Target: ₹1,484
CMP: ₹1,303.30
L G Balakrishnan Brothers (LGB) manufactures roller chains and undertakes metal forming, including warm & cold forging, fine blanking and machined parts.
With the Indian two wheeler industry in a cusp of an entrenched slowdown – barring robust festive sales this year – LGB’s transmission business bore the brunt of this slowdown as it posted that revenues grew by an abysmal 3.7 per cent in the first half of current fiscal when compared with year ago period.
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Yet its earnings barely swooned for it grew by an astonishing 17.1 per cent thus resulting in 200 bps expansion in margins presumably due to meltdown in raw material prices.
The stock currently trades at 15x FY24e EPS of ₹85.03 and 12.9x FY25e EPS of ₹98.90. In view of scarcely robust growth in the two-wheeler industry in the first half of current fiscal, we have trimmed down our current year earnings estimates by some 8 per cent.
Earnings may gain momentum next fiscal though not without risk of mounting cost pressures. Capital allocation holds key for the pile of liquid assets has shown little signs of diminishing. Balancing odds, we assign “accumulate” rating on the stock with revised target of ₹1,484 (previous target: ₹739) based on 15x FY25e earnings, over a period of 9-12 months.