Rating Rationale
January 28, 2021 | Mumbai
Linc Pen and Plastics Limited
Ratings reaffirmed at 'CRISIL A / Stable / CRISIL A1 '
 
Rating Action
Total Bank Loan Facilities RatedRs.94 Crore
Long Term RatingCRISIL A/Stable (Reaffirmed)
Short Term RatingCRISIL A1 (Reaffirmed)
1 crore = 10 million
Refer to Annexure for Details of Instruments & Bank Facilities

Detailed Rationale

CRISIL Ratings has reaffirmed its ‘CRISIL A/Stable/CRISIL A1’ ratings on the bank facilities of Linc Pen and Plastics Limited (Linc Pen).

 

Delay in re-opening of schools which were shut-down in March 2020 amidst the lockdown and other measures taken by the central and state governments to contain the spread of COVID-19, resulted in sluggish demand from the domestic school stationary segment. This has impacted the operating performance of the players belonging to the office equipment and writing instruments industry as a whole.

 

Turnover for Linc Pen declined by 72.7% in the first quarter of FY 2020-21 compared to corresponding quarter of FY 2019-20 because of closure of educational institutions and with commercial offices operating with lower physical attendance amid the pandemic. However, in second quarter of FY 20-21, sales recovered to 64% of sales generated in second quarter of FY 2019-20. With offices and schools gradually opening up, better recovery is expected in the third quarter of fiscal 2021.

 

Despite the dip in performance, the financial risk profile of the company continues to remain strong. Company has prepaid most of its term debt in current year and bank limit utilisation has remained low over past 4 months at around 30% through December 2020. Recovery of the business to pre-covid levels will remain a key monitorable.

 

The ratings continue to reflect the established market position of Linc Pen in the organised segment of the Indian pen industry, the company’s improving profitability, increasing geographical diversity in revenue due to focus on exports, and healthy financial risk profile driven by adequate networth, low gearing and comfortable debt protection metrics. These strengths are partially offset by exposure to intense competition and vulnerability to volatility in raw material price.

Key Rating Drivers & Detailed Description

Strengths:

  • Established market position in the organised sector of the Indian pen industry: Strong market position should continue to support Linc Pen’s business risk profile. The company is a leading player in the over Rs 4,500-crore Indian pen industry, with a market share of 8-9%. Its position is particularly strong in eastern and northern India, and relatively moderate in other regions. The company has also been dealing with Japan's Mitsubishi Pencil Co Ltd for over 20 years as an exclusive distributor of Uniball and its variants (a refillable ball-point pen) in India. Besides maintaining healthy presence in the mass pen segment, Linc Pen is expanding business to include higher-value products and its new Pentonic brand.

 

  • 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, 70-75% of revenue comes from the Indian market.

 

  • Healthy financial risk profile: Gearing and total outside liabilities to tangible networth ratio were strong at 0.33 time and 0.79 time, respectively, as on March 31, 2020. Debt protection metrics were comfortable, as reflected in interest coverage and net cash accrual to total debt ratios of 7.55 times and 0.64 time, respectively, in fiscal 2020.

 

Weakness:

  •   Vulnerability to volatility in raw material price: The key raw material (plastic granules) accounts for over 65% of total cost of production. The company will remain susceptible to fluctuations in the price of the raw material. However, continued focus on controlled and selective advertisement expenses and on improving average realisations through higher-value products, and gradual modernisation of the manufacturing unit should enhance profitability.

 

  • Exposure to intense competition: Linc Pen faces intense competition in its mainstay category (pens priced up to Rs 10 per piece), particularly from the unorganised sector. The competition constrains pricing power, thereby depressing the profitability of most organised players.

Liquidity: Adequate

Bank limit utilisation was moderate at 31% on average for the four months through December 2020. Cash accrual is expected to be sufficient to meet term debt obligation over the medium term. Current ratio was healthy at 1.85 times as on March 31, 2020. Low gearing and healthy networth support financial flexibility to withstand adverse conditions or downturn in the business. The company did not avail RBI’s COVID-19 moratorium.

Outlook Stable

Linc Pen will continue to benefit from its established market position, supported by its strong brand equity

Rating Sensitivity Factors

Upward factors

  • Scale more than Rs.400 crore with sustained EBITDA at around 10.1% leading to sustenance of operating margin leading to higher cash accruals over the medium term
  • Improvement in working capital cycle

 

Downward factors

  • Decline in profitability below 6% or stretch in working capital cycle
  • Large debt-funded capex weakening capital structure

About the Company

Linc Pen was set up by Mr S M Jalan in 1994 and listed on the Bombay Stock Exchange in 1995. The company manufactures writing pens, and trades in stationery, mainly pencils and erasers; it has over 200 products. Manufacturing units are in Falta and Serakole in West Bengal. Operations are managed by Mr Deepak Jalan.

Key Financial Indicators

As on / for the period ended March 31

Unit

2020

2019

Operating income

Rs crore

399.96

366.94

Reported profit after tax (PAT)

Rs crore

19.25

5.15

PAT margin

%

4.8

1.4

Adjusted debt/adjusted networth

Times

0.33

0.49

Interest coverage

Times

7.55

4.26

 

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL complexity levels are assigned to various types of financial instruments. The CRISIL complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments.

Annexure - Details of Instrument(s)

ISIN

Name of Instrument

Date of allotment

Coupon rate (%)

Maturity date

Issue size (Rs.Crore)

Complexity level

Rating assigned with outlook

NA

Cash credit

NA

NA

NA

37.5

NA

CRISIL A/Stable

NA

Fund-based facilities

NA

NA

NA

22

NA

CRISIL A/Stable

NA

Letter of credit

NA

NA

NA

2.5

NA

CRISIL A1

NA

Long-term loan

NA

NA

Jun-2025

5.77

NA

CRISIL A/Stable

NA

Non-fund-based limit

NA

NA

NA

2

NA

CRISIL A1

NA

Proposed fund-based bank limits

NA

NA

NA

24.23

NA

CRISIL A/Stable

 

Annexure - Rating History for last 3 Years
  Current 2021 (History) 2020  2019  2018  Start of 2018
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT 89.5 CRISIL A/Stable   -- 23-06-20 CRISIL A/Stable 29-03-19 CRISIL A/Stable 26-09-18 CRISIL A/Stable CRISIL A/Stable
      --   --   --   --   -- CRISIL A/Stable
Non-Fund Based Facilities ST 4.5 CRISIL A1   -- 23-06-20 CRISIL A1 29-03-19 CRISIL A1 26-09-18 CRISIL A1 / CRISIL A/Stable CRISIL A1
All amounts are in Rs.Cr.
 
 
Annexure - Details of various bank facilities
Current facilities Previous facilities
Facility Amount (Rs.Crore) Rating Facility Amount (Rs.Crore) Rating
Cash Credit 37.5 CRISIL A/Stable Cash Credit 37.5 CRISIL A/Stable
Fund-Based Facilities 22 CRISIL A/Stable Fund-Based Facilities 22 CRISIL A/Stable
Letter of Credit 2.5 CRISIL A1 Letter of Credit 2.5 CRISIL A1
Long Term Loan 5.77 CRISIL A/Stable Long Term Loan 21.97 CRISIL A/Stable
Non-Fund Based Limit 2 CRISIL A1 Non-Fund Based Limit 2 CRISIL A1
Proposed Fund-Based Bank Limits 24.23 CRISIL A/Stable Proposed Fund-Based Bank Limits 8.03 CRISIL A/Stable
Total 94 - Total 94 -
Links to related criteria
CRISILs Approach to Financial Ratios
Rating criteria for manufaturing and service sector companies
CRISILs Bank Loan Ratings - process, scale and default recognition
CRISILs Criteria for rating short term debt

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