We continue to focus on our core strength and the laid down strategy and we believe the company will not only grow rapidly over the next few years, but will also be able to expand its margins with judicious product mix and economies of scale. – MR. DEEPAK JALAN MANAGING DIRECTOR – LINC LIMITED
Stock Data:
| Ticker | NSE: LINC | BSE: 531241 |
| Exchange | NSE & BSE |
| Industry | FMCG |
Price Performance:
| Last 5 Days | -1.33% |
| YTD | +49.63% |
| Last 12 Months | +116.43% |
Company Description:
Linc Ltd. is a prominent Indian manufacturer and exporter of writing instruments and stationery products, founded in 1994 by Mr. S. M. Jalan. The company boasts of a complete range of writing instruments and has two manufacturing facilities situated in Umbergaon (Gujarat) and Serakole (West Bengal). With a pan India market share of approximately 8%, Linc is among the top three players in the organized domestic writing instrument market.
Apart from its strong domestic presence, Linc exports its products to over 50 countries, which contribute to around 21% of its revenues as of FY22. Linc has also secured the exclusive distribution rights for Mitsubishi’s Uni-ball brand in India and has a business-strengthening alliance with Deli, Asia’s largest stationery manufacturer. These partnerships have helped Linc establish a strong foothold in the industry and expand its offerings.
Critical Success Factors:
- Linc Ltd has a healthy balance sheet and improving return profile, making it a strong company in the market. Although the company had loaded its balance sheet with debt in March 2018, it has paid all its debt and now has a net cash position, with cash reserves of Rs. 16 Cr as of December 2022. Linc aims to maintain a healthy, deleveraged balance sheet in the future by financing its operations largely through cash accruals. The adoption of a digitalized and improved distribution system has improved inventory turnover, lowered working capital requirements and improved profitability, all of which have improved the company’s cash generation while also bolstering its return profile.
- Exports are a good opportunity for Linc, as the company has a presence in over 40 countries and has registered its brand in 50 countries. Although exports have remained subdued over the past couple of years due to trade barriers, Linc has emerged as the largest selling brand in Myanmar, Yemen, Bangladesh, and Sri Lanka. Given the quality and cost competitiveness of its products, exports present a good opportunity for the company. Focused brand spends will also facilitate growth, as the company plans to increase its advertising spend from 2% to 3% of revenues going forward.
- Linc plans to double its capacity to 20 lakh pens per day, with the first phase of the expansion increasing capacity by 5 lakh pens per day operational by Q4FY24. The planned expansion will take place at Umbergaon, where Linc has its manufacturing units. With the company well set to achieve ~20% CAGR topline growth over the next three years on the back of expanded capacity and expected high customer demand, the company is in a strong position for future growth.
- The company has an emphasis on higher margin products, as Pentonic range of pens yield >40% gross margins compared to <25% for lower priced products. The increasing contribution from Pentonic has improved the company’s realizations and profit margins, with new launches set to be at higher price points. Furthermore, Linc’s reach has increased by penetrating the Kirana network of India to increase its points of presence for the company’s products. With the company having already reached over 1 lakh such outlets from mere 5000 outlets in FY20, the sheer volume of these outlets can significantly drive up the company’s growth.
Key Challenges:
- Linc Ltd. faces several risks and concerns that could impact its business operations and financial performance. One key concern is the raw material risk, which is the company’s dependence on crude oil-based raw materials. The rising crude oil prices can increase the costs for the company, and it may not be able to pass on these costs immediately. This could affect the profitability of the company and its ability to compete effectively in the market.
- Another major risk for Linc Ltd. is competition. The company operates in an industry that has a high presence of unorganized players, which results in intense competition, particularly in the Rs. 10 and below product segment. This competition could lead to a price war, causing the company’s profit margins to shrink, and impacting its ability to maintain market share.
- Seasonality is another concern for Linc Ltd. Historically, the fourth quarter has been the strongest quarter for the company due to inventory buildup at dealer level for the upcoming academic season. However, this creates a risk of overproduction and overstocking, which could result in higher inventory costs and reduced profitability.
- Finally, the recurrence of the COVID-19 pandemic and subsequent lockdowns remains a significant risk for Linc Ltd. The pandemic has disrupted supply chains and led to lower consumer demand, causing significant challenges for businesses worldwide. If another wave of the pandemic occurs, it could impact the company’s ability to produce and distribute its products, affecting its sales and financial performance.
- In conclusion, Linc Ltd. faces several risks and concerns that could affect its operations and financial performance. These include raw material risk, competition risk, seasonality, and the recurrence of the COVID-19 pandemic. The company must adopt measures to mitigate these risks, such as exploring alternative raw materials, improving product differentiation, and implementing effective risk management strategies.