CD Equisearch

Target: ₹1,482

CMP: ₹1,276.20

L G Balakrishnan (LGB) manufactures roller chains and undertakes metal forming, including warm & cold forging, fine blanking and machined parts.

Bolstered by advances in metal forming business, LGB’s revenue from operations rose by 8.2 per cent in the first half of the current fiscal at a time when its flagship transmission business recorded a revenue growth of just 7 per cent. Growth in transmission business has hardly been robust for the last few quarters with Q1 and Q2 registering a growth of 5.4 per cent and 8.4 per cent respectively.

The stock currently trades at 13.7x FY25e EPS of ₹91.79 and 11.9x FY26e EPS of ₹105.82. Perpetuated by lower than expected revenues and margins, earnings for the current fiscal have been cut by slightly over 7 per cent.

Power transmission chains is not expected to show much contribution (if at all) next fiscal. Margins in transmission business would get support from pick up in two wheeler industry and value addition initiatives.

Weighing odds, we retain Accumulate rating on the stock with revised target of ₹1,482 (previous target: ₹1,484) based on 14x FY26e earnings, over a period of 6-9 months.