Shares of LG Balakrishnan and Brothers Limited (LGBB) have doubled investors’ money in the last 12 months. In the past one year, the share price jumped from Rs 293 to Rs 627, logging around 114 per cent return in this period.
Long-term investors have made big gains by investing in this stock as it has surged around 700 per cent in the last ten years.
With a market capitalisation of Rs 1,928 crore, the shares stand higher than 5 day, 20 day, 50 day, 100 day and 200 day moving averages.
According to Divam Sharma, Founder, Green Portfolio, the market leadership position of the company along with the highest ever quarterly revenues and margins reported over the last two quarters makes the company quite attractive.
However, he added that the impact of EV transition has to be analyzed due to the minimal usage of chains in 2Wheeler EVs. If the management comes up with product diversification over the next couple of years, then-current levels of valuation are quite attractive. The stock can be considered for the long term with a cautious approach to the developments towards EV adoption in the market.
Brokerage house HDFC Securities noted that LGBB is a dominant player with a strong leadership position in automotive chains in the Indian 2-wheeler industry. The company mainly caters to the two-wheelers (2W) industry and operates in 2 segments a) Transmission products which include chains, sprockets, tensioners, belts and brake shoe which contributes around 80 per cent of overall revenue – mainly catering to 2W b) Metal forming products consisting of fine blanking for precision sheet metal parts, machined components and wire drawing products contributing around 20 per cent of overall revenue.
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, it said.
“This also results in rise in margins (as replacement sales carry higher margins) aided by cost optimisation efforts. We expect LGBB’s revenue/EBITDA/PAT to grow at 19/24//31 per cent CAGR over FY21-FY24, led by revival in the 2W market,” it mentioned in its recent report.
The brokerage firm believes that 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.
It also highlighted that the Indian automobile industry has witnessed muted growth in FY22 coming on the back of a high base and production disruption. FY23 sales growth is expected to be better going by most OEM management commentary. Also, the government is making huge investments in building road infrastructure, which is likely to drive higher demand for automobiles.
HDFC Securities further added that the pandemic has resulted in increased demand for personal mobility vehicles benefitting 2W, which is the first personal automobile for most Indians. However, the transition to EVs could have a significant impact as it would eliminate the requirement of a drive chain.
According to MarketsMojo, the company has a strong ability to service debt as the company has a low Debt to EBITDA ratio of 0.46 times. Also, it has declared positive results for the last 5 consecutive quarters. The stock is trading at a fair value compared to its average historical valuations and has an attractive valuation.
Reference Link:- https://www.businesstoday.in/markets/stocks/story/this-multibagger-stock-doubled-investors-money-in-1-year-more-upside-likely-329555-2022-04-12