4QFY2016 Result Update | Writing Instruments
May 27, 2016
Linc Pen & Plastics
BUY
CMP
`203
Performance Highlights
Target Price
`235
Quarterly Data
Investment Period
12 months
(` cr)
4QFY16
4QFY15
% yoy
3QFY16
% qoq
Revenue
105
93
13.4
72
45.5
Stock Info
EBITDA
10.6
7
54.6
6
65.2
Sector
Writing Instruments
Margin (%)
10.1
7.4
268bp
8.9
120bp
Market Cap (` cr)
288
Adj. PAT
6
4
64.7
3
92.2
Net Debt (` cr)
16
Source: Company, Angel Research
Beta
1.1
52 Week High / Low
243 / 146
For 4QFY2016, Linc Pen & Plastics Ltd (LPPL) outperformed our estimates on both
Avg. Daily Volume
10,582
the top-line and the bottom-line front. The company’s top-line for the quarter
Face Value (`)
10
grew
13% yoy. On the operating front, the company reported
BSE Sensex
24,617
margin improvement, primarily on account of lower raw material costs. Further,
Nifty
7,489
the net profit grew by ~65% yoy to `6.3cr aided by higher sales growth and a
Reuters Code
LINC.BO
strong operating performance.
Bloomberg Code
[email protected]
Top-line grew ~13% yoy: The top-line for the quarter grew by ~13% yoy to
~`105cr, with the company posting good growth in the domestic (~6% yoy to
Shareholding Pattern (%)
`68cr) as well as the exports segment (~30% yoy to `37cr).
Promoters
60.4
PAT grew ~4% yoy: On the operating front, the company reported margin
MF / Banks / Indian Fls
0.0
expansion by 268bp yoy to 10.1%, primarily on account of lower raw material
FII / NRIs / OCBs
0.2
costs. The reported net profit grew by ~65% yoy to `6.3cr aided by higher sales
Indian Public / Others
39.4
growth and a strong operating performance.
Outlook and valuation: Going ahead, we expect LPPL to report a top-line CAGR
Abs. (%)
3m 1yr 3yr
of ~10% over FY2016-18E to ~`416cr owing to strong domestic as well as
Sensex
(6.4)
(14.7)
25.2
export sales. On the bottom-line front, we expect the company to report ~9%
LPPL
19.9
3.9
352.9
CAGR to `22cr 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 a Buy rating on the stock with a target
3-year price chart
price of `235.
250
200
Key financials
Y/E March (` cr)
FY2015
FY2016
FY2017E
FY2018E
150
Net sales
318
344
382
416
100
% chg
1.3
8.1
10.9
9.0
50
Net profit
14
18
19
22
0
% chg
24.4
27.9
5.7
12.3
EBITDA margin (%)
7.9
9.1
9.1
9.1
EPS (`)
9.7
12.4
13.1
14.7
Source: Company, Angel Research
P/E (x)
21.0
16.4
15.5
13.8
P/BV (x)
3.4
3.0
2.6
2.3
RoE (%)
16.2
18.0
16.7
16.3
RoCE (%)
18.3
19.2
20.1
20.3
Amarjeet S Maurya
EV/Sales (x)
1.0
1.0
0.8
0.8
022-39357800 Ext: 6831
EV/EBITDA (x)
12.5
10.5
9.3
8.4
[email protected]
Source: Company, Angel Research, Note: CMP as of May 25, 2016
Please refer to important disclosures at the end of this report
1
Linc Pen & Plastics | 4QFY2016 Result Update
Exhibit 1: Quarterly performance
Y/E March (` cr)
4QFY16
4QFY15
% yoy
3QFY16
% qoq
FY2016
FY2015
% chg
Net Sales
105
93
13.4
72
45.5
344
318
8.1
Consumption of RM
66
61
9.8
45
47.8
219
210
4.0
(% of Sales)
63.3
65.4
62.3
63.6
66.1
Staff Costs
5
5
(2.8)
4
18.6
19
17
6.2
(% of Sales)
4.9
5.7
6.0
5.4
5.5
Operating Expense
23
20
14.7
16
38.6
75
65
15.7
(% of Sales)
21.7
21.5
22.8
21.9
20.5
Total Expenditure
94
86
10.2
66
43.6
313
293
6.7
Operating Profit
11
7
54.6
6
65.2
31
25
24.2
OPM (%)
10.1
7.4
8.9
9.1
7.94
Interest
1
0
51.1
0
52.8
2
1
3.4
Depreciation
2
1
6.0
1
7.4
6
6
1.7
Other Income
1
0
252.6
0
7,262.6
1
0
155.2
PBT
9
5
76.6
4
100.1
25
18
35.3
(% of Sales)
8.5
5.5
6.2
7.2
5.7
Provision for Taxation
3
1
112.7
1
121.4
6
4
62.5
(% of PBT)
29.9
24.8
27.0
25.7
21.4
Minority Interest
Reported PAT
6
4
64.7
3
92.2
18
14
27.9
PATM
6.0
4.1
4.5
5.3
4.5
Source: Company, Angel Research
May 27, 2016
2
Linc Pen & Plastics | 4QFY2016 Result Update
Top-line grows 13% yoy
The top-line for the quarter grew by ~13% yoy to ~`105cr, with the company
posting good growth in the domestic (~6% yoy to `68cr) as well as the exports
segment (~30% yoy to `37cr).
Exhibit 2: Top-line growth trend
120
50
40
100
30
80
20
60
10
0
40
-10
20
-20
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 (up by 268bp yoy
to 10.1%), primarily on account of lower raw material costs.
Exhibit 3: Operating profit and margin trend
12
12
10
10
8
8
6
6
4
4
2
2
0
0
Operating Profit
Margin (%)
Source: Company, Angel Research
May 27, 2016
3
Linc Pen & Plastics | 4QFY2016 Result Update
PAT grew ~65% yoy
The reported net profit grew by ~65% yoy to `6.3cr, aided by higher sales growth
and a strong operating performance.
Exhibit 4: Net Profit and growth trend
7
100
6
80
60
5
40
4
20
3
0
2
-20
1
-40
0
-60
Net Profit
QoQ growth (%)
Source: Company, Angel Research
May 27, 2016
4
Linc Pen & Plastics | 4QFY2016 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.
May 27, 2016
5
Linc Pen & Plastics | 4QFY2016 Result Update
Outlook and valuation
Going ahead, we expect LPPL to report a top-line CAGR of ~10% over FY2016-
18E to ~`416cr owing to strong domestic as well as export sales. On the bottom-
line front, we expect the company to report ~9% CAGR to `22cr 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 a Buy rating on the stock with a target price of `235.
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.
May 27, 2016
6
Linc Pen & Plastics | 4QFY2016 Result Update
Profit & Loss Statement
Y/E March (` cr)
FY13
FY14
FY15
FY16E
FY17E
FY18E
Total operating income
305
314
318
344
382
416
% chg
11.0
2.9
1.3
8.1
10.9
9.0
Total Expenditure
292
292
293
313
347
378
Cost of Materials
216
216
210
219
245
267
Personnel Expenses
16
17
17
19
21
24
Others Expenses
60
60
65
75
80
87
EBITDA
14
22
25
31
35
38
% chg
34.4
62.1
14.5
24.3
10.6
9.0
(% of Net Sales)
4.5
7.0
7.9
9.1
9.1
9.1
Depreciation& Amortisation
4
5
6
6
6
7
EBIT
9
17
19
25
28
31
% chg
56.8
86.1
14.1
31.1
11.6
9.6
(% of Net Sales)
3.0
5.4
6.1
7.4
7.4
7.5
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
26
29
% chg
220.0
109.2
23.6
35.3
6.2
12.3
Prior Period & Extraord. Exp./(Inc.)
-
-
-
-
-
-
PBT (reported)
7
15
18
25
26
29
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
19
22
Add: Share of earnings of asso.
-
-
-
-
-
-
Less: Minority interest (MI)
-
-
-
-
-
-
PAT after MI (reported)
5
12
14
18
19
22
ADJ. PAT
5
12
14
18
19
22
% chg
218.8
112.4
24.4
27.9
5.7
12.3
(% of Net Sales)
1.8
3.7
4.5
5.3
5.1
5.2
Basic EPS (`)
3.7
7.8
9.7
12.4
13.1
14.7
Fully Diluted EPS (`)
3.7
7.8
9.7
12.4
13.1
14.7
% chg
218.8
112.4
24.4
27.9
5.7
12.3
May 27, 2016
7
Linc Pen & Plastics | 4QFY2016 Result Update
Balance Sheet
Y/E March (` cr)
FY13
FY14
FY15
FY16E
FY17E
FY18E
SOURCES OF FUNDS
Equity Share Capital
15
15
15
15
15
15
Reserves& Surplus
56
64
73
87
101
118
Shareholders Funds
71
79
88
102
116
133
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
143
155
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
156
177
Inventories
66
70
64
74
80
88
Sundry Debtors
44
41
40
45
49
54
Cash
0
0
2
0
1
2
Loans & Advances
5
6
5
8
12
17
Other Assets
3
5
7
8
13
17
Current liabilities
44
42
40
45
56
63
Net Current Assets
75
81
77
91
100
113
Deferred Tax Asset
0
0
0
0
0
0
Total Assets
104
115
108
135
143
155
May 27, 2016
8
Linc Pen & Plastics | 4QFY2016 Result Update
Cashflow Statement
Y/E March (` cr)
FY13
FY14
FY15
FY16E
FY17E
FY18E
Profit before tax
7
15
18
25
26
29
Depreciation
4
5
6
6
6
7
Change in Working Capital
(12)
(8)
5
(15)
(9)
(12)
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
19
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
(13)
(13)
Inc./(Dec.) in Cash
0
(0)
1
(1)
1
1
Opening Cash balances
0
0
0
2
0
1
Closing Cash balances
0
0
2
0
1
2
May 27, 2016
9
Linc Pen & Plastics | 4QFY2016 Result Update
Key Ratios
Y/E March
FY13
FY14
FY15
FY16E FY17E FY18E
Valuation Ratio (x)
P/E (on FDEPS)
55.4
26.1
21.0
16.4
15.5
13.8
P/CEPS
30.4
18.1
14.9
12.4
11.7
10.5
P/BV
4.3
3.8
3.4
3.0
2.6
2.3
Dividend yield (%)
0.7
1.0
1.2
1.6
1.7
1.9
EV/Sales
1.1
1.1
1.0
1.0
0.8
0.8
EV/EBITDA
24.4
15.1
12.5
10.5
9.3
8.4
EV / Total Assets
2.2
2.1
2.1
1.8
1.6
1.5
Per Share Data (`)
EPS (Basic & fully diluted)
3.7
7.8
9.7
12.4
13.1
14.7
EPS (Adjusted)
3.7
7.8
9.7
12.4
13.1
14.7
Cash EPS
6.7
11.2
13.6
16.4
17.4
19.3
DPS
1.5
2.0
2.5
3.2
3.4
3.8
Book Value
47.7
53.2
59.6
68.8
78.4
90.0
Returns (%)
ROCE
9.0
15.2
18.3
19.2
20.1
20.3
Angel ROIC (Pre-tax)
9.0
15.2
18.6
19.2
20.3
20.6
ROE
7.7
14.6
16.2
18.0
16.7
16.3
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
May 27, 2016
10
Linc Pen & Plastics | 4QFY2016 Result Update
Research Team Tel: 022 - 39357800
E-mail: [email protected]
Website: www.angelbroking.com
DISCLAIMER
Angel Broking Private Limited (hereinafter referred to as “Angel”) is a registered Member of National Stock Exchange of India Limited,
Bombay Stock Exchange Limited and Metropolitan Stock Exchange of India Limited. It is also registered as a Depository Participant with
CDSL and Portfolio Manager with SEBI. It also has registration with AMFI as a Mutual Fund Distributor. Angel Broking Private Limited is
a registered entity with SEBI for Research Analyst in terms of SEBI (Research Analyst) Regulations, 2014 vide registration number
INH000000164. Angel or its associates has not been debarred/ suspended by SEBI or any other regulatory authority for accessing
/dealing in securities Market. Angel or its associates including its relatives/analyst do not hold any financial interest/beneficial
ownership of more than 1% in the company covered by Analyst. Angel or its associates/analyst has not received any compensation /
managed or co-managed public offering of securities of the company covered by Analyst during the past twelve months. Angel/analyst
has not served as an officer, director or employee of company covered by Analyst and has not been engaged in market making activity
of the company covered by Analyst.
This document is solely for the personal information of the recipient, and must not be singularly used as the basis of any investment
decision. Nothing in this document should be construed as investment or financial advice. Each recipient of this document should
make such investigations as they deem necessary to arrive at an independent evaluation of an investment in the securities of the
companies referred to in this document (including the merits and risks involved), and should consult their own advisors to determine
the merits and risks of such an investment.
Reports based on technical and derivative analysis center on studying charts of a stock's price movement, outstanding positions and
trading volume, as opposed to focusing on a company's fundamentals and, as such, may not match with a report on a company's
fundamentals.
The information in this document has been printed on the basis of publicly available information, internal data and other reliable
sources believed to be true, but we do not represent that it is accurate or complete and it should not be relied on as such, as this
document is for general guidance only. Angel Broking Pvt. Limited or any of its affiliates/ group companies shall not be in any way
responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report.
Angel Broking Pvt. Limited has not independently verified all the information contained within this document. Accordingly, we cannot
testify, nor make any representation or warranty, express or implied, to the accuracy, contents or data contained within this document.
While Angel Broking Pvt. Limited endeavors to update on a reasonable basis the information discussed in this material, there may be
regulatory, compliance, or other reasons that prevent us from doing so.
This document is being supplied to you solely for your information, and its contents, information or data may not be reproduced,
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Neither Angel Broking Pvt. Limited, nor its directors, employees or affiliates shall be liable for any loss or damage that may arise from
or in connection with the use of this information.
Note: Please refer to the important ‘Stock Holding Disclosure' report on the Angel website (Research Section). Also, please refer to the
latest update on respective stocks for the disclosure status in respect of those stocks. Angel Broking Pvt. Limited and its affiliates may
have investment positions in the stocks recommended in this report.
Disclosure of Interest Statement
Linc Pen & Plastics
1. Analyst ownership of the stock
No
2. Angel and its Group companies ownership of the stock
No
3. Angel and its Group companies' Directors ownership of the stock
No
4. Broking relationship with company covered
No
Note: We have not considered any Exposure below ` 1 lakh for Angel, its Group companies and Directors
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%)
May 27, 2016
11