LG Balakrishnan’s Solid Profitability Amid Margin Pressures

Company Name: L G Balakrishnan & Bros Ltd | NSE Code: LGBBROSLTD | BSE Code: 500250 | 52 Week high/low: 1,366/607 | CMP: INR 1,315 | Mcap: INR 4,121 Cr | PE: 16.5

Company Overview:

LG Balakrishnan & Bros Ltd specializes in manufacturing chains, sprockets, and metal formed parts for automotive applications. The company operates in two business segments: transmission and metal forming. In the transmission segment, products include chains, sprockets, tensioners, belts, and brake shoes. Metal forming products encompass metal sheet parts, machined components, and wire drawing products.

Q2 Sees Growth in Transmission, Metal Forming Lags

In Q2, the transmission segment exhibited strong performance with a robust 15.64% QoQ revenue growth (+4.47% YoY), while the metal forming segment faced challenges, experiencing a moderate decline of 0.36% QoQ (+8.86% YoY). Overall, standalone revenue witnessed a growth of 12.66% QoQ (+5.17% YoY).

Revenue up, but Year-over-Year margins dip

Despite a 5.17% YoY increase in revenue, margins faced pressure due to a significant rise in raw material costs and operating expenditure by 5.36% and 5.29%, respectively. EBITDA margins dropped by 13 bps YoY, and gross margins decreased by 9 bps YoY and 91 bps QoQ.

37% QoQ PAT Soars: Strong Topline and Operational Efficiency Drive Growth

Profit After Tax (PAT) surged impressively by 37.2% QoQ (+16.72% YoY), driven by robust topline growth and stable interest costs and depreciation. Interest costs remained stable, growing by 0.26% QoQ, while depreciation increased moderately by 0.50%.

Valuation and Key Ratios

The stock currently trades at a multiple of 16.5x Earnings Per Share (EPS) (TTM) of Rs 82, with a market price of 1,315. The industry PE stands at 32.2x, and the company values the stock at 2.81 times its book value of Rs 468 per share. The EV/EBITDA multiple is at 8.63x, compared to the industry median of 13.19x. The trailing twelve months ROE and ROCE are 19% and 24.2%, respectively, with a robust interest coverage ratio of 46.4x, indicating strong solvency.

Q2FY24 Result Update: Standalone

➡️Standalone revenue witnessed a 5.17% YoY growth (+12.66% QoQ) to 573 Cr, driven by robust growth in the Metal Formation segment.

➡️Transmission segment revenue grew by 4.47% YoY (+15.64% QoQ) to 478 Cr, while the metal formation segment surged by 8.86% YoY (-0.3% QoQ) to 95 Cr.

➡️Gross profit increased by 5% YoY (+10.77% QoQ) to 305 Cr, but gross margins dropped by 9 bps YoY and 91 bps QoQ to 53.29%.

➡️EBITDA grew by 4.41% YoY (+19.08% QoQ) to 102 Cr, with EBITDA margin down by 13 bps YoY and up 96 bps QoQ to 17.87% due to operating leverage.

➡️Operating profit (EBIT) increased by 6.52% YoY (+23.74% QoQ) to 85 Cr, with EBIT margin expanding by 19 bps YoY and 133 bps QoQ to 14.84%.

➡️PAT surged by 16.72% YoY (+37.2% QoQ) to 76 Cr, while the PAT margin expanded by 130 bps YoY and 236 bps QoQ to 13.21%.

➡️Earnings per share (EPS) for the quarter stood at 24.11 Rs, compared to 17.57 Rs in the previous quarter.

Conclusion

LG Balakrishnan & Bro’s Ltd demonstrated a mixed performance in Q2, with robust growth in the transmission segment but challenges in metal forming. While revenue showed a positive trend, margins faced pressure due to increased costs. Despite this, the company exhibited strong profitability with a significant surge in Profit After Tax. The valuation metrics and key ratios indicate a solid financial position, suggesting a potential for sustained growth. Investors may closely monitor the company’s strategies to address margin challenges in the metal forming segment.

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