Linc Pen & Plastics Ltd - 38.00 Rs

Established in mid 70’s and founded by Mr. S.M. Jalan, Linc group has over the past three decades established itself as one of the market leaders in the writing instrument industry of India. Today, Linc Pens & Plastics Ltd (LPPL) boasts of having a product portfolio of over 200 SKUs including stationery equipment. It offers a wide range of writing instruments from ball pens to gel pens and markers to pencils. Its products are targeted primarily at the mass markets, schools and offices. The USP of the company has been quality product at reasonable price i.e. value for money thru economically priced products with great price-to-performance ratio. It was the first company to launch a gel pen at Rs.10 when the prevailing price of other brands was over Rs.15. Subsequently, it was again the only one to introduce 5/- Rs gel pen, which helped the company to be brand leader in the gel pen segment and increase its market share considerably. Incidentally, it is also the sole marketer for premium international brands like Lamy, UniBall and Bensia. Lamy, is not only the market leader in Germany but has also become one of the renowned brands for fountain pens, ball point pens, roller ball pens, multi system pens and mechanical pencils across the world. On the other Uniball is the most popular brand of Mitsubishi, Japan and Bensia is a well known manufacturer of non-sharpening pencils.

LPPL has three large state-of-the-art manufacturing facilities with two in Goa and one near Kolkata. Apart from having ISO 9001:2000 certification, its plants are also approved by some of the world's leading retail chain of stores like M/s. Walmart Stores Inc, Tesco International, W.H. Smith etc. Presently, 20% of revenue comes from export to over 30 countries. The primary focus of the company has been on private label contracts with top chain stores like Steadtler, Liquimark, Poundland, ICO, Stypen, Dollar Tree, Office Works, CVS, John Lewis, Coop Norden etc to name a few. Here in India, LPPL has ventured into lucrative retailing business with two format stores namely – ‘Just Linc’ and ‘Office Linc’. While the former stocks only ‘Linc’ products, the latter is one-stop shop for all kinds of stationery products required in an office, from pins to laptops. ‘Office Linc' has roped in channel partners like Airtel, DHL, Blue Dart, Microsoft, Music World, Book Cellar, Anderson Printing, Presto, Aqua Java, SKP Moneywise and Talk, who will stock their products and provide after-sales services as well. As on today, total 18 stores of both format are already operational and the company intends to have pan India presence in future. Importantly, LPPL has appointed Rediffusion DYR, the fourth largest ad agency for brand building and has allotted more than 7 cr for ad campaign.

Last fiscal, company revamped its product mix by phasing out couple of high volume low value brands, due to which the average realization per pen increased from 2.25 to 2.60 Rs. It was also successful in increasing the average realization per refill from 0.82 to 1.16 Rs. In order to have better information system, LPPL is implementing ERP system from SAP and has chosen M/s. Price Waterhouse Coopers as their implementation partners. Increasing working population, growing level of literacy, burgeoning middle class, huge retail revolution etc – all these augurs well for the growth of LPPL. After reporting flat performance for FY07, company is now growing at healthy pace and has registered 20% and 30% growth in sales and NP respectively for H1FY08. Thus it is expected to clock a turnover of 175 cr and PAT of 5.50 cr for FY08 i.e. EPS of 7 Rs on an equity of 8 cr. With 52 week H/L as 52/28 Rs, book value of 36 Rs, dividend yield of nearly 4% and specially considering its brand value, the company is available fairly cheap at an enterprise value of 60 cr. At a reasonable discounting by 8x times, scrip has the potential to touch 60 Rs (i.e. 50% appreciation) in 12~15 months. However, investors should keep in mind that company is in a very price sensitive business with cut throat competition and is operating at very low net margin of 2~3%.