Moneycontrol
Sep 14, 2017 03:39 PM IST | Source: Moneycontrol.com

Hold Linc Pen and Plastics; target of Rs 245: ICICI Direct

ICICI Direct recommended hold rating on Linc Pen and Plastics with a target price of Rs 245 in its research report dated September 14, 2017.

Hold Linc Pen and Plastics; target of Rs 245: ICICI Direct

ICICI Direct's research report on Linc Pen and Plastics


Linc Pen & Plastics (Linc) posted a muted Q1FY18 performance, largely tracking a decline in exports (down 50% YoY) on account of currency appreciation and trade barriers in its key export markets. Domestic sales also came in lower on account of de-stocking ahead of the implementation of new indirect tax regime i.e. GST  Net sales in Q1FY18 were at  Rs 67.5 crore, down 22.4% YoY  EBITDA for the quarter came in at  Rs 2.9 crore with corresponding EBITDA margins at 4.2%. PAT in Q1FY18 was at  Rs 0.5 crore  The management commentary suggests a softer Q2FY18. However, growth may pick up in H2FY18 as repeat orders pour in from new export markets while demand stabilises in the domestic market. The company is hopeful of ending the year marginally positive viz. FY17.


Outlook


Linc is a prominent writing instrument player domestically with good brand recall and is a trusted name in the market place. The company is also the sole distributor of Uniball brand of pens by Mitsubishi Pencil Company (Japan), which, in turn, holds ~13.5% stake in Linc. Linc also has a healthy balance sheet with debt-equity at 0.4x as of FY17. It has a controlled working capital cycle with net working capital days at ~90 days. Linc is also enthused by the implementation of GST as the GST rate of 12% on its product profile. This makes it neutral for the company’s operations whereas it will provide a level playing field against its unorganised segment competitors. Going forward, however, the growth trajectory is expected to be muted amid increased digital penetration domestically and headwinds witnessed in export markets. Therefore, we revise downward our growth assumptions and now expect sales to grow at a CAGR of 5.3% over FY17-19E with corresponding PAT CAGR of 11.1% CAGR over FY17-19E. We value Linc at  Rs 245 i.e. 17x P/E on FY19E EPS of  Rs 14.3. We assign a HOLD rating to the stock.


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