MANAGEMENT DISCUSSION AND ANALYSIS  

Indian economy review

After a couple of dull years, the Indian economy is bouncing back. The latest estimates of national income (Source: Central Statistics Office) indicating that the economy's growth revival track, which had commenced in 2013-14, gained vigour in 2014-15. From a macroeconomic perspective, it is increasingly evident that the worst is over. A more robust economic performance than anticipated has emerged on the back of a revised base year, wider coverage of goods and services and the inclusion of tax data to estimate economic activity.

Growth: The economy had been estimated to grow by 7.3% in 2014­15 (6.9% in 2013-14). However, the annual growth rate of GDP was seen to improve to 7.5% in the last quarter of 2014 (as per revised figures) as against 6.4% in the quarter of 2013 (as per revised rates). In contrast, the Chinese economy grew by 7.3% in the same quarter. This makes India the fastest growing major economy in the world, having surpassed the $2.1 trillion mark on the back of a better performance from the manufacturing sector and rising public expenditure. The brvailing economic scenario could catapult India towards double-digit growth across the medium-term. (Source: Economic Survey 2015)

Inflation: Control on price rise continued and a remarkable fall in inflation was noted with the WPI (wholesale price index) falling to a five year low of 0.11 in December, 2014 in contrast to 6.40 in December, 2013. With this trend continuing, WPI was -0.39 as on January, 2015 as compared to 5.03 in January, 2014. Food inflation also reported a significant fall from 9.66% around April, 2014 to 4.78% by December, 2014. Retail inflation (Consumer Price Index) has also moderated. It declined to an all-time low of 5% in Q3 of 2014-15 after having remained stuck around at 9-10% for the last two years. It hovered around 5.19% in January, 2015 and 5.37% in February, 2015. A slight nudge is expected in the days to come. (Source: <http://indiafacts.co.in/performance->analysis-of-indian-economy-in-the-fiscal-2014-15)

Indian writing instruments industry

The Indian writing instruments market is still on the path of discovering new niches with ergonomically designed products and promotional marketing and luxury items; however, in the coming years,the market is bound to grow tremendously not only domestically but also in terms of exports.

The writing instrument industry in India is estimated at about Rs.3,150 crore. Out of this, the unorganised sector accounts for about a 20-25% market share. Despite an increase in the usage of computers and smartphones, the usage of pen and paper continues unabated. Over the years, the industry has undergone a number of technological advancements in terms of raw materials and ink and metal used in the making of writing instruments, which having increased the user-friendliness of the products.

In terms of exports, India was not considered a major export player until now because of high domestic demand. However, with the industry planning to expand further in terms of manufacturing, supply and infrastructure, exports are set to become an important part of the industry.

Close to 80% of the revenues of the pen industry in India comes from pens that are below Rs.15 per piece and a small percentage of the revenues come from pens that are priced above Rs.100. The Indian pen industry hosts a wide range pens in terms of cost - a pen can cost as low as below Rs.2 per piece to as high as Rs.9,00,000. However, the market for pens below the price of Rs.15 has been growing at 7-8% annually whereas the market for pens above Rs.15 is growing at the rate of 8-10% per annum. Around 55% of the consumers of writing instruments are students, followed by executives and office-goers (approximately 20%).

Indian stationery market

The domestic stationery sector is a cluster of many sectors largely associated with schools, colleges and offices, out of which the most prominent and important probably is the writing instruments industry. The two most important tools are pen and paper. It also includes other materials like pencils, rulers, writing pads, erasers along with stationery comprising exercise books, notebooks, glues and tape pads, refill pads, flap-over pads, subject books and plastic cover books, among others. They play an active role and find conspicuous usage in commercial and educational arenas.

However in the last few years, foreign designer  pen companies have also entered the Indian market with super luxury pens that are made of silver and gold embossed with images of divinities and  also adorned with colourful feathers. Priced between Rs.1,000 to Rs.9,00,000, these pens have been labelled as fine writing instruments and many of them are hand-crafted, leading to their expensive and 'exclusive' nature.

However with the majority of the market gradually moving from the unbranded to the branded segment, the organised segment expects to grow their market further in the near future.

The market is segmented on the basis of the following target audiences:

• Students

• Frequent users (in offices across commercial and public establishments)

• Occasional users (housewives and literate manual workers)

Literacy rate in India has shown major sign of improvements in last 10 years and has grown to a high of 74%, which is expected to catalyse the use of pens and pencils in India. Pen demand among students has  witnessed a healthy growth rate in the last few years as this segment has become more brand-conscious than the
 employed section where the demand has remained stable in the last few years

Factors that catalyse the consumption of writing instruments in India:

a. Favourable demographics: India, with 1.28 billion people, is the second most populous country in the world and it accounts for nearly 20% of the world population. More than 50% of India's current population is below the age of 25 years and over 65% below the age of 35. It is estimated that by 2020, India will constitute 25% of the global workforce. The potential market  of its GDP on education. Education spending in India has been lower than the world average. Globally, around 4.9% of the GDP was spent on education while India spends only 3.3%. Developed countries spend around 5-6%. India's vast youth population requires the support of a significant increase in expenditure to turn it into a resource-driven force. The government plans to increase education expenditure from the current GDP of 3%  to 5%. for companies providing educational services is thus immense, compared with other nations. Since the Indian stationery market is closely related to literacy in general and the education sector in particular, these factors will lead to an increase in the demand for stationery products and act as a major catalyst for the growth of the writing instruments industry.

b. Increased spending on the education sector on the part of the government:

India has come a long way in terms of its education expenditure. Alongside Russia, Brazil and China, it falls into the category of countries spending 2-4%

c. Rising literacy rate: With the rise in the number of students, stationery companies will see more consumers for its products. The last five decades have seen the number of students enrolling for higher education recording a 6.5% CAGR and from 2001-11, the literacy rate has gone up six-fold and since 1947, from 12% to around 75%, according to the Census of India, and is on its path to increase further with the help of the government and private initiatives. The rising literacy rate also indicates the fact that the school dropout rates have decreased over the years.

Outlook '

The Central Government's focuses on establishing a senior secondary school within every five kilometres of every village cluster and the upgradation of 80,000 secondary schools across the country by 2022. The Central Government has continued laying a keen emphasis on improving education and increasing literacy in the country by setting an enrolment target of 35.9 million by the end of the 12th Five Year Plan (2012-17) period.

Linc Pen & Plastics Ltd pioneered Spellinc, the inter-school spelling competition in India in 1999. What started as recreational activity for Linc employees has since spiralled into a CSR initiative that catalyses literacy. From a humble beginning where a handful of schools participated in Kolkata to achieving a participation of 7.25 lac students from 1,500 schools across eight cities in the country, Spellinc has grown into a brand of its own by helping instill a spirit of inquisitiveness and healthy competition among students.

2014-15, the sixteenth edition of the competition witnessed the second national finale held in Kolkata on 9th May 2015 where The Cathedral & John Connor School (Mumbai) were adjudged the National winners. The coming year, we intend to take Spellinc to greater heights and foray into the far uncharted parts of the country. With the brlims slated to take place from mid-August, Spellinc 2015 plans to touch 1,600 schools across 11 cities and witness a participation of 9 lac students.

Risk remains a tangible business reality, which could have a material impact on the Company's performance and prospects.

At Linc, the overarching objective is one of responsible risk management. The Company has evolved a risk-management framework encompassing effective processes and catalysed by a talented pool of qualified professionals. As a result, its business decisions balance risk and reward, leading to profitable and sustainable growth.