Tensile Strength

After restructuring, LG Balakrishnan is on a faster growth path

LG Balakrishnan & Brothers...

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Tensile Strength

After restructuring, LG Balakrishnan is on a faster growth path

LG Balakrishnan & Brothers (LGBB) is another value stock. It manufactures metal forming (fine blanking, forging, machined components and wire drawing) and transmission products such as chains, sprockets, tensioners and belts. The company has five chain manufacturing plants. In an industry known for long linkages between different intermediate manufacturers, LGBB manufactures everything in-house, including steel rolling and tooling. Chains are precision components and require high-quality manufacturing. Its tools division is equipped with sophisticated CNC-wire cutting, spark erosion and micron CNC boring machines. The manufacturing is, thus, vertically integrated. It has both automotive and industrial chain segments. In the automotive chain segment, it has products like motor cycle and moped drive chains, timing chains and automotive kits. In the industrial segment, it has simplex, duplex and triplex roller chains, leaf chains, carding machinery chain for textile mills, roller chains with attachment and extended pin chains.  

In the automotive chain segment, it is the market leader with 65% market share of the OEM chain segment and 50% market share in the replacement segment.

In the metal forming segment, it is the largest fine blanking player serving the auto industry. Fine blanking is necessary to manufacture high-quality components with better flatness, surface finish and better dimensional tolerances. Its client list in this segment includes Bajaj Auto, Brakes India, Hero Honda, Kalyani Brakes, Larsen & Toubro, Bosch and TVS Motors. In the process of restructuring, it has transferred its industrial chains division, including the manufacturing plant, to Renold Chain India Private Limited for a consideration of Rs57.58 crore. It also has set up a joint-venture company, namely, Renold Chain India Private Limited, under the shareholders’ agreement with Renold Plc, a UK-based company, to manufacture industrial chains. With this restructuring, it has become a pure auto-ancillary company.

In the March 2010 quarter, the metal-forming division contributed 21% and the transmission segment contributed 63% of its revenues. Revenue in the metal-forming business grew 73%, to Rs33.2 crore, in the March quarter over the year-ago period; sales of transmission products grew 14%, to Rs99 crore, in the same period. Bajaj Auto is a major customer of LGBB. In April 2010, Bajaj Auto posted record sales of 313,000 vehicles, a surge of 85% over the year-ago period. This is good news for LGBB. Huge growth in operating profit in the March quarter (154%) has been because of the low-base effect. Its margin is 12%. The market-cap is 0.34 and 2.86 times its sales and operating profit, respectively. Good value at the current price. 

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