Linc Limited (LINC.BO) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Linc Limited Q1 FY '26 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand over the conference to Mr. Navin Agarwal, Head, Institutional Equities at SKP Securities Limited. Thank you, and over to you, sir.

Good morning, ladies and gentlemen. I'm pleased to welcome you to Linc Limited's Q1 FY '26 Results Con Call. We have with us Mr. N.K. Dujari, Director of Finance and CFO; and Mr. Sanjeev Sancheti from Uirtus Advisors LLP, the company's IR adviser. We'll have the opening remarks by the management followed by a Q&A session. Thank you, and over to you, Mr. Dujari.

Thank you, Navinji. Good afternoon, and thank you for joining us for Linc Limited Q1 FY '26 Investor Call. The first quarter of FY '26 delivered a steady top line performance with revenue growing 5.3% year-on-year. This was driven by a strong showing across the Linc brand portfolio, increased contribution from allied stationery products and sustained momentum across general trade, corporate and e-commerce channels. From a strategic perspective, we remain focused on future-proofing the business and unlocking multidimensional growth. Our diversification efforts continue to gain traction as we expand beyond pens into high potential adjacent categories such as markers, highlighters and pencils. These category extension aligned with evolving customer preference and wider range of usage occasion will expand our total addressable market from INR 6,600 crores to about INR 38,000 crores. We are actively enhancing our innovation pipeline. Building on recent launches, we plan to roll out expanded variant of markers and highlighters and a comprehensive range of essential stationery products. Notably, our SWYPE marker range and Pentonic mechanical pencil, both recent additions have received strong initial consumer feedback. Their full-scale rollout is expected to contribute meaningfully in the near term. On the export front, we are witnessing early traction despite geopolitical uncertainties and shifting trade dynamics. Our emphasis on pricing agility, supply reliability and innovation-led differentiation continue to support overseas growth and strengthen strategic partnerships. Our strategic initiatives are advancing steadily. Although certain time lines have been recalibrated, the joint venture in Japan-based Mitsubishi Pencil Company is now expected to begin operation by October '25 with a slight delay. Preparative work remains on track. Our joint venture with Korean stationery manufacturer, Morris, is closely linked to our upcoming manufacturing facility in West Bengal, which is scheduled for commissioning in the fourth quarter of FY '26. The partnership with our Turkish counterpart is advancing steadily as we align on key commercial and strategic operational milestones. Meanwhile, our Kenya subsidiary has experienced a slower-than-expected start, but we remain committed to its long-term potential and continue to invest in its growth. In Q1 FY '26, our operating income stood at INR 13,698 lakhs, marking a 5.3% year-over-year growth. Operating EBITDA stood at INR 1,314 lakhs with a margin of 9.6%. PAT for the quarter declined 16.4% year-on-year to INR 705 lakhs due to cost headwinds and shift in product mix translating to a PAT margin of 5.1%. Our balance sheet remained robust, supported by net free cash and cash equivalent and strong capital efficiency ratios. During the quarter, we generated INR 2,211 lakhs into cash flow from operations and closed with a net free cash position of INR 2,121 lakhs, highlighting our continued focus on financial prudence and maintaining a future-ready balance sheet. Asset productivity remains healthy with fixed asset turnover at 4.26x, indicating efficient utilization of our asset base. The cash conversion cycle also improved marginally to 59 days from 61 days in the previous quarter, reflecting better working capital management. With that, we now open the floor for Q&A.

[Operator Instructions] The first question is from the line of Sucrit Patil from Eyesight Fintrade Private Limited.

My name is Sucrit Patil. I want to understand your view on how is Linc planning to grow its business over the next 2 to 3 years by expanding into adjacent product categories or leveraging its distribution network for cross-category penetration, especially as writing instruments are facing saturation in urban markets. What is Linc's plan of action in the next 2 to 3 years?

Thank you, Mr. Patil. We have shared in the past our strategy going forward will be to expand our allied stationery portfolio through innovation -- innovative products and new set of designs. So we are on track vis-a-vis that. And writing instrument, we are trying for price premiumization of the product. The growth will -- in the writing instruments, growth should come from the premiumization. As far as the overall company growth, export will be definitely a big growth driver for us going forward. And with that added will be the allied stationery range. And with the help of Pentonic, now our distribution channel is pretty strong, and we are present across India. The new launches, which we are planning with the help of a few of our JVs like Morris and Uni-Ball will also add to our growth momentum.

The next question is from the line of Rakesh from Nine Rivers Capital.

Sir, first question with respect to the volumes. If you look at the volumes of the Linc Pen, if you look at the volume of Pentonic Pens, from the last 3 quarters, the volumes are coming down. One of the reasons you have highlighted in the past is because of the restructuring that we are doing with the product portfolio. We are cutting down the old products or SKUs and cutting down the INR 5 SKU. Sir, when do you think this restructuring will end?

Thank you, Mr. Rakesh. This restructuring is -- I will say, is almost done. And now we are banking on the new launches in the Pentonic portfolio, which is taking a little extra time than what we initially thought. So the new launches was in the range of INR 20 to INR 40, and we are banking on those new launches as well as the INR 10, the traditional pen is also doing well, although the competitive intensity has increased in INR 10 category. But I think we should be able to do away with the higher price range of Pentonic. And we hope that next few quarters should give a good traction.

Okay. Okay. And sir, with respect to the one trend that I was observing continuously, is the share of traded goods is increasing, that is impacting our gross margin? But as we are going towards more and more premiumization, do you think the share of the traded will increase or it will come down in the coming? So if I look at traded goods' share, it is 41% in the Q1. So do you think it will come down...

No. This is the strategy we have adopted for the last few quarters. We have -- as a part of our strategy, we are increasing the portfolio of allied stationery and this is mostly traded. So we have thought about it. And I think these are just transitional things. And the export -- growth in export, which we are banking heavily should be -- we will be able to make up that loss of margin because of trading range with the growth in export because export we are having an extra edge in terms of margin. So margins will better -- from company level, the bundled margin, I think we will not sacrifice much because of the traded portfolio.

Sir, one last question from my side with respect to the new product launch. Can you talk about what was the total revenue in this 1 quarter -- first quarter?

I'll come back on this. We don't have data right now with me, but I'll definitely come back on this, the exact proportion of revenue on the new launches.

Sure. And continuing on that part, what -- so how are you planning to launch these new products? It will be pan-India or it will be with respect to the particular state? We'll start with 1 state, 2 states and then we'll expand? Or it will be -- product will be launched across the India? What is the strategy on this part?

From the past experience, what we have learned that any launch [ all India ] is actually the benefits get diluted. So what we have -- as a strategy, now we take a market -- a particular market, a particular zone and we do a proper thorough launch in that particular market or zone, then only we do rollout and which again is gradual. It is not a nationwide rollout immediately because the capacity is also issue initially. Capacities are also issue. So it is a gradual thing. We do -- territory by territory, we do the launches depending on the experience which came from the previous launch of the -- previous territory launch. So this helps us in doing the fine-tuning to make it more successful.

[Operator Instructions] The next question is from the line of Resha Mehta from GreenEdge Limited.

I have a few questions. I think in continuation with what the previous participant asked in terms of volume degrowth, can you just talk about what was this product restructuring that we had undertaken?

Basically, we have done away with products which are contributing not much to the margins. So we have discontinued quite a few products and make the portfolio more robust and future ready.

Okay. And would you say that the volume degrowth is kind of behind us now?

Volume degrowth, I think this year, we may not have -- this year should be a reversal year for the volume degrowth, what we feel, this FY '26. And quarter 2, we don't expect much, because quarter 2 is actually best quarter for writing instrument industry. So -- domestic business, I'm talking.

Got it. And...

Based on sales for July, for quarter 2, the initial response is very good. The momentum is very good, and we hope to maintain the momentum, and we feel that we should be back on track.

And any guidance you give on the revenue growth for the full financial year?

Wait for -- I'd like to wait for another quarter. Then we will come out with our revised proper planned thing.

Since the stationary rollout is in progress, we would like to just wait another quarter and then come up with the guidance.

Right. And on this stationery rollout, so art materials, pencils, highlighters, I think we were to launch these products. So have they been launched? Or are you saying that these are the products that we are yet to launch?

A few of them have been launched. This quarter, we are planning a launch of crayons, erasers and maybe 1 or 2 more categories.

And is this a pan-India launch across your channels? Or is it just in a few select strong markets?

This is zone-wise or region-wise initially, and then we will roll out pan-India.

Got it. And margins, they've declined -- the gross margins have declined. So I think you referred to the profitability impact on operational factors and transitional costs. So what exactly is being referred to?

Actually, we -- there are 2 factors majorly which has affected the margin this quarter. One is the rupee has weakened vis-a-vis Japanese yen. And Japanese yen is a very important currency nowadays for us because Uni-Ball, we are having almost -- 16% sales of the company comes from Uni-Ball. And we are buying almost on an average, INR 5 crores to INR 7 crores worth of goods from Japan. And in this particular quarter, we had around 12% to 14% depreciation of rupee vis-a-vis JPY -- Japanese yen. So that was one of the factors. Then we have taken a conscious call and we have spent -- we have made some expenditure on modern trade channels. So we wanted to push ourselves very aggressively. So benefit of which is going to come in the future quarters.

Okay. And any currency hedging that we are looking for in the near future to kind of mitigate this impact?

Hedging, because -- as far as dollar exposure is concerned, it is auto hedged because our -- against our exports, we have got imports from -- for Deli and raw materials -- few raw material also. So it is auto hedged. As far as JPY is concerned, we had done the hedging in the past, but it's a 2-way currency -- it's a 2-legged currency. So the hedging cost is very high. It is almost doing -- leaving it open also makes sense because the hedging cost is very high. It doesn't make sense because it is a 2-legged currency and it is very volatile. So what we do, we have got -- we do -- we try to time it to the extent possible. The payments, we time it. When the rates are high, we would like -- but still the whole quarter, this whole quarter, we had a very adverse situation.

So from a margin standpoint, do we expect that Q2 onwards, we will be back to the double-digit margin like at least 11%, 12% kind of EBITDA margin?

I think with a time lag, we can take a price increase in Uni-Ball. So because the rate increase in foreign currency does not -- it is not possible to do it immediately, the price increase. So I think we should -- this quarter 1 thing should be -- can be considered as one-off. We should be back to our normal margin levels gradually. And I think we will come out with some guidance also after quarter 2. Then we will -- then we will be able to explain it better.

Right, right. And because of the tariff situation and U.S. is roughly 10% of our exports. So how are we seeing the U.S. orders getting impacted? Are we seeing order cancellations, order postponements or maybe rerouting via other countries? If you could just highlight the U.S. impact?

U.S., you are right that we have around 8% to 10% of export business coming from U.S. And right now, we are witnessing -- the shipment of U.S. is on hold because of tariff situation, but we feel it will be a temporary issue. And if it is a little long term, then we have to explore opportunities of doing exports from our other subsidiary in Kenya or maybe joint venture from Turkey. We have to explore those opportunities if the tariff from India is high.

Sir, is your U.S. sales total 10% of your total revenue or 10% of your export revenue?

10% of export revenue. And overall company -- at the company level, it should be 1.5% to 2% -- within 2% of the total [Technical Difficulty]. But it is a very -- we are banking heavily on the U.S. business, and it's a very high-growth business for us.

So just to clarify here, if the tariffs are here to stay, then we are a little fortunate to have subsidiaries outside India and those can easily be explored.