CD Equisearch
LG Balakrishnan (Buy)
Target: ₹565
CMP: ₹410.9
LG Balakrishnan (LGB) manufactures roller chains and undertakes metal forming, including warm & cold forging, fine blanking and machined parts.
Trampled by the lockdown in Q1, revenues from operations of LGB slid by a little pleasing 21.3 per cent to ₹392.55 crore compared to ₹499.08 crore in Q4 of the previous fiscal.
Little surprisingly, its transmission business bore much of the brunt for its revenues plunged by 24.5 per cent; though its revenue contribution fell by a miniscule 3 per cent to 77 per cent in Q1 from 80 per cent in Q4.
The stock currently trades at 7.8x FY22 EPS of ₹52.51 and 6.5x FY23 EPS of ₹62.83. Post tax earning is projected to grow by over 27 per cent CAGR over the next two years on stable sales growth (sales estimated to grow by 11 per cent this fiscal and by 9.4 per cent in FY23.
LGB’s competitive advantage in terms of product quality and market reach would enable it to further penetrate in the propitious replacement market. Risks in terms of rise in Covid 19 cases cannot be ignored. Weighing odds, we maintain our Buy recommendation on the stock with revised target of ₹565 (previous target: ₹276) based on 9X FY23 earnings over a period of 6-9 months.
Published on August 27, 2021
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