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Geojit Financial Services
LG Balakrishnan & Bros (Buy)
CMP: ₹184.4
Target: ₹239
LG Balakrishnan & Bros Ltd (LGB) is a transport company. The company is engaged in the business of manufacturing chains, sprockets and metal formed parts for automotive applications. The company’s segments include transmission, metal forming and others. The transmission segment includes chains and sprockets.
Key takeaways: a) LGB to benefit from the new capacity addition and its strong client base: We expect the revenue from Transmission to grow by 11 per cent and factor 8 per cent revenue CAGR over FY20E-22E owing to subdued growth from metal forging business.
b) Third quarter revenue of FY20 de-grew by 7 per cent y-o-y due to flat growth from the chain transmission segment and –33 per cent y-o-y from the metal forming.
c) Despite weak sales, EBITDA margin improved by 170 bps owing to 280 bps decline in the raw material cost. However, higher depreciation and interest cost led the PAT to de-grew by –11 y-o-y.
Valuation: Given strong fundamentals and lower base we roll over our valuation to FY22 and value at 6x FY22 EPS and recommend ‘buy’.
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