Re: {LONGTERMINVESTORS} Research Reports extracts & summaries - Thread

LG Balakrishnan & Bros Ltd. (LGB)

Fundamentally strong & stable, Looks attractive at current valuations

LG Balakrishnan & Brothers (LGB), India's largest automotive chains manufacturer, commands domestic market share (MS) of ~55%. The company has excellent relationship with OEMs like Bajaj Auto, HMSI, TVS Motors, Eicher Motors and Hero MotoCorp as a result of its ability to offer consistent and superior quality products. Roll out of certain new products coupled with increase in replacement demand for automotive chains and improved demand from 2-wheeler (2-W) industry (CAGR of ~13.6%, FY16-18E) are expected to aid growth for the company. We initiate coverage on LGB with BUY rating for a target price of INR 770 based on 12x FY18E earnings.

Investment Argument

• Capacity addition to mitigate volume constraint: LGB has expanded its capacity by ~25% at an investment of INR 1.5 bn at its newly commissioned facility at Jalna. Bulk of the investment has been channelised towards the transmission segment which has asset turn of ~2.0, translating into turnover of INR 3.0 bn at peak capacity utilization. The commercial production commenced in Q4FY16 and utilisation is expected to ramp up to ~75% by Q4 due to robust demand from the 2-W OEMs.
• Replacement market expected to grow @10% CAGR FY16-18E: The cumulative replacement market for automotive chains is expected to grow at a CAGR of 10% over the next 2 years led by 14% compounded growth for the 2-W OEMs between FY 09-15. The cumulative replacement market size is expected to balloon to ~42mn chains per annum by FY18.
• Beneficiary of growth in the 2-Wheeler industry: LGB derives 60%-70% of its revenue from 2-W industry. We expect 2-W industry to grow at a CAGR of 13.6% between FY16-18E. Confluence of factors are expected to uplift the demand for the 2-W industry going forward both on the urban and rural side i.e. superior income growth, salary hike of government employees due to 7^th pay commission, shift towards high-end bikes, robust monsoon and aggressive & strict implementation of crop insurance scheme.

Outlook & Valuation

~55% MS in the 2W industry coupled with superior technological knowhow places LGB on a strong footing. Utilisation ramp up at its new facility at Jalna, roll out of new products and stable replacement demand growth provides decent revenue visibility for the company. LGB is among the best play to ride the 2-W industry growth (~13.6% CAGR growth between FY16-18E). Topline and bottomline are expected to clock CAGR of 11.6% and 26.0% between FY16-18E. We initiate coverage on the stock with a BUY rating for a target price of INR 770 based on 12x FY18E earnings.

 

Particulars  [INR]	FY12	FY13	FY14	FY15	FY16	FY17E	FY18E
Revenue [mn]	9,127	9,562	11,086	11,730	12,053	13,176	14,999
EBITDA [mn]	1,036	893	1,261	1,423	1,377	1,636	1,936
Adjusted  Net Profit [mn]	442	327	628	712	635	799	1,007
Earnings Per Share	56.4	41.7	80.1	45.4	40.5	50.9	64.2
Dividend Per Share	11	8	12	7	6	8	10
Book Value Per Share	296	329	392	232	265	307	360

 

 

 

--
You received this message because you are subscribed to the Google Groups "LONGTERMINVESTORSRESEARCH" group.
To unsubscribe from this group and stop receiving emails from it, send an email to longterminvestorsresearch+unsubscribe@googlegroups.com.
Visit this group at https://groups.google.com/group/longterminvestorsresearch.
For more options, visit https://groups.google.com/d/optout.