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

Good day, ladies and gentlemen, welcome to Linc Limited's Q2 FY '26 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Navin Agarwal, Head Institutional Equities at SKP Securities Limited. Thank you, and over to you, sir.

Good afternoon, ladies and gentlemen. It's my pleasure to welcome you on behalf of Linc Limited and SKP Securities to this financial results conference call. We have with us Mr. Rohit Deepak Jalan, Whole-time Director; 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. Jalan.

Good afternoon, and thank you for joining us for Linc Limited's Quarter 2 FY '26 Investor Call. The second quarter of FY '26 delivered a steady top line performance with revenue growing 1.3% year-on-year. Net profit saw a dip of 3.7%, largely on account of losses in our joint ventures amounting to INR 168 lakhs. These are early-stage investments, and we view the current losses as transitional and expected phase before these ventures reach operational maturity. Our top line growth in recent quarters has been measured, yet our underlying profitability has remained steady, highlighting the enduring strength of our business fundamentals. Though progress has taken longer than we expected, we firmly believe the steps we have taken are setting the stage for stronger, more sustainable growth in the periods ahead. Our conviction in our strategy and direction remains as strong as ever. The confidence we carry forward comes from the strong product foundation we have built. Over the past few quarters, we brought several new products to the market, and they are beginning to find their place with consumers. The response to our Swype marker range and Pentonic mechanical pencils has been especially encouraging. And as we scale up their distribution, we expect them to become important growth drivers. With an active innovation pipeline and a series of promising launches on the horizon, we are excited about the opportunities ahead to refresh growth and strengthen our brand portfolio. Exports are gaining momentum despite global uncertainties. Our agility in pricing, consistent supply performance and focus on innovation-led differentiation are driving growth and strengthening key international partnerships. Strategically, our global partnerships and joint ventures are advancing steadily. With Mitsubishi Pencil Company Japan, operations began in October 2025 with the launch of a INR 20 MRP ball pen tailored for the Indian and Southeast Asian markets. Morris, the collaboration is progressing in tandem with our upcoming Bengal manufacturing facility, which is on track for commissioning in quarter 4 FY '26 and is expected to unlock significant scale and efficiency. Turkish joint venture, ongoing efforts are focused on achieving alignment across key commercial and operational fronts. And Kenya subsidiary, while the initial pace has been measured, we remain confident that our continued commitment will drive improved traction in the period ahead. With that, I will now hand over to Mr. Dujari for the financial update.

Thank you, Mr. Jalan, and good afternoon, everyone. I appreciate your presence at the Q2 FY '26 earnings call of Linc Limited. In Q2 FY '26, our operating income stood at INR 13,907 lakhs, marking a 1.3% year-over-year growth. Our operating EBITDA stood at INR 1,567 lakhs with a margin of 11.3%. The fall in margin by 60 basis points was on account of higher employee costs arising from scheduled annual increments. PAT for the quarter declined 3.7% year-on-year to INR 846 lakhs, largely on account of losses in our joint ventures amounting to INR 168 lakhs. Our balance sheet remained robust, supported by net free cash and cash equivalent and strong capital efficiency ratios. During the quarter, we generated INR 2,625 lakhs into cash flow from operations and closed with a net free cash position of INR 1,304 lakhs, highlighting our continued focus on financial prudence and maintaining a future-ready balance sheet. Asset productivity remained healthy with fixed asset turnover at 4.21x, indicating efficient utilization of our asset base. The cash conversion cycle also improved marginally to 60 days from 64 days in September '24, reflecting better working capital management. I would like to draw your attention to the safe harbor statement in the earnings presentation. I request each one of you to kindly go through the presentation before Q&A starts so that you are well aware of the same. Now with that, I now open the floor for Q&A.

[Operator Instructions] The first question is from the line of Chirag Pachisia from SKP Securities.

So your H1 ad spend was around 1.6% of the revenue. So is that run rate we should expect for the full year? Or do you plan to step it up to -- in H2 with the new launches? Basically, do we close FY '26 near 1.5%, 1.6% or close to 2% of sales?

Chirag, so -- actually, we are looking at close to double-digit growth by end of the year. So that is -- we're looking at the second half of the year to be much better and looks quite promising with the changes that we are driving in our sales networks.

So double-digit growth, meaning H2 would be....

Close to -- yes, so we're looking at...

17%.

Yes, we'll be close to double digits. So we should look at 10% at least by end of this year.

Okay. And so this quarter, other income seems higher than the usual range. Can you break it down how it comprises? I mean I just want to understand if this is like sustainable or purely quarterly? Just...

So this was -- go ahead, Dujari Ji.

I think I can answer that from here. So other income is mostly comprising of one-off items because the major portion of other income is coming from a write-back of a few liabilities and a write-back of entry tax liability, which we paid under settlement. So in the books, we had entry tax liability, but we paid to the government a little less than what we had in the books. So there is a write-back of liability. So more or less, I think 70% of the other income will be one-offs.

Okay, sir. And my last question is -- so yes, that was clear. And you've reported. So as we saw it is the JV loss is around INR 1.6 crores in H1. So realistically, should we expect for the full year? Can we -- could it be -- for the full year, the loss could be or could it be breakeven?

So the losses in the JVs, 2 JVs, which is Uni Linc and Silka Linc. These 2 are greenfield projects. And we are looking at improving the situation. And we're looking at least hopefully breakeven for one of the JVs and maybe for another 1 or 2 quarters, we will have to continue sustaining some losses. So next financial year looks quite promising for both the JVs and to turn profitable.

The next question is from the line of Himanshu from [indiscernible] Investment Managers.

See, the volume growth for Pentonic has degrown, let's say, for the first half, okay? I'm looking at the strategy presentation slide on 18. Is it right that the volume has -- from INR 16 crores has fallen down to INR 14 crores? And any specific measures you are taking? And what could be the reason? Because for us, that was one of the most important focus area for premiumization and the future what we were planning or looking at. So some thoughts there will be helpful.

Right. So yes, the volumes have dropped for Pentonic in H1. So majority of our sales has been realized from the MRP INR 10 segment, which has become more and more crowded. And if we look at the INR 20 and above price segments, so those are segments that we are also focusing on. And the volume growth -- the volume degrowth is because to maintain the profitability, we have focused on having much better realizations on the brand and the product. But we are making significant changes in our distribution line, especially in the traditional trade channel where we saw a dip, and we are working towards that to streamline the volumes as well.

Sir, you proceed with your answer.

Yes. So that's the response to Himanshu. Looking to have further queries from him.

Himanshu, do you have any further questions?

Yes, I was asking a question that how is the scaling up on INR 20, INR 30 and INR 40 happening? And what I am seeing is still the availability of those INR 30 and INR 40 is not there that much in the market. Even in Bombay type of city, we don't see the channel partners focusing or trying to sell that product more aggressively or -- so is there anything what we can do on trade incentivizing for such a -- for those INR 20, INR 30, INR 40 product, which is important over a longer period of time for us?

Right. So we are still expanding our distribution for the higher price segments. Traditionally, Linc has been a sub -10 MRP brand company. However, we've been able to establish INR 10 and INR 20 price segments with Pentonic brand. And there are continuous efforts to increase our distribution and availability pan-India. So our numbers have actually grown. If you look at the volume for INR 20 and above, they have grown, and there was a dip in the INR 10 segment, which was affecting the overall volume performance of Pentonic brand. And of course, all the necessary efforts are being taken. And like I said, we are making some strategic changes in the traditional trade channel, which will help us yield much better results.

And on the Mitsubishi new product and JV, how is the product placement and where are we in that product availability and trending and anything? Can you give some light on how are you approaching that market? And can it cannibalize our own INR 20 product, which is there in the market, ballpen, [indiscernible] ballpen?

Right. So the INR 20 ballpen from the Uni linc JV, we just commissioned and we started operations last month. So we are still in the phase of launching. Over the next couple of months, we should have expanded our -- or launched the product rather in selective markets of the country. And about cannibalization, I don't think it should really cannibalize because for Linc Limited as a whole, we have very insignificant market share in this price segment. So we expect that this will help us boost our presence and share in this price segment, yes.

[Operator Instructions] We'll take the next question from the line of Aradhana Jain from B&K Securities.

A couple of questions. First, I wanted to understand if you could throw some more light on what would be the growth drivers for a double-digit growth that we are guiding for, for the full year FY '26. What would be the main drivers for that? Would it be Pentonic, Uniball? What would be leading to that growth? That will be my first question.

So the growth drivers would be new launches. So definitely, Uniball, the INR 20 product. And we have plenty of new launches, like I mentioned, Swype markers has been taking good traction along with mechanical pencils, which are completely new categories for us. And we have most of the sales channels, which have been growing. So the significant changes in the traditional trade distribution should definitely yield us much better growth numbers in the coming quarters.

Sir, changes in the trade distribution channel that you're seeing, could you throw some more light as to what exactly are we doing there?

So this is still something under internal strategies. So unfortunately, we can't throw some light. But if you'd like, we can connect with you one-to-one and give you some direction of our strategies.

Sure. My second question is on Swype and mechanical pencils. Have we rolled out those products pan-India? Or are there specific geographies where those products have been introduced?

They are available only in specific geographies. So in the next couple of months, they will be -- by end of this financial year, they would be rolled out pan-India.

Got it. On the Uniball side, we've seen a bit of tepid growth this quarter. So any particular reason for that? If you see over the quarters, that growth has come down, I think it's 1% or 2% of growth for this quarter. So is it because our INR 10 products or say the higher-end products have not been selling and it's more of IR 10 products which have gotten sold? Any color on that?