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L G Balakrishnan & Bros Ltd Research Report - 21st Jan 2016

Auto Ancillary | Published on Nov 05th 2015

IT

LG Balakrishnan & Bros (LGBBL) reported a slightly better-than-expected standalone topline and bottom-line growth for 2QFY2016. The Transmission segment, which contributed ~79% to the company’s total standalone revenue, reported a growth of 11% yoy, while the Others segment reported a decline on the sales front. On the bottom-line (standalone) front, the company unperformed due to subdued sales growth and poor operating performance. Top-line grew by ~6% yoy: The standalone top-line grew by ~6% yoy to ~Rs282cr, which is higher than our estimate of ~Rs267cr. The Transmission segment revenue was up ~11% yoy; the segment accounted for ~79% of the standalone revenue of the company. The Others segment reported a decline in sales. Poor operating performance and lower other income mar profitability: The company reported an operating profit of ~Rs36cr, which is down 0.2% yoy. The operating margin contracted by by 74bp yoy to 12.8%, primarily on account of higher employee costs and other expenditure. The reported standalone net profit declined by ~19% yoy to ~Rs17cr, but is higher than our estimate of ~Rs16cr. However, on adjusting for the one-time exceptional gain incurred in 2QFY2015, the PAT during 2QFY2016 actually grew by 5% yoy. Outlook and valuation: LGBBL is a market leader in two-wheeler automotive chains with ~70% market share in the OEM segment. The company has been reporting lower growth in earnings since the last three quarters, which is mainly due to overall slowdown in the two-wheeler industry. The two-wheeler industry has been impacted mainly due to the rural slowdown. However, sales are expected to rebound in 2HFY2016 on expectations of a normal monsoon which will boost crop output, thus leading to revival in rural demand. The company’s volume growth in the automotive chains segment is expected to improve over FY2015-17E with its key clients like HMCL, HMSI, Yamaha, TVS Motor and others having plans of capacity expansion and with they launching new models. We have a Neutral rating on the stock.

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CMP 456
Target Price
Investment Period12 Months

Stock Info

MCAP BSE (Rs in Cr)932.35
MCAP NSE (Rs in Cr)943.81
P/E (x)15.10
EPS (Rs.)39.33
BV (Rs.)270.73
Div Yield (%)1.01
FV (Rs.)10.00
P/BV (x)2.19
EV/Sales (x)0.91
EV/EBITDA (x)8.40

Shareholding Pattern (%)

Promoter47.0
Public & Others35.0
Institution14.0
Corporate2.0
Foreign2.0
Grand Total100.0

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