Buy LG Balakrishnan; target of Rs 723: Angel

Angel Broking's report on LG Balakrishnan and Brothers

"For 3QFY2015, LG Balakrishnan & Bros (LGBBL)’s standalone top-line and bottom-line growth have come in below our estimates. The standalone top-line growth was lower mainly due to lower growth in the Transmission segment, which contributes by 74% of the company’s total standalone revenue. On the bottom-line (standalone) front, the company unperformed due to a poor operating performance and also due to lower other income and a higher tax rate."

Outlook and valuation: "The company is a market leader in two-wheeler automotive chains with a ~70% market share in the OEM segment. The two-wheeler industry is showing signs of recovery, both in terms of domestic sales as well as exports. This will lead to recurring business opportunity for auto ancillary companies like LGBBL. Going ahead, the company would improve its volume growth in the automotive chains segment driven by healthy volume growth at key clients like HMCL, HMSI, Yamaha, TVS Motor and others (owing to upcoming capacity expansion plans and new launches). We forecast LGBBL to report Net Sales CAGR of ~11% over FY2014-17E to~Rs 1,529cr and Net Profit CAGR of ~12% over the same period to Rs 87cr.Hence, we recommend a Buy rating on the stock with a target price of Rs 723", says Angel Broking research report.

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