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

13.4

45.5

Stock Info

EBITDA

10.6

54.6

65.2

Sector

Writing Instruments

Margin (%)

10.1

7.4

268bp

8.9

120bp

Market Cap (` cr)

288

Adj. PAT

64.7

92.2

Net Debt (` cr)

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 (`)

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

LPP@IN

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

Net profit

% chg

24.4

27.9

5.7

12.3

EBITDA margin (%)

7.9

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

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

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

13.4

45.5

344

318

8.1

Consumption of RM

9.8

47.8

219

210

4.0

(% of Sales)

63.3

65.4

62.3

63.6

66.1

Staff Costs

(2.8)

18.6

6.2

(% of Sales)

4.9

5.7

6.0

5.4

5.5

Operating Expense

14.7

38.6

15.7

(% of Sales)

21.7

21.5

22.8

21.9

20.5

Total Expenditure

10.2

43.6

313

293

6.7

Operating Profit

54.6

65.2

24.2

OPM (%)

10.1

7.4

8.9

9.1

7.94

Interest

51.1

52.8

3.4

Depreciation

6.0

7.4

1.7

Other Income

252.6

7,262.6

155.2

PBT

76.6

100.1

35.3

(% of Sales)

8.5

5.5

6.2

7.2

5.7

Provision for Taxation

112.7

121.4

62.5

(% of PBT)

29.9

24.8

27.0

25.7

21.4

Minority Interest

Reported PAT

64.7

92.2

27.9

PATM

6.0

4.1

4.5

5.3

4.5

Source: Company, Angel Research

May 27, 2016

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

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

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

293

313

347

378

Cost of Materials

216

210

219

245

267

Personnel Expenses

Others Expenses

EBITDA

% chg

34.4

62.1

14.5

24.3

10.6

9.0

(% of Net Sales)

4.5

7.0

7.9

9.1

Depreciation& Amortisation

EBIT

% chg

56.8

86.1

14.1

31.1

11.6

9.6

(% of Net Sales)

3.0

5.4

6.1

7.4

7.5

Interest & other Charges

Other Income

(% of PBT)

5.4

0.6

1.6

3.0

1.1

1.0

Share in profit of Associates

Recurring PBT

% chg

220.0

109.2

23.6

35.3

6.2

12.3

Prior Period & Extraord. Exp./(Inc.)

PBT (reported)

Tax

(% of PBT)

23.0

21.9

21.4

25.6

26.0

PAT (reported)

Add: Share of earnings of asso.

Less: Minority interest (MI)

PAT after MI (reported)

ADJ. PAT

% 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

Linc Pen & Plastics | 4QFY2016 Result Update

Balance Sheet

Y/E March (` cr)

FY13

FY14

FY15

FY16E

FY17E

FY18E

SOURCES OF FUNDS

Equity Share Capital

Reserves& Surplus

101

118

Shareholders Funds

102

116

133

Minority Interest

Total Loans

Deferred Tax Liability

Total Liabilities

104

115

108

135

143

155

APPLICATION OF FUNDS

Gross Block

Less: Acc. Depreciation

Net Block

Capital Work-in-Progress

Investments

Current Assets

118

123

117

135

156

177

Inventories

Sundry Debtors

Cash

Loans & Advances

Other Assets

Current liabilities

Net Current Assets

100

113

Deferred Tax Asset

Total Assets

104

115

108

135

143

155

May 27, 2016

Linc Pen & Plastics | 4QFY2016 Result Update

Cashflow Statement

Y/E March (` cr)

FY13

FY14

FY15

FY16E

FY17E

FY18E

Profit before tax

Depreciation

Change in Working Capital

(12)

(8)

(15)

(9)

(12)

Interest / Dividend (Net)

Direct taxes paid

(1)

(3)

(5)

(6)

(7)

(8)

Others

(0)

Cash Flow from Operations

(Inc.)/ Dec. in Fixed Assets

(40)

(1)

(4)

(19)

(5)

(4)

(Inc.)/ Dec. in Investments

(35)

Cash Flow from Investing

(5)

(9)

(4)

(19)

(5)

Issue of Equity

Inc./(Dec.) in loans

(11)

(15)

(6)

(5)

Dividend Paid (Incl. Tax)

(1)

(2)

(3)

(5)

(6)

Interest / Dividend (Net)

(3)

(1)

(2)

(3)

(2)

Cash Flow from Financing

(2)

(20)

(13)

Inc./(Dec.) in Cash

(0)

(1)

Opening Cash balances

Closing Cash balances

May 27, 2016

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

1.0

0.8

EV/EBITDA

24.4

15.1

12.5

10.5

9.3

8.4

EV / Total Assets

2.2

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)

Receivables (days)

Payables (days)

WC cycle (ex-cash) (days)

101

102

May 27, 2016

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.

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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

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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

2. Angel and its Group companies ownership of the stock

3. Angel and its Group companies' Directors ownership of the stock

4. Broking relationship with company covered

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