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AUM Capital
LG Balakrishnan (Buy)
Target: ₹930
CMP: ₹687.10
LG Balakrishnan & Bros. (LGB) is a leading supplier of transmission chains, sprockets and metal formed parts for automotive applications. The company has plans to diversify its products by reentering into industrial chains with ending of a non-compete clause with an erstwhile JV partner.
Further, LGB has been declared as a successful applicant of the corporate insolvency process of RSAL Steel and Private Limited and acquisition of this company would widen the company’s product portfolio.
The company’s operating profit margins (OPM) paramounted to about 15.8 per cent in FY2021 from 12.2 per cent in FY2020 due to increase in revenue share from the margin-accretive replacement segment and cost saving initiatives undertaken.
The company has been allotted Leasehold Land admeasuring 60,000 sq. m. in additional butibori industrial area - Nagpur for setting up of manufacturing plant/facility.
LGB’s OEM business is expected to do reasonably well however replacement segment would augur impeccably well as it is a margin-accretive business; besides, US business is garnering adequate amount of traction from sport utility vehicle segment.
Debt on books is negligible and also company has generated a net free cash flow of ₹46 crore in H1-FY22. We recommend a buy on the stock with a target price of ₹930 with an investment horizon of 9-12 months.
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