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.
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.
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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