Rating Rationale
September 26, 2018 | Mumbai
Linc Pen and Plastics Limited
Ratings Reaffirmed
 
Rating Action
Total Bank Loan Facilities Rated Rs.75.5 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 Limited (Linc Pen) at 'CRISIL A/Stable/CRISIL A1'. The ratings continue to reflect an established position in the organised writing instruments segment, and increasing geographical revenue diversity due to focus on exports. The ratings also factor in a healthy financial risk profile and improving profitability. These strengths are partially offset by exposure to intense competition from unorganised players and vulnerability to volatility in raw material prices.

Key Rating Drivers & Detailed Description
Strengths
* Established presence in the organised sector of the Indian pen industry: The company is one of the leading players in the over Rs 3,500-crore Indian pen industry, with a market share of 10-11%. It has a strong market position in eastern and northern India, and a relatively moderate presence in other regions. The company has been able to maintain a healthy presence in this segment despite intense competition from both organised and unorganised players. It 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 manufactured by Mitsubishi) in India. Besides maintaining a healthy presence in the mass pen segment, the company is now also increasing its product range in higher-value products'the Rs 10-a-piece and higher category. Benefits from the established position in the domestic writing instruments industry should continue over the medium term.
 
* Increasing geographic revenue diversity: The distribution network is wide, comprising of several branches, exclusive channel partners, distributors, and sales representatives, and multiple retail outlets across India. Besides this, the company also sells to corporates. Almost 76% of revenue is derived from the domestic market. In the global market, the company has its brands registered in over 50 countries. The company has set up another unit in Umergoan, Gujarat, to increase exports. Sales under own brands account for almost 95% of exports, which enhance geographic diversity.
 
* Healthy financial risk profile: The capital structure is comfortable, debt protection metrics healthy, and liquidity adequate. The gearing and total outside liabilities to tangible networth ratio were 0.54 time and 0.96 time, respectively, as on March 31, 2018. The gearing increased from 0.43 time a year earlier on account of debt-funded capital expenditure (capex) for the Umergaon plant, but is expected to improve gradually over the medium term. Debt protection metrics were comfortable, with interest coverage ratio at 5.55 times and net cash accrual to total debt at 0.23 time, in fiscal 2018. The metrics have reduced due to increase in debt in fiscal 2018 following the term loan contracted for capex.
 
Weakness
* Vulnerability to volatility in raw material prices: Profitability is likely to remain exposed to volatility in prices of the key raw material, plastic granules, the cost of which constitutes over 70% of the 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 the addition of high-value products will enable further improvement profitability.
 
* Exposure to intense competition, especially from the unorganised sector: The company is exposed to intense competition in its mainstay category (pens priced up to Rs 10-a-piece) from players in the unorganised sector. The competition leads to pricing pressures, depressing the margins of most organised players, including Linc Pen. Exposure to intense competition will continue to put pressure on the operating margin over the medium term.
Outlook: Stable

CRISIL believes Linc Pen will maintain its established market position over the medium term, supported by strong brand equity. The outlook may be revised to 'Positive' in case of substantial increase in operating income and profitability or better working capital management, thereby improving cash accrual and liquidity. The outlook may be revised to 'Negative' if the financial risk profile, particularly liquidity, weakens, most likely because of significant decline in cash accrual and increase in working capital requirement.

About the Company

Linc Pen was set up in 1994 by Mr S M Jalan in Kolkata. The company was listed on the Bombay Stock Exchange in 1995. It manufactures and markets writing pens, and trades in stationery, mainly pencils and erasers; it has over 200 products in its portfolio. The manufacturing units are in Falta and Serakole, both in West Bengal. Mr Deepak Jalan currently manages operations.

Key Financial Indicators
Particulars Unit 2018 2017
Revenue Rs crore 340.20 360.10
Profit after tax (PAT) Rs crore 7.84 17.26
PAT margin % 2.3 4.8
Adjusted debt/adjusted networth Times 0.54 0.43
Interest coverage Times 5.55 15.71
 

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 32.5 CRISIL A/Stable
NA Export Packing Credit NA NA NA 0.5 CRISIL A/Stable
NA Fund & Non Fund Based Limits NA NA NA 22 CRISIL A/Stable
NA Letter of Credit NA NA NA 2.5 CRISIL A1
NA Long Term Loan NA NA Mar-2023 18 CRISIL A/Stable
 
Annexure - Rating History for last 3 Years
  Current 2018 (History) 2017  2016  2015  Start of 2015
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund-based Bank Facilities  LT/ST  51.00  CRISIL A/Stable      18-07-17  CRISIL A/Stable  09-09-16  CRISIL A/Stable/ CRISIL A1      CRISIL A/Stable/ CRISIL A1 
            17-07-17  CRISIL A/Stable           
Non Fund-based Bank Facilities  LT/ST  24.50  CRISIL A/Stable/ CRISIL A1      18-07-17  CRISIL A1  09-09-16  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 32.5 CRISIL A/Stable Cash Credit 32.5 CRISIL A/Stable
Export Packing Credit .5 CRISIL A/Stable Letter of Credit 7.5 CRISIL A1
Fund & Non Fund Based Limits 22 CRISIL A/Stable Long Term Loan 18 CRISIL A/Stable
Letter of Credit 2.5 CRISIL A1 Proposed Fund-Based Bank Limits .5 CRISIL A/Stable
Long Term Loan 18 CRISIL A/Stable Working Capital Facility 17 CRISIL A/Stable
Total 75.5 -- Total 75.5 --
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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