Linc - Riding The Twin Engines Of Premiumisation, Distribution Expansion: Systematix

Systematix Research Report

We interacted with the management of Linc Ltd. to gain insights on the current state of business and key growth levers going ahead. Key takeaways from the meeting -

1. Revenue share from Pentonic to grow from 30% to 45% going ahead with the launch of Rs 20, Rs 30, Rs 40 price point pens ,

2. Scaling up stationery business from Rs 250 million now to Rs 750 million/ Rs 1 billion by FY25-26E respectively led by higher ticket size,

3. Exports markets such as North America and the USA expected to witness strong growth led by heavy investments in last five years, appointment of new distributor in Bangladesh to aid growth and huge market to be tapped in Indonesia to add on to the export business, exports business commands 3-4% higher margins compared to domestic,

4. Average selling price and net realisation (currently at Rs 5.5) is expected to rise with change in focus of the company towards up selling and gradually exiting Rs 5 price point,

5. Linc has aggressively expanded the distribution network from 50,000 touch points in FY19 to 2,40,000 touch points in FY23,

6. Linc has maintained the share of in-house manufacturing and outsourcing at 50:50 and expects to continue the same moving ahead,

7. Company is open to tap growth through the inorganic route,

8. Management expects Rs 7.5 billion in revenue by FY25 from Rs 4.9 billion in FY23 led by new launches, gross margin is expected to grow over 150-200 basis points annually led by premiumization, Ebitda margin is expected to grow with the rising contribution from Pentonic (margin accretive) and cross 15% in next two years.

The company clocked a 37% revenue growth in FY23 to Rs 4.9 billion and 165% growth in Ebitda to Rs 648 million with profit after tax of Rs 374 million, with Ebitda margins improving from 6.9% to 13.3%.

Given the strong margin improvement and strong cash flows, the company has achieved a debt-free status with a sharp improvement in return ratios to 31% return on capital employed and 23% ROE. The company is currently trading at 26 times trailing twelve months earnings.

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