| Linc Limited | ||||||
| Rating outlook revised to 'Positive'; Ratings reaffirmed | ||||||
| Rating Action | ||||||
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| Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings. | ||||||
| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has revised its outlook on the long-term bank facilities of Linc Limited (Linc; erstwhile Linc Pen and Plastics Ltd) to ‘Positive’ from ‘Stable’, while reaffirming the rating at ‘CRISIL A’; the short-term bank facilities of the company has been reaffirmed at ‘CRISIL A1’.
The revision in outlook reflects a belief that the business risk profile of Linc will continue to improve, driven by better operating efficiency leading to healthy operating margin, return on capital employed and positive cash flow from operations. The operating margin increased to around 13% in fiscal 2023 because of sizeable contribution of pentonic pens (which have higher gross processing margin and thus better profits). Further growth in turnover with the margin sustaining above 12% will be key rating sensitivity factors.
Healthy profitability led to strong cash accrual, resulting in accumulation of funds. The company is currently debt free and uses its cash accrual to fund the working capital requirement. Financial risk profile has become stronger, as indicated by healthy gearing below 0.01 time and above-average interest coverage ratio (over 100 times).
The ratings continue to factor in the established market position of the company in the domestic pen industry, improving profitability, increasing geographical diversity in revenue owing to focus on export and healthy financial risk profile. These strengths are partially offset by exposure to intense competition and vulnerability to volatility in raw material prices. |
Key Rating Drivers & Detailed Description Strengths: Established market position in the organised sector of the domestic pen industry Strong market position will continue to support the business. The company is a leading player in the over Rs 4,500-crore domestic pen industry, with market share of 8-9%. Its position is particularly strong in east and north India. The company has been associated with Mitsubishi Pencil Co Ltd (in Japan) for more than two decades as an exclusive distributor of Uniball writing instruments in India. Besides maintaining healthy presence in the pen segment, Linc is expanding the business to include high-value products and its new brand, Pentonic.
Increasing geographical diversity in revenue The company has a wide distribution network comprising exclusive channel partners, distributors, sales representatives and retail outlets across India, as well as corporate clients. While its brands are registered in over 50 countries, the Indian market accounts for 80% of the revenue.
Healthy financial risk profile Gearing stood at 0.0 time and total outside liabilities to tangible networth ratio at 0.34 time as on March 31, 2023. Debt protection metrics were strong, with interest coverage ratio at 102.00 times and net cash accrual to total debt ratio at 3.26 times in fiscal 2023.
Weaknesses: Vulnerability to volatility in raw material prices Since cost of procuring the key raw material (plastic granules) accounts for more than 30% of production cost, even a slight variation in price can drastically impact the operating margin. However, controlled and selective advertisement expenses, focus on improving average realisations through high-value products and modernisation of the manufacturing unit should aid profitability.
Exposure to intense competition The company faces intense competition in its mainstay category (pens priced up to Rs 10 per piece) from the unorganised sector. This competitive pressure may continue to constrain scalability, pricing power and profitability. Diversification in product profile will enable the company to increase their turnover as well as increase their presence in stationary segment. |
Liquidity: Strong Bank limit utilisation has been nil for the 12 months through April 2023. In the absence of any repayment obligation over the medium term, the entire cash accrual -- projected at more than Rs 50 crore per annum – will aid financial flexibility. Current ratio stood healthy at 2.4 times on March 31, 2023. Low gearing and moderate networth should continue to support liquidity. |
Outlook: Positive Linc will continue to benefit from its established market position, supported by strong brand equity. |
Rating Sensitivity factors Upward factors
Downward factors
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About the Company Linc, established in 1994 by Mr S M Jalan, manufactures writing pens and trades stationery, mainly pencils and erasers; it has over 200 products. Its manufacturing units are at Falta and Serakole in West Bengal. The company got listed on the Bombay Stock Exchange in 1995. Mr Deepak Jalan manages the operations. |
Key Financial Indicators
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Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
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| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||||||||||||||
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Criteria Details
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