CD Equisearch Pvt Ltd Feb 28, 2018 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/$m) 1712/263.9 Current price (Rs/$) 1091/16.8 Price target (Rs/$) 1324/20.4 52 W H/L (Rs.) 1144/545 Book Value (Rs/$) 349/5.4 Beta 0.9 Daily volume (avg. monthly) 13260 P/BV (FY18e/19e) 3.2/2.8 EV/EBITDA (FY18e/19e) 8.9/7.6 P/E (FY18e/19e) 19.9/16.5 EPS growth (FY17/18e/19e) 3.4/31.0/21.0 OPM (FY17/18e/19e) 12.3/13.3/14.0 ROE (FY17/18e/19e) 15.3/17.4/18.1 ROCE(FY17/18e/19e) 13.3/15.0/16.6 D/E ratio (FY17/18e/19e) 0.3/0.2/0.1 BSE Code 500250 NSE Code LGBBROSLTD Bloomberg LGBB IN Reuters LBG.BO Shareholding pattern % Promoters 47.7 MFs / Banks / FIs 14.7 FPIs 0.6 Govt. Holding - Public & others 37.0 Total 100.0 As on Dec 31, 2017 Recommendation BUY Analyst KISHAN GUPTA, CFA, FRM Phone: + 91 (33) 4488 0043 E- mail: [email protected]Consolidated (Rs crs) FY15 FY16 FY17 FY18e FY19e Income from operations 1172.98 1205.30 1282.70 1446.91 1616.41 Other Income 8.80 3.92 9.94 9.59 10.54 EBITDA (other income included) 151.08 141.60 167.71 201.75 236.81 Profit after MI & associate profit 65.97 63.37 65.51 85.83 103.88 EPS(Rs) 42.03 40.38 41.74 54.68 66.18 EPS growth (%) 9.9 -3.9 3.4 31.0 21.0 Company Brief L G Balakrishnan (LGB) manufactures roller chains and undertakes metal forming,including warm & cold forging, fine blanking and machined parts. Quarterly Highlights Spurred by sturdy off take of its value-enhancing metal forming business (+22.7%), LGB's revenue growth in Q3 rose at the highest rate (19.8%) in at least ten quarters , resurrecting its revenue share to 18.6% from just 16.3% a year ago; 9MFY18's at 18.3% Vs 17% in the same period a year ago. Buttressed by higher margins in its effervescent transmission business (11.4% Vs 7.3%) as well as metal forming business (14.1% Vs 6.1%), PBT (adjusted) rose by unyielding 88.4% and post tax earnings by no less vivacious 88.3%. Yet, if it would not was demonetization of high currency notes in Q3 last fiscal, this outcome would have looked far less spirited as EBIT of transmission business stood at 8.1% in Q3FY16 and that of metal forming business at 10.1%. Nonetheless, metal forming business 9MFY18 EBIT all but equaled that of FY17's. Remarkable recovery instigated by LGB’s transmission business EBIT in 9MFY18 (32.5% growth) - and EBIT margin surged to 10.3% Vs 8.2% - helped it post 37.5% in PBT and PAT by 30.3%. Restrained operating expenses (excluding raw material costs - as raw material to sales ratio surged by 200 bps 45.6% in 9MFY18) coupled with decent revenue growth helped post nearly 90bps expansion in OPMs. Outperforming broader demand trends in Indian two wheeler industry (read: motorcycles), LGB's transmission business revenues rose in double digits. LGB's Board has granted in principle approval for merger of its wholly owned subsidiary, BCW V Tech India Pvt Ltd, w.e.f April 1, 2017. The stock currently trades at 19.9x FY18e EPS of Rs 54.68 and 16.5x FY19e EPS of Rs 66.18. Spurred by higher than estimated margins of both transmission and metal forming businesses, LGB's current fiscal's EPS has been revised upwards by 11.2% and next fiscal's by 14.6%. Improved earnings thus would buoy return on capital - ROE projected at 18.1% in FY19 from 15.3% in FY17 - and quicker working capital conversion. Emerging strongly from twin blows of demonetization and GST, rural discretionary spending is expected to rise, thus boosting demand for two- wheelers. On balance we maintain our buy rating on the stock with revised target of Rs 1324 (previous target: Rs 808) based on 20x FY19 earnings (forward PEG: ~1), over a period of 6-9 months.
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CD Equisearch Pvt Ltd Feb 28, 2018
Equities Derivatives Commodities Distribution of Mutual Funds Distribution of Life Insurance
Profit after MI & associate profit 10.8 9.7 9.8 13.2 16.0
EPS($) 0.69 0.62 0.62 0.84 1.0
Book value ($) 3.6 3.8 4.5 5.2 6.1
Operating cash flow 21.7 22.5 21.2
Investing cash flow -12.9 -14.2 -10.9
Financing cash flow -7.0 -6.1 -9.5
income statement figures translated at average rates; balance sheet and cash flow at year end rates; projections at current rates (Rs 64.85/$). All dollar denominated figures are adjusted for extraordinary items.
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CD Equisearch Pvt Ltd
Equities Derivatives Commodities Distribution of Mutual Funds Distribution of Life Insurance
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