Hold Linc Pen and Plastics; target of Rs 330: ICICI Direct

ICICI Direct's research report on Linc Pen and Plastics

Linc Pen & Plastics (Linc) posted a muted Q4FY18 performance, primarily tracking headwinds in export markets coupled with a slower-than-expected rebound in domestic segment. On the margin front, Linc witnessed compression due to increase in crude price as crude derivatives form ~40% of raw material costs (~65% of sales) Net sales for the quarter came in at Rs 103.4 crore, down 1.5% EBITDA in Q4FY18 was at Rs 8.5 crore with corresponding EBITDA margins at 8.2%, down 130 bps YoY. PAT in Q4FY18 was at Rs 3.1 crore vs. Rs 5.6 crore in Q4FY17. PAT growth lagged the topline and EBITDA growth primarily tracking increased incidence of depreciation and interest on account of commissioning of new plant.

Outlook
We build in 160 bps improvement in EBITDA margins in FY18-20E. We value Linc at Rs 325 i.e. 1.2x market cap/sales on FY20E numbers and assign a HOLD rating to the stock. Linc is a prominent writing instrument player domestically with good brand recall and a trusted name in the marketplace. For all recommendations report, click here

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