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HDFC Securities Retail Research
Linc Ltd. is a prominent writing instrument player domestically with a good brand recall and is a trusted name in the market place. Linc’s revenue over FY13-19 grew at mere 3.7% compound annual growth rate due to higher competitive intensity, discontinuation of less profitable products, unfavorable macroeconomic factors (demonetisation, rollout of GST), etc.
In FY19, it launched a path breaking product, Pentonic which was a runaway success. Given that schools were shut for the longest period of time due to pandemic, the recovery was delayed.
However, the company has recorded a strong performance over past two quarters and we expect the momentum to continue. In past couple of years, Linc has decisively undergone a paradigm shift in its business model.
The company has unleashed Linc 2.0: a five pronged strategy to drive next leg of growth. The fundamental goal is to expand the 'Range' and widen the 'Reach' of its products. As a part of its renewed strategy, the company is looking to increase touch points, emphasis on higher margin products, widening the stationery portfolio, enhancing existing capacity, and improve on ESG aspect.
On the back of its renewed commitment to growth, we expect the company to report revenue and profit after tax growth of ~24% and 90% (partly due to low base) over FY22-25E.
Lower working capital requirements and improving profitability has improved company’s cash generation while also bolstering its return profile.
Linc aims to maintain a healthy, deleveraged balance sheet in the future by financing its operations largely through cash accruals.
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