Linc Pen & Plastics Ltd (LPPL)’s 3QFY2016 results have come in below our
estimates. The company’s top-line for the quarter grew
5% yoy. On the operating front, the company reported margin improvement,
primarily on account of lower raw material costs. Further, on the bottom-line
front, the company reported a soft ~4% yoy growth on account of lower sales
Top-line grew ~5% yoy: The company’s top-line grew by ~5% yoy to ~`72cr
(which is below our estimate of ~`75cr), mainly due to a poor sales performance
on the export front (8.3% yoy de-growth due to geographical instability and
currency volatility). However, domestic sales grew by ~11.5% yoy.
PAT grew ~4% yoy: Despite margin expansion, the reported net profit grew by a
soft ~4% yoy to ~`3.3cr (which is below our estimates of ~`3.6cr) on account of
lower sales growth and higher tax rate.
Outlook and valuation: Going ahead, we expect LPPL to report a top-line CAGR
of ~8% over FY2015-17E to ~`371cr owing to strong domestic as well as export
sales. On the bottom-line front, we expect the company to report ~17% CAGR
over FY2015-17E. 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. Further, the company has reduced its debt significantly, which will lead
to cost saving for the company. We have a NEUTRAL rating on the stock since all
the positives are factored in the stock price.

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