Rating Rationale
June 15, 2023 | Mumbai
Linc Limited
Rating outlook revised to 'Positive'; Ratings reaffirmed
 
Rating Action
Total Bank Loan Facilities RatedRs.94 Crore
Long Term RatingCRISIL A/Positive (Outlook revised from 'Stable'; Rating Reaffirmed)
Short Term RatingCRISIL A1 (Reaffirmed)
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

  • Revenue increasing above Rs 600 crore while sustaining the earnings before interest, tax, depreciation and amortisation margin at around 12%, leading to higher-than-expected cash accrual
  • Improvement in the working capital cycle

 

Downward factors

  • Operating margin dropping below 6% or a sizeable stretch in the working capital cycle
  • Large, debt-funded capital expenditure

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

As on / for the period ended March 31

 

2022

2021

Operating income

Rs crore

359.26

258.65

Reported profit after tax (PAT)

Rs crore

8.13

0.04

PAT margin

%

2.26

0.02

Adjusted debt/adjusted networth

Times

0.02

0.06

Interest coverage

Times

33.02

4.15

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL Ratings` complexity levels are assigned to various types of financial instruments and are included (where applicable) in the 'Annexure - Details of Instrument' in this Rating Rationale.

CRISIL Ratings will disclose complexity level for all securities - including those that are yet to be placed - based on available information. The complexity level for instruments may be updated, where required, in the rating rationale published subsequent to the issuance of the instrument when details on such features are available.

For more details on the CRISIL Ratings` complexity levels please visit www.crisilratings.com. 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 
levels
Rating assigned
with outlook
NA Cash Credit NA NA NA 7.5 NA CRISIL A/Positive
NA Cash Credit NA NA NA 30 NA CRISIL A/Positive
NA Fund-Based Facilities NA NA NA 2 NA CRISIL A/Positive
NA Fund-Based Facilities NA NA NA 20 NA CRISIL A/Positive
NA Letter of Credit NA NA NA 2.5 NA CRISIL A1
NA Non-Fund Based Limit NA NA NA 2 NA CRISIL A1
NA Proposed Fund-Based Bank Limits NA NA NA 30 NA CRISIL A/Positive
Annexure - Rating History for last 3 Years
  Current 2023 (History) 2022  2021  2020  Start of 2020
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT 89.5 CRISIL A/Positive   -- 07-04-22 CRISIL A/Stable 28-01-21 CRISIL A/Stable 23-06-20 CRISIL A/Stable CRISIL A/Stable
Non-Fund Based Facilities ST 4.5 CRISIL A1   -- 07-04-22 CRISIL A1 28-01-21 CRISIL A1 23-06-20 CRISIL A1 CRISIL A1
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Cash Credit 7.5 IDBI Bank Limited CRISIL A/Positive
Cash Credit 30 HDFC Bank Limited CRISIL A/Positive
Fund-Based Facilities 2 YES Bank Limited CRISIL A/Positive
Fund-Based Facilities 20 Citibank N. A. CRISIL A/Positive
Letter of Credit 2.5 IDBI Bank Limited CRISIL A1
Non-Fund Based Limit 2 YES Bank Limited CRISIL A1
Proposed Fund-Based Bank Limits 30 Not Applicable CRISIL A/Positive
Criteria Details
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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