91.0
Returns (%)
ROCE
9.0
15.2
18.3
19.2
20.6
21.4
Angel ROIC (Pre-tax)
9.0
15.2
18.6
19.2
20.9
21.9
ROE
7.7
14.6
16.2
18.0
17.1
17.3
Turnover ratios (x)
Asset Turnover (Gross Block)
5.0
4.6
4.4
4.5
4.7
4.8
Inventory / Sales (days)
79
82
73
79
77
77
Receivables (days)
53
48
46
48
47
47
Payables (days)
33
28
25
25
28
30
WC cycle (ex-cash) (days)
99
101
94
102
96
94
August 11, 2016
10
Linc Pen & Plastics | 1QFY2017 Result Update
Research Team Tel: 022 - 39357800
E-mail: [email protected]
Website: www.angelbroking.com
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offering of securities of the company covered by Analyst during the past twelve months.
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Disclosure of Interest Statement
Linc Pen & Plastics
1. Financial interest of research analyst or Angel or his Associate or his relative
No
2. Ownership of 1% or more of the stock by research analyst or Angel or associates or relatives
No
3. Served as an officer, director or employee of the company covered under Research
No
4. Broking relationship with company covered under Research
No
Ratings (Based on expected returns
Buy (> 15%)
Accumulate (5% to 15%)
Neutral (-5 to 5%)
over 12 months investment period):
Reduce (-5% to -15%)
Sell (< -15)
August 11, 2016
11