l.g. balakrishnan & bros ltdbreport.myiris.com/firstcall/lgbalbro_20110819.pdf · bosch ltd...
TRANSCRIPT
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SYNOPSIS
LGB Ltd. is India's leading Roller
chain manufacturer industries in
South India established in 1937.
LGB is the premier manufacturer of
automotive chains under the popular
brand name 'ROLON'.
During the quarter ended, the robust
growth of Net Profit is increased by
40.42% to Rs.119.69 million.
The Company’s revenue and Net
profit are expected to grow at a CAGR
of 22% and 41% over FY10 to FY13E.
LGB has 17 chain manufacturing
plants, all ISO 9001 certified by
Underwriters Laboratories Inc., USA.
LGB exports about 10% of its
products to USA, Australia, New
Zealand, South Africa, Japan,
European, Far and Middle East
countries.
Years Net sales EBITDA Net Profit EPS P/E
FY 11 7095.20 879.46 458.05 58.37 4.63
FY 12E 8727.10 1092.02 567.65 72.33 3.73
FY 13E 10123.43 1279.06 689.67 87.88 3.07
Stock Data:
Sector: Auto Components
Face Value Rs. 10.00
52 wk. High/Low (Rs.) 410.00/233.05
Volume (2 wk. Avg.) 6056
BSE Code 500250
Market Cap (Rs in mn) 2118.96
Share Holding Pattern
1 Year Comparative Graph
BSE SENSEX L.G. Balakrishnan
C.M.P: Rs. 270.00 Target Price: Rs. 305.00 Date: Aug. 19th 2011 BUY
L.G. BALAKRISHNAN & BROS LTD Result Update: Q1 FY 12
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Peer Group Comparison
Name of the company CMP(Rs.) Market Cap. (Rs.Mn.) EPS(Rs.) P/E(x) P/Bv(x) Dividend (%)
L.G. Balakrishnan 270.00 2118.00 58.37 4.6 1.08 100.00
Bosch Ltd 6969.95 21884.88 318.46 21.89 5.34 400.00
Jamna Auto Industries 124.70 490.30 11.73 10.63 3.75 20.00
Steel Strips Wheels Ltd 254.20 377.31 22.99 11.06 2.33 10.00
Investment Highlights
Q1 FY12 Results Update
L.G. Balakrishnan & Bros Ltd has posted a standalone result for the quarter ended
June 30, 2011. During the quarter, the company has posted a net profit of
Rs.119.69 million for the quarter ended June 30, 2011 as compared from Rs.85.24
million for the quarter ended June 30, 2010, rise of 40.42%. Net sales are surged
by 33.51% to Rs.2097.74 million from Rs.1571.26 million same quarter last year.
Total income grew by 33.39% to Rs 2101.70 million from Rs. 1575.62 million in the
same quarter last year. The EPS of the company is stood at Rs.15.25 for the
quarter ended June 2011.
Quarterly Results - Standalone (Rs in mn)
As At June-11 June-10 %change
Net sales 2097.74 1571.26 33.51%
PAT 119.69 85.24 40.42%
Basic EPS 15.25 10.86 40.42%
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� Break up of Expenditure
� Segment wise Revenue
Particulars Q1 FY 12 Q1 FY 11
Transmission 1447.43 978.71
Metal Forming 380.67 354.94
Others 269.63 237.60
Total 2097.73 1571.25
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Company Profile
LGB, one of the leading industries in South India was established way back in 1937.
Started with a fleet of 250 buses, LGB grew into India's leading Roller chain
manufacturer. Since then it has covered a long way, keeping in pace with the
technological advancements and meeting customer needs with newer & innovative
solutions. Today, LGB proud as the premier manufacturer of automotive chains under
the popular brand name 'ROLON'.
The company has 17 chain manufacturing plants, all ISO 9001 certified by
Underwriters Laboratories Inc., USA. Three of the manufacturing facilities along with
the central functions have been registered to ISO/TS 16949 by UL, USA.
LGB places great emphasis on R&D, which has the facility of Pro-E, CAD & CAM. The
Government recognized R&D facility is equipped with state-of-the-art equipment for
the testing of raw materials and finished products
Recognized Export House - about 10% of LGB's products are being exported to USA,
European countries, Australia, New Zealand, South Africa, Japan, Far & Middle East
countries.
Facilities
• LGB has the advantage of vertical integration in all its product lines. Right from
procurement of the raw material to the finished product, LGB has installed
comprehensive QC cycles.
• To maintain control over quality standards LGB has all critical manufacturing
in-house. This includes a steel rolling division to produce cold rolled steel
strips, wires and strips with profiles.
• LGB's tooling division is one of the most modern in the country. This division is
equipped with sophisticated CNC wire cutting, spark erosion and Mikron CNC
Boring machines for precision and complicated machining.
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• The company has also set up an Application engineering Cell for designing,
manufacturing and supplying chains for special applications and specific
needs.
Products
Transmission Products
� Automotive Chain
� Sprockets
� Tensioners
� Belts
� Brake Shoe
Metal Forming
� Fine Blanking
� Machined Components
� Wire Drawing
Automotive Chains
� Motorcycle and Moped Drive Chains
� Timing Chains / Engine Mechanism Chains
� Automotive Kits
Belts
� TIMING BELTS / VARI SPEED BELTS
� COGGED BELTS
� POLY ‘V’ BELTS
Friction Products
Other than brake shoes Rolon range covers clutch plates, brake pads and
clutch shoes manufactured with same philosophy.
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Financial Results
12 Months Ended Profit & Loss Account (Standalone)
Value(Rs.in.mn) FY10 FY11 FY12E FY13E
Description 12m 12m 12m 12m
Net Sales 5523.79 7095.20 8727.10 10123.43
Other Income 55.41 22.97 18.59 19.71
Total Income 5579.20 7118.17 8745.69 10143.14
Expenditure -4788.73 -6238.71 -7653.66 -8864.08
Operating Profit 790.47 879.46 1092.02 1279.06
Interest -205.87 -152.04 -159.64 -169.22
Gross profit 584.60 727.42 932.38 1109.84
Depreciation -217.15 -254.46 -279.91 -307.90
Profit Before Tax 367.45 472.96 652.47 801.94
Tax -119.10 -14.91 -84.82 -112.27
Profit After Tax 248.35 458.05 567.65 689.67
Equity capital 78.48 78.48 78.48 78.48
Reserves 1508.85 1875.68 2443.33 3133.00
Face value 10.00 10.00 10.00 10.00
EPS 31.65 58.37 72.33 87.88
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Quarterly Ended Profit & Loss Account (Standalone)
Value(Rs.in.mn) 31-Dec-10 31-Mar-11 31-Jun-11 30-Sep-11E
Description 3m 3m 3m 3m
Net sales 1813.35 1874.15 2097.74 2328.49
Other income 5.66 5.73 3.96 4.16
Total Income 1819.01 1879.88 2101.70 2332.65
Expenditure -1576.85 -1670.62 -1841.58 -2037.43
Operating profit 242.16 209.26 260.12 295.22
Interest -39.94 -41.90 -38.58 -40.12
Gross profit 202.22 167.36 221.54 255.10
Depreciation -68.16 -67.72 -67.39 -70.76
Profit Before Tax 134.06 99.64 154.15 184.34
Tax -26.71 53.50 -34.46 -35.02
Profit After Tax 107.35 153.14 119.69 149.31
Equity capital 78.48 78.48 78.48 78.48
Face value 10.00 10.00 10.00 10.00
EPS 13.68 19.51 15.25 19.03
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Key Ratios
Particulars FY10 FY11 FY12E FY13E
No. of Shares(in mn) 7.85 7.85 7.85 7.85
EBITDA Margin (%) 14.31% 12.40% 12.51% 12.63%
PBT Margin (%) 6.65% 6.67% 7.48% 7.92%
PAT Margin (%) 4.50% 6.46% 6.50% 6.81%
P/E Ratio (x) 8.53 4.63 3.73 3.07
ROE (%) 15.65% 23.44% 22.51% 21.48%
ROCE (%) 37.93% 36.85% 37.07% 35.67%
Debt Equity Ratio 0.67 0.57 0.47 0.39
EV/EBITDA (x) 2.68 2.41 1.94 1.66
Book Value (Rs.) 202.26 249.00 321.33 409.21
P/BV 1.33 1.08 0.84 0.66
Charts:
Net Sales & PAT:
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P/E Ratio(x):
Debt Equity Ratio:
10
EV/EBITDA:
P/BV:
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Outlook and Conclusion
At the current market price of Rs.270.00, the stock is trading at 3.73 x
FY12E and 3.07 x FY13E respectively.
Earning per share (EPS) of the company for the earnings for FY12E and
FY13E is seen at Rs.72.33 and Rs.87.88 respectively.
Net Sales and PAT of the company are expected to grow at a CAGR of 22%
and 41% over 2010 to 2013E respectively.
On the basis of EV/EBITDA, the stock trades at 1.94 x for FY12E and 1.66 x
for FY13E.
Price to Book Value of the stock is expected to be at 0.84 x and 0.66 x
respectively for FY12E and FY13E.
We recommend ‘BUY’ in this particular scrip with a target price of
Rs.305.00 for Medium to Long term investment.
Industry Overview
India has the most competitive auto parts manufacturing industry in the world, with
Indian automotive components being widely preferred by major automobile
manufacturing companies. The auto component companies in India are contributing
to the growth of this sector by providing genuine, cheap and reasonably priced
automotive parts.
The Indian automotive components industry has actively and quickly transformed
from a domestic market supplier, to one of the essential auto parts supplier in the
world.
The Indian auto component sector has been growing at 20 per cent a year since 2000
and is projected to maintain the high-growth phase of 15-20 per cent till 2015.
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Growth Drivers
• Rising demand for vehicles - Vehicle production grew to around 17.9 million in
2010-11 - Global Original Equipment Manufacturers (OEMs) are entering India
to establish their manufacturing base
• Low-cost and high quality standards –Low labor costs in India have resulted in
a significant cost reduction, with international quality standards being duly
maintained. An average cost reduction of nearly 25-30 per cent has attracted
several global automobile manufacturers to set base since 1991
• Availability of low cost skilled manpower –India produces close to 0.4 million
engineering graduates every year, and the cost of entry-level engineers is as low
as US$ 8,000 a year. The country accounts for 26 per cent of the world’s
Engineering Service Outsourcing (ESO)
• Policy initiatives - De-regulation and policy initiatives such as lower excise
duties, realisation of value added tax (VAT), etc., have been implemented.
Foreign direct investment (FDI) up to 100 per cent is permitted through the
automatic route for manufacturers of automobiles and components
Industry Structure
The Indian auto component industry is large and highly fragmented. There are around
400 major players in the auto component sector. The original equipment (OE) market
is predominantly catered to by the organised sector. The 400 odd organised producers
contribute around 80 per cent to this market
Market Size
The automotive component industry's output for the financial year 2009-10 was US$
22 billion with a growth rate of 20 per cent, against financial year 2008-09. The Indian
auto component industry has the opportunity to tap around US$ 110 billion by 2020.
Major Indian auto parts makers are on track to report a strong first quarter, on the
back of robust after-sales demand and growing exports.
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The revenue growth rate of auto ancillary companies is expected to be in line with auto
OEMs. In first quarter of the current fiscal, production by all OEMs in the auto
industry grew by about 20 per cent in comparison with the corresponding quarter of
last year, resulting in corresponding growth in customer demand.
Exports
The industry has been exporting around 13 per cent of its output. In the year 2009-
10, the industry exported goods worth US$ 3.8 billion. Principal export items include
replacement parts, tractor parts, motorcycle parts, piston rings, gaskets, engine
valves, fuel pump nozzles, fuel injection parts, filter & filter elements, radiators, gears,
leaf springs, brake assemblies & bearings, clutch facings, head lamps, auto bulbs &
halogen bulbs, spark plugs and body parts. Exports, which touched US$ 5 billion in
2010-11, are expected to grow by 20-25 per cent in 2011-12.
Recent Trends/Investments
Besides low labor costs, India’s process-engineering expertise, applied to re-designing
of production processes, has resulted in the reduction in manufacturing costs of
components. As a result, India, today, has become the outsourcing hub for several
global automobile manufacturers.
Several large Indian auto component manufacturers are in the process of substantially
investing in capacity expansion, establishing partnerships in India and abroad,
acquiring companies in foreign countries establishing Greenfield ventures, Research &
Development (R&D) facilities and design capabilities.
Japanese car major Toyota has announced an investment of nearly Rs 1,650 crore
(US$ 373.3 million) to increase the production capacity of its Indian operations by one
lakh units and for increasing localisation of components by 2014
Force Motors has said that it will enter the passenger vehicle segment with the launch
of a multi-purpose vehicle (MPV) by 2012, for which the company will set up a new
facility in Madhya Pradesh with an initial capacity of 24,000 units per year.The
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company said it has signed a licensing agreement with German auto major Daimler for
procuring technology for the MPV
Auto parts maker MothersonSumi Systems Ltd (MSSL) has announced its plans to
acquire an 80 per cent stake in Germany's Peguform Group from Cross Industries.
The deal is expected to be closed in 2-3 months and will be funded through debt from
Indian lenders, said VC Sehgal, Vice-Chairman, Motherson Group.
French tyre-maker Michelin's upcoming India plant in Chennai will produce its first
tyre in November 2012. The company plans to produce three lakh radial truck tyres in
the first year of operations, and cater to the domestic market, according to a top
official. Michelin is setting up a manufacturing unit at ThervoyKhaidigia industrial
area in Tiruvallur district, near Chennai, and would be investing Rs 4,000 crore (US$
904.98 million) over a seven-year period.
Policy Initiatives
The Ministry of Heavy Industries and Public Enterprises has envisaged the Automotive
Mission Plan (AMP) 2006-2016 to promote growth in the sector. The plan targets to:
• Increase turnover to US$ 122 billion–US$ 159 billion by 2016 from US$ 34
billion in 2006
• Increase export revenue to US$ 35 billion by 2016
• Provide employment to additional 25 million people by 2016
Road Ahead
Going forward, the automotive component industry in India displays strong potential
in generating employment and promoting entrepreneurship in the country. The series
of new investment plans announced by global and domestic automobile
manufacturers re instates the emergence of India as a global hub for auto
components.
The boost in demand, with the growth of the automobile industry, will see the
emergence of several new players in the industry. The huge market for auto
components, and the diverse products and technology involved ensures a place and
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role for many. Among the smaller players in the unorganised segment, the industry
could witness a shift from being standalone companies, to entering into either contract
manufacturing or being ancillary units. The newly defined rules of specialisation,
development and delivery, hold the key to success in the auto component industry.
________________ ____ _________________________ Disclaimer:
This document prepared by our research analysts does not constitute an offer or solicitation
for the purchase or sale of any financial instrument or as an official confirmation of any
transaction. The information contained herein is from publicly available data or other
sources believed to be reliable but do not represent that it is accurate or complete and it
should not be relied on as such. Firstcall India Equity Advisors Pvt. Ltd. or any of it’s
affiliates shall not be in any way responsible for any loss or damage that may arise to any
person from any inadvertent error in the information contained in this report. This document
is provide for assistance only and is not intended to be and must not alone be taken as the
basis for an investment decision.
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