Why does LINC have a reasonable chance to move up the value chain?

Writing instruments is a highly fragmented industry with little barriers to entry in the lower end of the value curve (sub Rs. 5). There is little scope to increase prices to Rs. 6 or Rs. 7 per pen, partly due to negligible differentiation and partly due to the paucity of lose change. Selling pens at higher prices requires considerable investments in building a credible brand.

LINC has done exactly the same through spending Rs. 50cr over the past five years in branding & advertisement. While the share of higher value products have gone up in the past few years, LINC has finally managed to find a break-through in the Rs. 5 segment in FY13 - it started experimenting with a "pack of three for Rs. 20" and tasted success. Sharp margin improvement in FY14 resulted in 110% growth in earnings.

We would monitor the progress on this value-driven journey to determine if its EBITDA margins can permanently improve from the historic levels of 6%.

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