Buy LG Balakrishnan & Bros, target price Rs 720: HDFC Securities

HDFC Securities has buy call on LG Balakrishnan & Bros Ltd. with a target price of Rs 720. The current market price of LG Balakrishnan & Bros is Rs 617.7. Time period given by analyst is 6 months when LG Balakrishnan & Bros Ltd. price can reach defined target.

LG Balakrishnan & Bros Ltd., incorporated in the year 1956, is a Small Cap company (having a market cap of Rs 1933.30 Crore) operating in Auto Ancillaries sector.

LG Balakrishnan & Bros Ltd. key Products/Revenue Segments include Sale of Products, Scrap and Duty Drawback for the year ending 31-Mar-2021.



Financials
For the quarter ended 31-12-2021, the company reported a Consolidated Total Income of Rs 576.56 Crore, down -.39 % from last quarter Total Income of Rs 578.82 Crore and up 15.28 % from last year same quarter Total Income of Rs 500.16 Crore. Company reported net profit after tax of Rs 71.14 Crore in latest quarter.

Investment Rationale
Due to its established presence in the transmission products for 2W in India, its replacement sales will keep growing given the large base of 2W and offset some concerns due to the imminent threat of EV in 2W that use minimal transmission products. This also results in rise in margins (as replacement sales carry higher margins) aided by cost optimisation efforts. The brokerage expects LGBB’s revenue/EBITDA/PAT to grow at 19/24//31% CAGR over FY21-FY24, led by revival in the 2W market. It believes investors can buy the stock in the band of Rs 595-605 and add on dips to Rs 525-535 band (5.5x FY24E EPS) for a base case fair value of Rs 672 (7x FY24E EPS) and bull case fair value of Rs 720 (7.5x FY24E EPS) over the next 2 quarters.

Promoter/FII Holdings
Promoters held 34.32 per cent stake in the company as of 31-Dec-2021, while FIIs owned 6.78 per cent, DIIs 12.48 per cent.