Linc Pen & Plastics (LPPL)s 2QFY2016 results outperformed our estimates on the
bottom-line front. The companys 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 strong growth on account of a favorable operating
performance and lower interest costs.
Top-line grew ~5%: The companys top-line grew by ~5% yoy to ~Rs88cr (which
is below our estimates of ~Rs89cr), mainly due to lower growth in Domestic (5.0%
yoy growth to ~Rs64cr) and Export sales (4.6% yoy growth to ~Rs24cr). Exports
have recovered considering the segment posted a decline of 5% in FY2015.
PAT grew ~23% yoy: The reported net profit grew by ~23% yoy to ~Rs5cr
(our estimate was of ~Rs4cr) on account of falling material prices and lower interest
costs with the company having repaid a significant amount of its debt in FY2015.
Outlook and valuation: Going ahead, we expect LPPL to report a top-line CAGR
of ~8% over FY2015-17E to ~Rs371cr 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. At the current market price, LPPL trades at a P/E
of 12.5x its FY2017E EPS. We recommend an Accumulate rating on the stock,
with a target price of Rs185.

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