CD Equisearch Pvt Ltd Nov 2, 2016 Equities Derivatives Commodities Distribution of Mutual Funds Distribution of Life Insurance L.G.Balakrishnan&Bros Ltd No. of shares (m) 15.7 Mkt cap (Rs crs/$m) 1063/159.4 Current price (Rs/$) 677/10.2 Price target (Rs/$) 847/12.7 52 W H/L (Rs.) 728/392 Book Value (Rs/$) 272/4.1 Beta 0.8 Daily volume (avg. monthly) 46240 P/BV (FY17e/18e) 2.3/2.0 EV/EBITDA (FY17e/18e) 7.1/6.2 P/E (FY17e/18e) 14.4/12.0 EPS growth (FY16/17e/18e) -3.9/16.8/19.7 OPM (FY16/17e/18e) 11.4/12.7/12.7 ROE (FY16/17e/18e) 16.9/17.2/17.8 ROCE(FY16/17e/18e) 14.1/14.2/15.5 D/E ratio (FY16/17e/18e) 0.4/0.3/0.2 BSE Code 500250 NSE Code LGBBROSLTD Bloomberg LGBB IN Reuters LBG.BO Shareholding pattern % Promoters 47.5 MFs / Banks / FIs 13.7 Foreign 1.4 Govt. Holding 0.0 Non-Promoter Corp. 1.6 Total Public 35.7 Total 100.0 As on Sep 30, 2016 Recommendation BUY Analyst KISHAN GUPTA, CFA, FRM Phone: + 91 (33) 4488 0043 E- mail: [email protected]Consolidated (Rs crs) FY14 FY15 FY16 FY17e FY18e Income from operations 1108.56 1172.98 1205.30 1343.91 1520.39 Other Income 4.60 8.80 3.92 3.83 4.25 EBITDA (other income included) 130.74 151.08 141.60 174.61 197.73 Profit after MI & associate profit 60.07 65.97 63.37 74.03 88.65 EPS(Rs) 38.26 42.03 40.37 47.16 56.48 EPS growth (%) 94.7 9.9 -3.9 16.8 19.7 Company Brief L G Balakrishnan (LGB) manufactures roller chains and undertakes metal forming, which includes warm & cold forging, fine blanking and precision- machined parts. Its step subsidiary, GFM LLC, deals in precision stamped metal parts which are used in automobiles. Quarterly Highlights If recent trend in sales of LG Balakrishnan is anything to go by, then the domestic two wheeler industry is showing discernible signs of revival. Income from operations (standalone) jumped 10.1% to Rs 309.95 crs ($46.5m) in Q2 - the best reading in last nine quarters - not least due to hefty rise in bellwether transmission business sales (10.2%), catapulting its revenue share to 79.1%. Slackness in two wheeler industry in last few years could do little to prevent massive rise in transmission business revenue (standalone) share - 78.8% in FY16 from 67.3% in FY13. Its metal forming business - largely dependent on four wheeler industry - failed to gain ground in last few quarters partly due to restrictions in sales of diesel powered vehicles. Sales declined 2% last fiscal, which still evokes doubts on the strength of the recent recovery – sales are up 11.1% in H1. EBIT margins have been no stabler - declining by some 300 bps to 7.6% in Q2 from 11.5% in Q1. All thanks to higher dispatches, LGB's transmission business margins ballooned to 12.1% in Q2- the highest in at least three years, resulting in 47.8% growth in its EBIT to Rs 29.64 crs ($4.4m) from Rs 20.05 crs ($3.0m) in the same quarter a year ago; margins for H1 also expanded by some 130 bps to 9.4%. With transmission business turning more vivacious, its EBIT share has started to creep up - 80.8% in H1FY167from 79.9% a year ago. Adjusted profit after tax rose by 16.3% to Rs 30.65 crs ($4.6m) in H1FY17 from Rs 26.37 crs($4.0m) in the same period a year ago. The stock currently trades at 14.4x FY17e EPS of Rs 47.16 and 12xFY18e EPS of Rs 56.48. Prodigious recovery of the Indian two wheeler industry has spurred related auto component makers to ramp up production. Perceptible signs of recovery are all too evident in LGB’s transmission business – higher volumes in Q2 with margin augmentation. Yet portending the medium term trend of the consumer centric auto industry is viciously difficult, invoking need for frequent estimate changes. Weighing odds, we upgrade the stock to buy with revised target of Rs 847 (previous target: Rs 549) based on 15x FY18e earnings (peg ratio: 0.8), over a period of 9-12 months.
12
Embed
CD Equisear ch Pvt Ltd - bsmedia.business-standard.com
This document is posted to help you gain knowledge. Please leave a comment to let me know what you think about it! Share it to your friends and learn new things together.
Transcript
CD Equisearch Pvt Ltd Nov 2, 2016
Equities Derivatives Commodities Distribution of Mutual Funds Distribution of Life Insurance
Equities Derivatives Commodities Distribution of Mutual Funds Distribution of Life Insurance
Cumulative Financial Data Figures in Rs crs FY13-14 FY15-16 FY17-18e
Income from operations 2065 2378 2864
Transmission revenues 1360 1659 2042
Metal forming revenues 323 366 432
Transmission to total (%) 66 70 71
Transmission EBIT 131 147 195
Transmission EBIT margin (%) 9.6 8.8 9.6
Operating profit 215 280 364
EBIT 156 200 266
PBT 115 165 234
PAT 91 129 163
Dividends 18 25 28 OPM (%) 10.4 11.8 12.7
NPM (%) 4.5 5.6 5.7
Interest coverage 3.8 5.6 8.5
ROE (%) 17.4 18.7 17.4
ROCE (%) 15.4 15.5 14.9
Debt-equity ratio* 0.5 0.4 0.2
Fixed asset turnover 4.7 3.9 3.8
Total asset turnover 3.1 2.7 2.5
Debtors turnover 8.1 8.0 8.4
Inventory turnover 4.6 4.8 5.2
Creditors turnover 7.2 6.2 6.4
Debtors days 45.1 45.8 43.4
Inventory days 79.1 75.7 69.6
Creditor days 51.0 58.5 57.4
Cash conversion cycle 73.1 63.1 55.6
Dividend payout ratio (%) 18.7 18.2 17.4
FY13-14 implies two years ending fiscal 14; *as on terminal year;
Recovery in two-wheeler demand has reinvigorated most auto component makers who have been affected by a dramatic
slowdown in domestic two- wheeler industry. LG Balakrishnan was no exception for it reported an average annual sales
growth of 8.3% in its transmission business (replacement sales included) in last four years when domestic two wheeler industry
grew by a mere 5.3%; yet bettering its four wheeler industry reliant metal forming business whose revenues rose by 3.5%. But
recent buoyancy in domestic motorcycle dispatches (12.7% in Apr-Sep 16 period) has doubtless buttressed estimates -
cumulative sales in FY17-18e period projected to jump by 20.4% to Rs 2864 crs (see table) from the preceding two years.
Thanks to higher volumes, margins would plump too - 12.7% in FY17-18e period from 11.8%, thus perceptibly boosting
earnings. Most pertinently, transmission business cumulative EBIT would increase by a third to Rs 195 crs in FY17-18 period,
galvanizing EBIT margins (which had come off a lot from the peak in last few years) by some 80 bps to 9.6%. Yet lower asset
turnover ratios would hinder rise in return on capital ratios - ROE estimated to decline by nearly 130 bps to 17.4%. Noticeable
debt retirement in the next two years would manifest itself in sharp rise in interest coverage ratio.
11
11
CD Equisearch Pvt Ltd
Equities Derivatives Commodities Distribution of Mutual Funds Distribution of Life Insurance
Financial Summary – US dollar denominated
million $ FY14 FY15 FY16 FY17e FY18e
Equity capital 1.3 2.5 2.4 2.4 2.4
Shareholders’ funds 48.6 55.8 60.3 69.1 80.1
Total debt 25.0 28.3 26.8 23.2 15.0
Net fixed assets (incl CWIP) 41.7 54.2 56.8 59.4 57.7
Investments 2.8 2.8 2.8 2.9 3.0
Net current assets 14.2 15.3 16.3 18.8 29.5
Total assets 61.6 74.1 77.3 82.4 91.7
Revenues 183.2 191.8 184.1 201.4 227.9
EBITDA 21.0 23.6 21.6 26.2 29.6
EBDT 18.1 20.7 18.9 23.6 27.5
PBT 12.7 14.3 11.9 16.0 19.1
Profit after MI & asso. profit 9.9 10.8 9.7 11.1 13.3
EPS($) 0.63 0.69 0.62 0.71 0.85
Book value ($) 3.1 3.6 3.8 4.4 5.1
Operating cash flow 13.2 15.0 16.8 17.3
Investing cash flow -15.4 -12.4 -11.8 -6.6
Financing cash flow 2.3 -2.4 -5.2 -10.2
income statement figures translated at average rates; balance sheet and cash flow at year end rates; projections at current rates All dollar denominated figures are adjusted for extraordinary items.
12
12
CD Equisearch Pvt Ltd
Equities Derivatives Commodities Distribution of Mutual Funds Distribution of Life Insurance
Disclosure& Disclaimer CD Equisearch Private Limited (hereinafter referred to as ‘CD Equi’) is a Member registered with National Stock Exchange of India Limited,
Bombay Stock Exchange Limited and Metropolitan Stock Exchange of India Limited (Formerly known as MCX Stock Exchange Limited). CD
Equi is also registered as Depository Participant with CDSL and AMFI registered Mutual Fund Advisor. The associates of CD Equi are
engaged in activities relating to NBFC-ND - Financing and Investment, Commodity Broking, Real Estate, etc.
CD Equi is registered under SEBI (Research Analysts) Regulations, 2014 with SEBI Registration no INH300002274. Further, CD Equi hereby
declares that –
• No disciplinary action has been taken against CD Equi by any of the regulatory authorities.
• CD Equi/its associates/research analysts do not have any financial interest/beneficial interest of more than one percent/material
conflict of interest in the subject company(s) (kindly disclose if otherwise).
• CD Equi/its associates/research analysts have not received any compensation from the subject company(s) during the past twelve
months.
• CD Equi/its research analysts has not served as an officer, director or employee of company covered by analysts and has not been
engaged in market making activity of the company covered by analysts.
This document is solely for the personal information of the recipient and must not be singularly used as the basis of any investment decision.
Nothing in this document should be construed as investment or financial advice. Each recipient of this document should make such
investigations as they deem necessary to arrive at an independent evaluation of an investment in the securities of the companies referred to in
this document (including the merits and risks involved) and should consult their own advisors to determine the merits and risks of such an
investment.
Reports based on technical and derivative analysis center on studying charts of a stock's price movement, outstanding positions and trading
volume, as opposed to focusing on a company's fundamentals and as such, may not match with a report on a company's fundamentals.
The information in this document has been printed on the basis of publicly available information, internal data and other reliable sources
believed to be true but we do not represent that it is accurate or complete and it should not be relied on as such, as this document is for general
guidance only. CD Equi or any of its affiliates/group companies shall not be in any way responsible for any loss or damage that may arise to
any person from any inadvertent error in the information contained in this report. CD Equi has not independently verified all the information
contained within this document. Accordingly, we cannot testify nor make any representation or warranty, express or implied, to the accuracy,
contents or data contained within this document.
While, CD Equi endeavors to update on a reasonable basis the information discussed in this material, there may be regulatory compliance or
other reasons that prevent us from doing so.
This document is being supplied to you solely for your information and its contents, information or data may not be reproduced, redistributed
or passed on, directly or indirectly. Neither, CD Equi nor its directors, employees or affiliates shall be liable for any loss or damage that may
arise from or in connection with the use of this information.
CD Equisearch Private Limited (CIN: U67120WB1995PTC071521)