Dear Members,

We have released 30th Sep’17: Lincoln Pharmaceuticals Ltd (NSE Code – LINCOLN) – Alpha/Alpha Plus stock for Sep’17. For details and other updates, please log into the website at the following link –

Detailed pdf report on the company can be accessed at the following link – Lincoln Pharmaceuticals (NSE Code – LINCOLN) – Sep17 Katalyst Wealth Alpha Report

Note: For any queries, mail us at [email protected]

Date: 30th Sep’17

CMP – 160.05 (BSE); 160.35 (NSE)

Rating – Positive – 3% weightage; this is not an investment advice (refer rating interpretation), the rating is only for indicative purpose and please take your own decision regarding the same.



Lincoln Pharmaceuticals Ltd (LPL) was set up in 1979 and has been engaged in manufacturing and trading of pharmaceutical formulations in the domestic market and the markets of Africa, South East Asia and Central America.

The company is promoted by Mr. Mahendra Patel (MD) and his brother Mr. Rajnikant Patel (Jt. MD). Both have over 3 decades of experience in the Pharmaceutical industry. Further, Mr. Munjal Patel (Son of Mr. Mahendra Patel) and Mr. Aashish Patel (Son of Mr. Rajnikant Patel) were inducted into the board of directors in FY 15.

LPL has a subsidiary by the name Lincoln Parenteral Ltd and LPL holds 98.58% stake in the latter. Lincoln Parenteral is engaged in manufacturing of formulations in dry powder, liquid injectibles, and syrup variants.

Both the company and its subsidiary are engaged in manufacturing of pharmaceuticals formulations in categories  such  as  anti-infective,  anti-malaria,  anti-diabetic,  gynaecology  products,  vitamins,  minerals  and  anti-oxidants etc.

The company’s manufacturing units are WHO-GMP certified and its R&D Center is approved by the Govt. of India.

We believe company is gradually seeing signs of transformation with increasing focus on R&D, launch of new branded products and NDDS (new drug delivery system) products, focus on exports and discontinuation of low-margin contract manufacturing.

As per the management, Tanzania issue also stands resolved with company discontinuing the banned product and resuming sales of other products to the country.

Lastly, with around 40% correction in stock price (from peak levels) the valuations seem reasonable around 12 times FY 17 consolidated earnings.



As mentioned above, LPL is engaged is manufacturing and sales of pharmaceutical formulations in domestic markets and semi-regulated markets of Africa, South East Asia and Central America.

In the domestic markets the company has decent presence in around 20 states of the country and as per AIOCD data for August 2017 it is ranked amongst the top 80 companies.

Domestic sales accounted for 68% of the sales of the company in FY 17 and the contribution has been gradually coming down with higher growth being reported in export markets.

In India, till FY 16 LPL was selling its own branded products and at the same time contract manufacturing at its units for other companies; however given the better demand outlook for its formulations product portfolio, in FY 17 it embarked on a strategic decision to defocus the contract manufacturing business. As per the management, by the end of FY 18, they will entirely discontinue the contract manufacturing business.

In fact, the decline in sales in FY 17 can be attributed to lower contract manufacturing sales; however at the same time the gross margins of the company have expanded.

Since few years, the company has also been upping the R&D expense and focusing on new launches and new NDDS. Since FY 14, the R&D expense by the company has increased by 158% and as a % of sales it has increased from 1.6% to 2.4%

On the back of higher R&D, the company plans to launch numerous NDDS based products in India. Some of the notable recent launches include Art-Luton spray, Domi-up spray and Namcold DX. For instance, until now Ondansetron formulation (Domi-up) was available in the form of tablet, syrup and injectable in India; however LPL is the first company to have introduced the formulation as oral spray in India.

Similarly, in FY 17 the company launched 28 new products with 3 being first time in India.

Exports – As far as Exports are concerned, the company has presence in more than 60 countries encompassing Africa, Central America and South East Asia. As per the management Africa accounts for bulk of the exports, followed by Asia and Central America.

In our talks with the management, exports seem to be the focus area as the margins are better and also the fact that off-late a lot of issues like price control, ban on FDC drugs (fixed dosage combination), sale of generic drugs, etc have cropped up in the domestic market.

The contribution from exports has already increased from around 26% of sales in FY 15 to 32% in FY 17 and the management believes that this might further increase to 50% by FY 21.

As per the management, in the last 2 years they have expanded their presence in more than 13 countries and have been continuously seeking new product registrations.

Tanzania issue – In Jan’16 LPL was banned by Tanzanian Authorities as one of the injections supplied by the company had caused an adverse effect in the patient.

As per our talks with the management, the injection had to be given under the supervision of the Doctor and the company had mentioned the necessary precautions to be taken. However, since then company has discontinued the sale of the product and similar such risky products and has resumed supplies of other products to Tanzania.

In fact, Tanzania continues to be one of the major export destinations for the company.



LPL is an owner-operated business with Mr. Mahendra Patel (MD) and his brother Mr. Rajnikant Patel (Jt. MD) helming the affairs of the company. Both have over 3 decades of experience in the Pharmaceutical industry.

While Mr. Mahendra Patel looks after corporate planning strategies and corporate finance, Mr. Rajnikant Patel is responsible for manufacturing and marketing activities.

Further, Mr. Munjal Patel (Son of Mr. Mahendra Patel) and Mr. Aashish Patel (Son of Mr. Rajnikant Patel) were inducted into the board of directors in FY 15.

Promoters own 33.18% stake in the company as at Jun’17.

In small/mid cap companies, it’s important as an investor that the promoters hold reasonably high stake and in the case of LPL, promoters hold 33.18% stake in the company. Generally, we like promoter holding of 50% or more; therefore 33% is slightly low in our view and it will be important to watch out for any reduction in stake by the promoters.

Looking at the pattern of promoter holding for the last few years, while there hasn’t been decline in absolute number of shares held by the promoters their holding got diluted due to preferential issue of warrants between FY 08 and FY 11.

So, while the promoters had 40% stake (30 lakh shares) in the company as at Mar’08, their holding got diluted to 24.54% (40 lakh shares) by the end of Mar’11. Mar’11 onwards they kept on increasing their holding in the company through market purchases and the same increased to 36.54% (59.60 lakh shares) by the end of Mar’15. Recently, in FY 17 their holding again got diluted to 33.18% (66.35 lakh shares) on account of conversion of warrants. The recent conversion of warrants has been after a gap of 6 years and we hope in the interest of minority shareholders there are no major preferential allotments in future.

On the front of rationality and transparency, company has started coming out with quarterly business presentations and there seems to be an attempt at sharing more details about the company. Further, loans and advances to other parties have come down from their peak levels.

In Jan’17, ICRA revised the outlook on the credit rating of the company from negative to stable.


Operating Performance

LPL’s performance has been good and seen a gradual improvement on various metrics over the last few years.

Since FY 12, i.e. in the last 5 years the sales of the company have grown at a rate of 15% on annualized basis. This growth rate would have been higher had company not started defocusing on contract manufacturing sales in FY 17.

For the same period the export sales of the company increased from Rs 40 crore to Rs 120 crore, thus registering 25% CAGR in sales.

On the front of margins, the company’s EBITDA margins have also improved from earlier levels of 7-8% to around 12-13% as at Mar’17. Expansion in margins can be attributed to both higher contribution of exports and curtailment of contract manufacturing.

What is good to note about the performance of the company is that since the last 5-6 years the absolute debt on the balance sheet of the company hasn’t increased much and this is despite the fact that it has spent more than 70-80 crore on fixed asset expansion. Thus, with increasing sales and expanding operating margins, its finance cost has more or less remained same.

Over the last 5 years the net profit of the company has increased from Rs 5.12 crore to Rs 27 crore while the EPS has increased from Rs 3.04/- per share to Rs 13.53/- per share.

With improving sales and profitability margins, the return ratios of the company have also improved from 10-12% to around current levels of 15-20%.



At around current price of 160 the market capitalization of the company is Rs 320 crore and enterprise value is around Rs 370 crore.

For FY 17 the company recorded net profit of Rs 27 crore and EBIT of Rs 40.94 crore. Statistically speaking, post the recent 40% correction in stock price, we find the valuations of the company reasonable with PE ratio of 11.85 and EV/EBIT of 9.03.

The company has also been paying dividend since few years now and the stock currently offers dividend yield of around 0.75%.

If the company is able to improve its performance without diluting equity any further, we believe there’s potential for re-rating in the valuations of the company.


Risks and Concerns

Domestically a lot of issues have cropped up on the regulatory and the pricing front and the same could impact the profitability and growth of the company.

In the past the company has faced ban from Tanzanian authorities. Any such ban from any other country will not only impact sales and profitability but will also impact the reputation of the company.

On the export front, company may have to face issues like non-availability of currency with African countries, currency fluctuation, etc and can impact the business of the company.

The equity holding of promoters is slightly low at around 33% and one will have to be watchful of any stake sale by the promoters.

In the past the promoters have diluted equity at regular intervals. If they continue to do so, the valuations of the company may go down further and equity dilution in general will also be detrimental to the interests of shareholders.


Disclosure: I don’t have any investment in Lincoln Pharmaceuticals and have not traded in the stock in the last 30 days.


Best Regards,

Ekansh Mittal
Research Analyst
Ph.: +91-727-5050062, Mob: +91-9818866676
Email: [email protected]


Rating Interpretation

Positive – Expected return of ~15% + on annualized basis in medium to long term
Neutral – Expected Absolute return in the range of +/- 15%
Negative – Expected Absolute return of over -15%
Coverage closure – No further update on the stock
% weightage – allocation in the subject stock with respect to equity investments

Short term – Less than 1 year
Medium term – Greater than 1 year and less than 3 years
Long term – Greater than 3 years



Research Analyst Details

Name: Ekansh Mittal     Email Id: [email protected]    Ph: +91 727 5050062

Analyst ownership of the stock: No

Details of Associates: Not Applicable

Analyst Certification: The Analyst certify (ies) that the views expressed herein accurately reflect his (their) personal view(s) about the subject security (ies) and issuer(s) and that no part of his (their) compensation was, is or will be directly or indirectly related to the specific recommendation(s) or views contained in this research report.

Disclaimer: (here in referred to as Katalyst Wealth) is the domain owned by Ekansh Mittal. Mr. Ekansh Mittal is the sole proprietor of Mittal Consulting and offers independent equity research services to retail clients on subscription basis. SEBI (Research Analyst) Regulations 2014, Registration No. INH100001690

Ekansh Mittal or its associates including its relatives/analyst do not hold beneficial ownership of more than 1% in the company covered by Analyst as of the last day of the month preceding the publication of the research report.

Ekansh Mittal or its associates/analyst has not received any compensation from the company/third party covered by Analyst ever.

Ekansh Mittal/Mittal Consulting/analyst has not served as an officer, director or employee of company covered by Analyst and has not been engaged in market-making activity of the company covered by Analyst.

We submit that no material disciplinary action has been taken on Ekansh Mittal by any regulatory authority impacting Equity Research Analysis.

A graph of daily closing prices of securities is available at

The views expressed are based solely on information available publicly and believed to be true. Investors are advised to independently evaluate the market conditions/risks involved before making any investment decision

This report is for the personal information of the authorized recipient and does not construe to be any investment, legal or taxation advice to you. Ekansh Mittal/Mittal Consulting/Katalyst Wealth is not soliciting any action based upon it. This report is not for public distribution and has been furnished to you solely for your information and should not be reproduced or redistributed to any other person in any form. This document is provided for assistance only and is not intended to be and must not alone be taken as the basis for an investment decision. Ekansh Mittal or any of its affiliates or employees shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. Neither Ekansh Mittal, nor its employees, agents nor representatives shall be liable for any damages whether direct or indirect, incidental, special or consequential including lost revenue or lost profits that may arise from or in connection with the use of the information. Ekansh Mittal/Mittal Consulting or any of its affiliates or employees do not provide, at any time, any express or implied warranty of any kind, regarding any matter pertaining to this report, including without limitation the implied warranties of merchantability, fitness for a particular purpose, and non-infringement.

The recipients of this report should rely on their own investigations. Ekansh Mittal/Mittal Consulting and/or its affiliates and/or employees may have interests/ positions, financial or otherwise in the securities mentioned in this report. Mittal Consulting has incorporated adequate disclosures in this document. This should, however, not be treated as endorsement of the views expressed in the report.