Accumulate This Small-Cap Auto Ancillaries Stock For Target Price Of Rs 894: Geojit

Leading brokerage firm Geojit has given accumulate rating to the auto ancillaries sector stock LG Balakrishnan & Bros Ltd (LGB) for target price of Rs 894 with a potential gain of 17%. LGB to benefit from the new capacity addition and its strong client base. We expect the revenue from Transmission to grow by 11% and factor 11% revenue CAGR
over FY22-24E.

LG Balakrishnan & Bros Ltd Stock Outlook

The current market price of the stock is Rs 782 apiece with an intraday gain of 0.79% on September 16, 2022. According to Geojit, if you accumulate the stock at its current market price, it has the potential to surge to Rs 894 apiece with a potential gain of 17%. The stock's 52-week high is Rs 805 apiece and 52-week low is Rs 404 apiece, respectively.

LG Balakrishnan & Bros Ltd 5-Years Gain

The stock has gained 119% in last 5 years, 132% in last 3 years, and 86% in last 1 year.

LG Balakrishnan & Bros Ltd revival in premium bikes to support overall growth

Q1FY23 revenue grew by robust 33%YoY due to strong demand from key customers and superior product mix. The chain transmission segment grew by 33%YoY while the metal forming by 30%YoY. EBITDA margin expanded by 72bps due to cost optimization and superior product mix. As a result, PAT grew by 48%YoY. We expect the replacement brand "Rolon" to regain strength despite the lower demand from the OEM. We believe the urban demand to reach its precovid level in the later half of the year as the consumer sentiment is likely to improve for premium vehicle.

LG Balakrishnan & Bros Ltd Margin To Show Resilience At Current Level

LGB has excellent relationship with OEM's like Bajaj Auto, HMSI, TVS Motors, Eicher Motors and Hero Motor to prop up its transmission & fine blanking businesses. Lower metal price to support margin and support operating leverage. Meanwhile. replacement segment would augur impeccably well as it is a margin-accretive business.

LG Balakrishnan & Bros Ltd Transmission Sale To Grow At Double Digit

LGB to benefit from the new capacity addition and its strong client base. We expect the revenue from Transmission and Metal forming to grow by 11% & 9% and factor 11% revenue CAGR growth of 11% over FY22-23E. The company continue to focus on creating new products as well as expanding uses of existing offerings that are tailored to the different needs of their global customers. LGB is setting up a new plant in Nagpur to manufacture Industrial Chains, Conveyor Chains, Automotive components and assemblies.

LG Balakrishnan & Bros Ltd Valuation

According to Geojit, "We expect the earnings to grow at a CAGR of 14% over FY22-24E, on the back of pick up in domestic 2-Wheeler market and capacity additions. Fundamentally, LGB as a strong balance sheet comparing to its peers. The stock is currently trading at 10xand 8x over FY23E and FY24E EPS, which is lower to its historical average. We strongly upgrade our earning estimate and value LGB at 10x FY24E EPS and recommend Accumulate rating with a target price of Rs.894 at CMP.

About LG Balakrishnan & Bros Ltd

LG Balakrishnan & Bros (LGB) is India's leading Manufactures in 2Wchain transmission (Drive chains) and sprockets with a domestic market share of 75% and around 50% in replacement market.

Disclaimer

The stock has been picked from the brokerage report of Geojit Financial Services. Greynium Information Technologies, the Author, and the respective Brokerage House are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before taking any investment decision.