We recently interacted with the LINC management and conducted some channel checks with dealers to understand the turnaround at LINC. Here is a short summary of the same.

Management interaction: After years of slow growth in profits, management changed its strategy towards high value products. This has resulted in 250bps improvement in EBITDA margins to 7.2% over the past three quarters. As per LINC’s management, this margin trend should continue over FY15 as they look to withdraw slow moving products.
At the same time, there would be continuous efforts to improve the operational efficiency at their manufacturing facilities. On the revenue front, the introduction of new high-value products and strong focus on exports will enable double digit sales growth for FY15.

Dealer checks: Products under Rs. 5 have been completely discontinued and focus is on promoting the "pack of three from Rs. 20". There is some traction in this product over the past few quarters and momentum is expected to continue through FY15. Cello Pens, the largest pen company has witnessed a management change and could result in lower sales aggression. This could prove beneficial from players like LINC who are trying to move up the value chain.

Our view: We continue to remain positive on LINC and expect better sales and profits ahead. We will closely monitor the progress in LINC’s high value portfolio and the resulting margin trajectory. Maintain our 3 year price target of Rs. 200.

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