Rating Rationale
June 23, 2020 | Mumbai
Linc Pen and Plastics Limited
Ratings Reaffirmed
 
Rating Action
Total Bank Loan Facilities Rated Rs.94 Crore
Long Term Rating CRISIL A/Stable (Reaffirmed)
Short Term Rating CRISIL A1 (Reaffirmed)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has reaffirmed its ratings on the bank facilities of Linc Pen and Plastics Ltd (Linc Pen) at 'CRISIL A/Stable/CRISIL A1'.
 
CRISIL believes that the outbreak of Covid-19, and the nation-wide lockdown imposed to contain further spread of the pandemic, may have a milder impact on Linc Pen, as sales should pick up once the lockdown is lifted, and schools and offices start functioning. Normalisation of demand and launch of new products will aid growth over the medium term.
 
The ratings continue to reflect the company's established market position in the organised segment of the Indian pen industry, improving profitability, increasing geographical diversity in revenue due to focus on exports and healthy financial risk profile marked by healthy networth, low gearing and comfortable debt protection metrics. These strengths are partially offset by exposure to intense competitive pressure and vulnerability to volatility in raw material prices.

Key Rating Drivers & Detailed Description
Strengths: 
* Established market position in the organised sector of the Indian pen industry: Benefits from its strong market position should continue to support Linc Pen's business risk profile. Linc Pen is one of the leading players 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 (Mitsubishi) for over 20 years as an exclusive distributor of Uniball and its variants (a refillable ball-point pen) in India. Furthermore, besides maintaining a healthy presence in the mass pen segment, business is now being expanded to include higher-value products and new series Linc Pen brand 'Pentonic'?.
 
* Increasing geographical diversity in revenue: Distribution network is wide and comprises several branches, exclusive channel partners, distributors, sales representatives, and retail outlets across India; the company has corporate clients as well. Almost 70-75% of the revenue is derived from the Indian market. In the global market, Linc Pen's brands are registered in over 50 countries.
 
* Healthy financial risk profile: Gearing and total outside liabilities to tangible networth ratio were strong at 0.49 time and 0.89 time, respectively, as on March 31, 2019.. Debt protection metrics were also comfortable, with interest coverage and net cash accrual to total debt ratios of 4.23 times and 0.22 time, respectively, in fiscal 2019.
 
Weaknesses:
* Vulnerability to volatility in raw material prices: The company remains exposed to changes in the prices key raw materials (plastic granules), which account for over 65% of total cost of production. However, continued focus on controlled and selective advertisement expenses, gradual modernisation of the manufacturing unit, and focus on improving average realisations through addition of higher-value products should improve profitability.
 
* Exposure to intense competition: Linc Pen is vulnerable to intense competition in its mainstay category (pens priced up to Rs 10-a-piece), particularly from the unorganised sector. This constrains pricing power, thereby depressing the margin of most organised players.
Liquidity Adequate

Bank limit utilisation was moderate at around 33% for the four months through May 2020. Cash accrual is expected to be sufficient against term debt obligation over the medium term. Current ratio was healthy at 1.64 times on March 31, 2019. Low gearing and healthy networth, support financial flexibility and provide cushion in case of any adverse conditions or downturn in business.

Outlook: Stable

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

Rating Sensitivity factors
Upward factors
* Sustenance of operating margin leading to cash accrual of more than Rs 20 crore over the medium term
* Improvement in working capital cycle below 120 days
 
Downward factors
* Decline in profitability below 6% or stretch in working capital cycle with gross current assets of more than 170 days
* 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, West Bengal. Operations are currently managed by Mr Deepak Jalan.

Key Financial Indicators
As on / for the period ended March 31   2019 2018
Operating income Rs crore 369.16 333.05
Reported profit after tax Rs crore 5.28 7.82
PAT margins % 1.4 2.3
Adjusted debt/adjusted networth Times 0.49 0.54
Interest coverage Times 4.23 5.31

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) Rating Assigned with Outlook
NA Cash Credit NA NA NA 37.5 CRISIL A/Stable
NA Fund-Based Facilities NA NA NA 22 CRISIL A/Stable
NA Letter of Credit NA NA NA 2.5 CRISIL A1
NA Long Term Loan NA NA Jun-2025 21.97 CRISIL A/Stable
NA Non-Fund Based Limit NA NA NA 2 CRISIL A1
NA Proposed Fund-Based Bank Limits NA NA NA 8.03 CRISIL A/Stable
Annexure - Rating History for last 3 Years
  Current 2020 (History) 2019  2018  2017  Start of 2017
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund-based Bank Facilities  LT/ST  89.50  CRISIL A/Stable      29-03-19  CRISIL A/Stable  26-09-18  CRISIL A/Stable  18-07-17  CRISIL A/Stable  CRISIL A/Stable/ CRISIL A1 
                    17-07-17  CRISIL A/Stable   
Non Fund-based Bank Facilities  LT/ST  4.50  CRISIL A1      29-03-19  CRISIL A1  26-09-18  CRISIL A/Stable/ CRISIL A1  18-07-17  CRISIL A1  CRISIL A1 
                    17-07-17  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 21.97 CRISIL A/Stable Long Term Loan 30 CRISIL A/Stable
Non-Fund Based Limit 2 CRISIL A1 Non-Fund Based Limit 2 CRISIL A1
Proposed Fund-Based Bank Limits 8.03 CRISIL A/Stable -- 0 --
Total 94 -- Total 94 --
Links to related criteria
CRISILs Approach to Financial Ratios
CRISILs Bank Loan Ratings - process, scale and default recognition
Rating criteria for manufaturing and service sector companies
CRISILs Criteria for rating short term debt

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