Hidden gems: Ashish Chugh's 2 long-term picks

Q: Why would you be bullish on Linc Pens?

A: In these kind of companies, when the price is low, the volumes are not traded, but this is not really a trading stock. It is fit for slow accumulation over the next three-six months. As far as the performance is concerned, the performance has not been very good in the short term, primarily on account of the higher raw material prices. Also, they did a lot of advertising spend. Ad expenses alone rose from about Rs 8.5 crore to around Rs 13 crore for FY12. There is an increase of about Rs 3.5-4 crore in the ad expense. That is the reason the profits are not visible, even though the top-line has been higher compared to last year.

They have recently given a 13.5% stake to Mitsubishi Pencil Company at a price of Rs 100. Some of the other strengths of the company are that this is amongst the top three stationary brands in the country. This company incidentally is the largest selling brand in various other countries like Myanmar, Bangladesh and Sri Lanka.

Company exports to over 40 countries. The company has been doing a lot in building the brand. They have been associated with four IPL teams. They have also been associated with Shahrukh Khan, and Katrina Kaif for brand endorsement. They have a very well established distribution network of about 47 channels partners and over 2,300 distributors.

The financials in terms of bottom-line have not been very good. That is precisely the reason you are getting the stock at the current price of Rs 45. So, the company is spending Rs 12-13 crore in brand building and they have been doing it for last many years, marketcap is just about Rs 65 crore.

The company has got negligible long-term debt. They do have debt in terms of working capital. But if you talk of long-term debt, it is just about Rs 1.5-2 crore. At the current price of Rs 45, this may not be really a trading stock because the impact cost maybe very high. But it may be a stock to accumulate between Rs 42 and Rs 48 level.

Disclosure: I and my family have investments in both stocks discussed.