Pick of the week stock – LG Balakrishnan & Bros

Our pick of the week stock this week is LG Balakrishnan & Bros. The company operates in the auto ancillaries industry. We recommend a BUY on the stock in the price range of Rs 1360 – 1400. The base case fair value of the stock is Rs 1515. The bull case fair value of the stock is Rs 1640. Time horizon of the recommendation is 2-3 quarters. We also recommend adding the stock to the portfolio when price dips to Rs 1250 – 1270 range.

Our Take:

LG Balakrishnan & Bros (LGBB) mainly caters to 2W industry and operates in 2 segments 1) Transmission products which includes chains, sprockets, tensioners, belts and brake shoe which contributes ~77% of overall revenue – mainly catering to 2W 2) Metal forming products consisting of fine blanking for precision sheet metal parts, machined components and wire drawing products contributing ~23% of overall revenue. It is a dominant player with strong leadership position in automotive chains in the Indian 2-wheeler industry.

LGBB is looking to expand its operations and diversify its revenue, de-risking from geographical issues cropping up due to the imposition of tariffs on various countries by the US. The $10 million Mexico facility and planned forays into Vietnam/Thailand could open new markets and customer bases, buffer against macro risks in India, and increase exports.

Valuation & Recommendation:

With the auto sector showing cyclical strength and demand in industrial applications rising, the topline trajectory appears promising. Continued cost vigilance and execution in international geographies will be important for profit accretion. We expect LGBB’s Revenue/PAT to grow at 11/19% CAGR over FY25-FY27, led by increased content per vehicle in both the PV and CV segments, improvement in JV profitability and operating leverage. We believe investors can buy the stock in Rs 1360-1400 band and add on dips in Rs 1250-1270 band (10x FY27E EPS) for the base case fair value of Rs 1515 (12x FY27E EPS) and the bull case fair value of Rs 1640 (13x FY27E EPS) over the next 2-3 quarters.

Disclaimer :  Investment in equity markets are subject to market risks. There is no guarantee that the recommended stock will perform as per expectations stated in the recommendation. There is no guarantee of the actual return that will be generated. Please note: The recommendation given above is general in nature. Do Not make any investment based solely on this recommendation because it is not based on your unique risk tolerance and return objectives.

Source: HDFC Securities Prime Research

See full report with full disclaimer : https://static.hdfcsec.com/research/reports/01996f64314978bab54f98d25dacaec4.pdf