Shares of LG Balakrishnan & Brothers, one of the country‘s largest automotive chains manufacturers, have gained 39 percent over the last six months. The buoyancy can be pinned to recovery in the two-wheeler industry, which contributes roughly 60-70 percent of LG Balakrishnan‘s revenues.
Shares of LG Balakrishnan & Brothers, one of the country’s largest automotive chains manufacturers, have gained 39 percent over the last six months. The buoyancy can be pinned to recovery in the two-wheeler industry, which contributes roughly 60-70 percent of LG Balakrishnan’s revenues.
A CEOs poll conducted by CNBC-TV18 concluded the two-wheeler industry expects over 20 percent growth this year and B Vijayakumar, MD of LG Balakrishnan concurs.
Speaking to the channel, he says a growth rate of 15-20 percent for the two-wheeler industry is not out of the question. So far sales of the company across products have grown about 5-7 percent but the company is working towards achieving double-digit growth, he says, appearing confident margin growth will outpace the revenue growth.
The company commands nearly 55 percent domestic market share with supplies to OEM majors like Bajaj Auto, HMSI, TVS Motors, Eicher Motors and Hero MotoCorp.
To accomplish the double-digit growth aspiration, the company is looking to expand both in export markets and newer product lines using better technology. A report by domestic broking house JHP Securities suggests the company has started developing chains for the passenger vehicle segment. These chains, which are currently being imported by OEMs, have a market potential of about Rs 400 crore.
As demand expands, most ancillaries are faced with capacity hurdles. LG Balakrishnan has its plans laid out with Greenfield investments already in place in the transmissions business, which contributes 75 percent to total sales.
According to the JHP report, at peak utilisation the new capacities could add roughly Rs 300 crore to the company’s turnover. The utilisation levels at this new plant in Jalna are likely to hit 75 percent by the fourth quarter of FY17 and might pump up sales.
The few stumbling blocks that could now deter investors as per SP Tulsian of sptulsian.com is the less than 50 percent promoter holding in the company and valuations if the company is not able to deliver growth as expected. “The earnings per share should at least be around Rs 48-50 for the year, otherwise the stock is bit expensive,” he says in an interview to CNBC-TV18.
Traction in the heavy and light commercial vehicle businesses which are currently facing growth resistance should provide added momentum.
Below is the verbatim transcript of B Vijayakumar’s interview to Latha Venkatesh& Reema Tendulkar on CNBC-TV18.
Latha: Let us start with each of your businesses. Your transmission products like automotive chains, belts, tensioners, brake shoe that segment how has it done in the second quarter and what is your sense of volume and revenue growth for the full year?
A: That has done well. We have grown at a rate of what between 5 and 7 percent. Most products in this group have average growth of 7 percent.
Latha: Is earnings before interest, tax, depreciation and amortization (EBITDA) better? In your first quarter your EBITDA was twice the growth of your revenue?
A: There are some things I can’t talk before the board meeting.
Latha: Directionally, do you think EBITDA will remain strong in this year compared to revenues?
A: Yes, that’s one way of it.
Reema: You spoke about a 5 to 7 percent growth is it purely in your transmission business which is 75 percent of your revenues or did you mean it for the entire business?
A: It is for the entire company. Most of our products have grown by about 7 percent. It is only in the heavy commercial vehicles sectors where we are facing some amount of resistances. They are not doing very well, so the growth in certain areas is a little damp.
Reema: How significant is your heavy commercials vehicles to your overall business. What percentage of your revenue where you are seeing some pressure?
A: It will be about 5 percent.
Latha: Is the LCV dealership doing well?
A: Not very well I am afraid. We hope that things will improve. It is improving compared to last year, but still it can do a lot better.
Latha: Would margins be much better than the 10.8 percent you reported in the first quarter?
A: Again, I don’t know how much I can say about it.
Latha: Directionally, I understand, directionally will it be higher in the second half or instance?
A: Yes, it is higher than the first half.
Reema: The company’s aspiration of course to see a double digit growth. You are talking about a 5-7 percent growth in all your products. Is the company undertaking any steps to augment growth and if yes what are they and when should we see a double digit growth for the company?
A: Half of our business is, we have our own products, but the other half is we are actually like contractors customers. So, it depends upon how customers growth; we can’t by ourselves claim for any growth though we are looking at exports and other countries for additional growth.
Latha: We did an extensive CEO poll just last week – top 50 CEO’s polled across the country and it was only the two-wheeler segment which told us that they are expecting more than 20 percent growth. That was the strongest segment in terms of CEO responses. You think your buyers are giving you better orders in the second half in the months to come?
A: Yes, I think they will. The way the two-wheeler industry has been, in spite of growth of what 5-10 percent that would be the minimum that they could ever have done. Looking at a growth rate of about 15 to 20 percent is not out of the question.
Latha: In a recent management meeting takeaway you had told some of the analyst that there would probably be a downward revision in some of the product estimates. Now that is gone? You now think that your original equipment manufacturer (OEM) guys will give you better orders?
A: Definitely, I look forward to that.
Unlock 75% more savings this festive season. Get Moneycontrol Pro for a year for Rs 289 only.
Coupon code: DIWALI. Offer valid till 10th November, 2019 .