LG Balakrishnan Bros Ltd. - Chain for your bike

Hi Mahesh,

What is your analysis of the results? Rs 11 div declared but numbers look bad.

Cheers

Vinod

LG Balakrishnan Q4FY12 and FY12 results announced… Let’s have a glimpse of it and pitch it against our estimates…

Q4FY12 :

Revenue :

Transmission Segment – 152.10 cr. (v/s our estimate of 150-155 cr.)

Metal Forming Segment – 36.94 cr. (v/s our estimate of 36-38 cr.)

Others – 38.63 cr. (v/s our estimate of 26-28 cr.)

Total – 227.69 cr. (v/s our estimate of 212-221 cr.)

EBIT :

Transmission Segment – 8.91 cr. (v/s our estimate of 13.5-14.5 cr.)

Metal Forming Segment – 3.31 cr. (v/s our estimate of 2.8-3.2 cr.)

Others – -0.069 cr. (v/s our estimate of +0.35-0.50 cr.)

Total – 12.16 cr. (v/s our estimate of 16.6-18.2 cr.)

FY12 Numbers :

Revenue –

Transmission Segment – 625.84 cr. (v/s our estimate of 620-625 cr.)

Metal Forming Segment – 157.86 cr. (v/s our estimate of 156-158 cr.)

Others – 128.97 cr. (v/s our estimate of 116-118 cr.)

Total – 912.68 cr. (v/s our estimate of 892-901 cr.)

EBITDA Total – 103.6 cr. (v/s our estimate of 108-110 cr.)

PAT – 44.22 cr. (v/s our estimate of 49.50-52 cr.)

EPS – Rs. 56.36 (v/s our estimate of 63.1-66.3 cr.)

Prima-facie Conclusion :

While topline performance for the qrtr. as well Fy12 was in line with our estimates, the main culprit seems to be operating margins, especially of transmission segment which are at historical lows being lowest in last 16 qrtrs. We are trying to find out the reasons for the same but it should definetly be one-off and might be related to power-cut issues prevalent in TN…

Heartning thing is robust 35.5 % growth in transmission segment (Chains/Sprockets) vis-a-vis Two Wheeler Industry growth rate of 14.2 % and, while, the main peer’s numbers are awaited, LGB seems to have oputperformed industry as well as peers by quite a wide margin. This augurs very well for the future of the company as margins are a temporary issue which, when gets corrected in FY13, could very well enable robust cash generation for the company.

Metal Forming division has grown satisfactorily although its main growth is going to get reflected in FY13 when delivery of booked orders start.

Others segment growth has beaten the estimates as expected, especially on topline front, as contribution from Top1 Oil Lubricants distributorship must have started as also pre-budget buying of LCVs should have got reflected.

PAT pf the company was lower marginally on a YoY basis and much lower than our estimates because of highest tax expenditure incurred by the company in FY12.

Inspite of lower PAT, a higher dividend of 110 % i.e., Rs. 11 per share has been declared which translates to a dividend yield of 3.6 % at current rate.

There seems to be a lot of build up of inventories ahead of new launches expected by OEMs in May-June…Q1FY12 should hopefuly correct the margin scenario and bring it back to historical levels…

Ground feedback is extremely positive for company’s products and critical monitorable events should be acquisition details in June, company’s AR2012 and Q1FY12 numbers… We maintain our view that from current rate the downsides are limited as all these negatives are already discounted in the price while positives are yet to get reflected.

Rgds.

Hi Mahesh,

LG balakrishnan looks very cheap as a stock, with its past growth rate. I don’t know enough of motor cycle chain market for the future opportunities. But seems like good upside left in the stock. CMP looks lesser than the book value as well.

Tube Investments have also announced results. Their results also look extremely good. 37 % growth year on year. Do you have any comparative analysis of these two results.

Thanks,Srinivasan

Hi Srinivasan,

Yes LGB is cheap by any standards…however, current price might not be below book value as BV for FY12 might be in the range of 270-285 as per my rough estimates…

Will be coming out with detailed Q4FY12 update soon on LGB in that Tube’s comparision will also be covered… Just to provide a brief overview of comparision here for you… V/s TII’s 16 % growth in Automotive Chain business for FY12, LGB’s Automotive Chains business has grown by 35.5 %…V/s TII’s Fine Blanking’s operational scale of 100 cr. for FY12, LGB’s operational scale for fine blanking has been 135-140 cr.

Feel free to get back to me in case of any query.

Rgds.

Mahesh Sir,

Thanks for your bv estimates. Also awaiting for your further breakdown comparative analysis. Actually I added all the current & non-current assets and subtracted the current & non-current liabilities and divided by no. of shares to arrive at the book value. I got a book value of 303. Later when I gave 40% disc to loan & advances & investments got a value of 270. Not sure how to calculate the book value accurately though.

Exact BVfigure will get clear once AR2012 is out as the revised accounting treatment that is now notified leaves room for errors.

Link to 5-page Detailed Q4FY12 Update on LGB -- http://www.scribd.com/doc/92650983


LG Balakrishnan & Bros Ltd. [ NSE : LGBBROSLTD ; BSE : 500250 ] announced its Q4FY12 (12'Months'FY12) results on 28th April, 2012. Topline performance for the quarter as well as fiscal was inline with our estimates with disappointment on margins front which came quite below our estimates being marred by heavy power shortages faced in entire state of Tamil Nadu in the quarter. Post results, we maintain our view that the company is 'Grossly Undervalued' and is a Rare Investment Opportunity wherein all the required ingredients like --

  • Reasonable Operating Scale ( INR 912 cr. ),

  • Market Leadership Position in Operating Segment ( 60 % Marketshare ),

  • Track-Record of Outperforming Industry as well as Peers in terms of Growth Rate,

  • Concern towards Minority Shareholders' Wealth Creation ( which is evident from higher dividend payout in FY12 at 110 % despite marginally lower PAT )

-- are present and still the company is available at sharp discount to its smaller size peers.

Presenting below the highlights of Q4FY12 as well as fiscal FY12 results as also our detailed analysis post the results :

  1. Consolidated Revenue for FY12 stood at INR 912.68 cr. which translates to a healthy YoY growth of 27.69 % over FY11. For Q4FY12, Consolidated Revenue stood at INR 227.69 cr. which translates to a YoY growth of 20.7 % but a marginal QoQ decline of 2.95 %. Quarterly gyrations are normal in the industry with Q2 and Q3 normally the best quarters.

  1. Consolidated EBITDA for FY12 stood at INR 103.6 cr. which translates to a YoY growth of 19.14 % over FY11. For Q4FY12, Consolidated EBITDA stood at INR 18.97 cr. which translates to a YoY decline of 8 % and a QoQ decline of 28.54 %. The sharp decline in EBITDA is attributable to severe power shortages faced by entire state of Tamil Nadu in Q4FY12 because of which company had to make arrangements for alternative power sources to keep its plants running so as to avoid any kind of disruptions of supply for its OEM clients. This resulted in sharp rise in production costs which resulted to decline in overall EBITDA. With power situation already improving since the beginning of Q1FY13 and significant improvement expected post June 2012 on commissioning of major power plants, EBITDA margins of the company are expected to be back to normal levels to some extent in Q1FY13 and completely by Q2FY13.

  1. Consolidated PBT for FY12 stood at INR 58.91 cr. which translates to a YoY growth of 22.47 % over FY11.

  1. Tax Expenditure for FY12 stood at INR 14.68 cr. which is a whooping 711 % increase over last fiscal, FY11. Although last fiscal included a tax credit worth INR 5.33 cr., but, even excluding such credit, the tax expenditure for current fiscal, FY12, on a like-to-like basis shows an increase of 105.6 % over previous fiscal. The higher tax expenditure is largely on account of company's major plants approaching end of full tax exemption period and going forward these plants are likely to enjoy partial tax exemption for coming 5 fiscals.

  1. Because of higher tax expenditure incurred, PAT for fiscal FY12 stood at INR 44.22 cr. which is a marginal 4.47 % decline over previous fiscal.

  1. Inspite of lower PAT, company has increased its dividend payout to 110 % i.e. Rs. 11 per share which signifies continued commitment of management of the company towards minority shareholders' wealth creation.

  1. Now, to concentrate on segmentwise performance of the company, the core operating segment of the company viz., Chains/Sprockets which is reported under 'Transmission' Segment, recorded a robust 35.54 % growth in revenues for FY12 to stand at INR 625.84 cr.. This growth is to be seen in the backdrop of moderation in growth rate faced by main consuming segment i.e. Two Wheeler industry which recorded a 14.2 % growth in sales for FY12. It is worthwhile to also take into account here the growth rate achieved by Automotive Chains segment of LGB's only formidable peer viz., TIDC India (a division of Tube Investment of India Ltd.) for FY12 wherein it reported only 16 % growth in revenues to stand at ~INR 300 cr..

  1. LGB continues to consistently outperform the industry as well as its peers in terms of revenue growth which augurs very well for the cash generation of the company for FY13 and FY14 when the one-off margin-hit which has occurred in FY12 due to significant power shortages in its operating state gets corrected. This outperformance also depicts the obvious fact that LGB is gaining significant ground in terms of its already highest marketshare in its core operating segment viz. Chains/Sprockets and such a high marketshare will itself act as a significant entry barrier for its peers to penetrate deeply into the market.

  1. Company's next significant operating segment viz., Metal Forming (which covers its Fine Blanking Operations, Rolled Steel Products as well as sales done by dedicated Unit for Bosch) turned out a stable growth for FY12 in terms of revenues which stood at INR 157.86 cr. which translates into a YoY growth of 7.94 %. However, the most significant thing to take note of with regards to LGB's Metal Forming segment is the fact that company has built a strong foundation for its considerable scale ramp-up in the years to come by bagging significant orders from Ashok Leyland, Daimler, Eaton and ZF, deliveries of which are expected to start in FY13. Company has also signed a LOI to acquire majority stake in a USA-based company engaged in Precision Stamping which is expected to add significant technological advantage to LGB's already strong and India's Largest Fine Blanking operations as also open-up the vast US market for its products.

  1. Metal Forming division is expected to see significant growth in revenues starting 2HFY13 which is expected to boost company's cash generation to a considerable extent in FY14.

  1. Company's last non-core operating segment viz., Dealership of Tata Motors LCVs as also exclusive distributorship of Top1 Oil Products' premium Lubricants in South India is reported under 'Others' segment. This division turned out an impressive 20.8 % YoY growth in revenues to INR 128.97 cr. in FY12 backed by addition of Top1 Oil Products' distribution this fiscal as also some pre-budget buying of LCVs turning in company's favour. However, this division is expected to remain a non-core area of LGB which is continued just to improve brand visibility of the company in the marketplace as also to fully utilise the already strong ground distribution network that the company enjoys.

View Post Q4FY12 (12'Months'FY12) Results :

Before going any further, it will be worthwhile to enumerate here certain key facts that need to be noted in FY12 (Q4FY12) results which are otherwise not apparently visible but are obvious on detailed interpretation of the reported results :

  • The reason why LGB enjoys extremely healthy relationship with each of the Indian Two Wheeler OEMs and therefore enjoys more than 65 % marketshare with OEMs is apparent on detailed interpretaion of the just declared results. Q4FY12 marked one of the worst quarters in company's history as far operating work environment is concerned because of the severe power shortages faced by its resident state Tamil Nadu. Majority of its manufacturing plants located in the state faced a power-cut for upto 10 hours a day for most of the Q4FY12. Still, company made alternative arrangements of power to keep the plants running so that the supply to its clients, which include almost all Indian Two Wheeler OEMs, doesn't get affected even a single bit. If we contrast this with the strategy adopted by its only formidable peer in the segment viz., TIDC (a division of Tube Investment of India) then its interesting to note that for most of the 2HFY12, TIDC's Automotive Chain Units worked at 98-100 % capacity utilisation and, its only when its existing Units reached almost peak utilisation levels, the plans for next capacity increases were drawn thereby fresh orders of their existing clients remaining unserved. TIDC's new capacities are likely to be operational only in 2HFY13 and therefore, in 1HFY13 again, TIDC will loose on the opportunity to serve fresh orders of its OEM clients.

  • From above, its evident that because of the uncertainty in likely growth of main consuming segment viz. Two Wheelers, whereas TIDC decided to play safe by first letting its existing capacities run out thereby loosing on the opportunity to serve any fresh orders till 2HFY13 ; on the other hand, LGB decided to expand in FY11 ahead of expected uncertain market demand and even served the demand in extremely tough work environment without any interruption thereby giving utmost respect to its OEM clients' manufacturing plans. OEM clients prefer to work with such vendors which ensure timely supply irrespective of operating conditions and this is the reason why LGB enjoys a critical vendor status with almost all Indian Two Wheeler OEMs and therefore enjoys more than 65 % marketshare in their Chains/Sprocket supplies.

  • Second most interesting aspect to note from the just declared results is the consistent outperformance of LGB vis-a-vis industry as well as its only formidable peer, TIDC. It will be interesting here to look at CAGR of LGB's Chain/Sprocket sales revenue and pitch it against Industry i.e. Two Wheeler CAGR as also against Chain/Sprocket sales revenue CAGR of TIDC. Since CAGR data for TIDC is available only for 2 years, so, we will consider here only 2 years' CAGR of LGB, Industry and TIDC. It is worthwhile to note here that LGB's growth is coming on a higher scale which is almost double than that of TIDC.

LGB's Chain/Sprockets Sales

2 Years' CAGR

TIDC India Chain/Sprockets Sales 2 Years' CAGR

Two Wheeler Industry (OEM)

2 Years' CAGR

33.87 %

25.65 %

19.74 %

Two important things need to be noted in above :

(a) Scale of LGB's Chain/Sprocket sales is more than double at INR 625.84 cr. than that of TIDC at INR 300 cr.

(b) TIDC was constrained by capacity in FY12 wherein, for most of the 2HFY12, its plants operated at 98-100 % capacity utilisation. It has drawn up plans for almost 50 % increase in its existing capacities of Automotive Chains but such additional capacities will get operational only in 2HFY13, so, even for FY13, TIDC is expected to remain a significant underperformer vis-a-vis LGB.

  • We think it proper to mention here the Nationwide ground Auto Spare Dealers / Service Centers / Workshops feedback that we have collected for Rolon (LGB's brand) and its competing brands. The feedback for Rolon has been very positive with no dealer denying the fact that Rolon enjoys more than 50 % marketshare in replacement market. The strength of the brand can be gauged by citing an example of two of the biggest spares dealer-checks of J&K (North India) who claim that Rolon enjoys more than 70 % marketshare in aftermarket there. To have such a strong presence in remote North India too, speaks very well of the brand and its undefeatable position in the market.

    To continue with the ground feedback, aftermarket in India is now maturing with lots of company workshops opening up who prefer standard OEM (i.e. company) chains/sprockets only as replacement. This means an ascending consumption trend towards OE Spares (i.e. replacement market catered by OEM) where again LGB is a market leader. There is a presence of lots of chinese and unorganised products too but their use is limited to hardly 6-7 % of the total consumption as their quality is far inferior and their use actually creates many other vehicle issues. Also, consumers are preferring replacing the chain/sprocket instead of repairing it as the repair-work only extends the life by 350-400 kms. after which again the repair-work needs to be done before finally replacing it after 3-5 repair sessions.

  • Now, to continue with our discussion on observatory aspects -- another interesting aspect which needs to be observed is, the LGB management's thinking ahead of time, which is not only evident from the steps it has taken over last 3 decades to maintain and grow its leadership position in Chains/Sprocket business, but, also to invest ahead of time in Fine Blanking operations which is now catching up fast and is emerging as the next growth area in Auto Ancillary segment. Already, LGB has built a strong foundation in this segment by setting-up India's largest Fine Blanking Infrastructure and now, to acquire technological edge as also to tap the high-potential Western Markets, company has recently signed a LOI to acquire a precision stamping company in USA. Peers are only now waking up to this space as is evident from the recent management commentary of TIDC India wherein it plans to invest heavily in its Fine Blanking Operations going forward as they see tremendous potential in this segment because of many four wheeler OEMs setting up shop here.

  • The fourth and most crucial point to observe in just declared results of LGB is the declaration of 110 % dividend i.e. Rs. 11 per share inspite of marginally lower PAT of FY12. Higher dividend payout highlights two aspects :

    â first, Management's Concern towards rewarding its shareholders thereby giving priority to Minority Shareholders' Wealth Creation aspect.

    -- second, Management's Confidence of continued internal Cash Generation as otherwise it would have conserved resources for its core business.

To conclude, continuing with our first IC Report on LG Balakrishnan & Bros. Ltd. (LGB) dated 28th March 2012, we feel nothing has changed except the fact that because of dismal profitability in Q4FY12 due to one-off tough operating conditions of severe power-cuts in its operating state, the company's share price has corrected ~8 % from our IC rate of INR 310. Even at the IC rate of INR 310, no positives were priced-in so we see no reason for the recent correction on the back of one-off dismal Q4FY12 performance on profitability front.

One crucial thing to note here is the fact that, at the current mcap of INR 224 cr., company is trading at just 2.1 times its FY12 reported EBITDA of INR 103.6 cr.. which is very low for a company having a scale of operations at INR 912 cr. and one of the lowest in entire Auto Ancillary basket with similar scale. Such low valuations are prevalent inspite of the fact that company has good prospects of growth atleast for next 3 years based on only Replacement Segment Demand and such low valuations are just an anomaly because of low IR-initiatives of the company which can't remain for long. We maintain our view that stock has to correct to atleast INR 440 levels sooner rather than later to reflect a reasonable valuation as compared to its peers.

Hi Mahesh, thks for a detailed report. When i am looking at the last quarter result i understand there is still a severe power shortage in karnataka which affected its performance. Their EBITDA margins have dropped by arnd 250bps in Q4 by i am unable to find anyproportionateincrease intheir expense (say power n fuel / other expense or raw material expense) …so just wondering what has led to this margin drop or if OEM’s have further squeezed them (thrupricecuts taken by LG) on the bk of the cost pressure they are facing currently. Also still the situation is not good in Karnataka thisquarteralso so not sure how would they be impacted in Q1.

Hi Darshit,

First its not Karnataka but Tamil Nadu state where LGB is based… There power situation has improved considerably since the beggining of Q1FY13 with almost no power cuts in entire month of April and first 5 days of May… However, since last 2 days again the power cuts are there but to a leeser extent than Q4FY12…

With rgds. to expenses, when there is a power cut and u need to keep your plants running then company needs to procure generators on lease as also purchase power from alternate sources which is very high priced… Now, where the company has covered these expenses in financials that we will come to know only in AR2012 as in the brief discussion I have had with management, they gave these reason which I cross-checked on ground which seemed true as many of SMEs of the state are reeling under losses due to power-cuts.

1st month of Q1FY13 has been good but for Q1FY13 also we should expect slightly subdued margins… However, 3 plants are going to be commisioned post June 2013 which is expected to significantly improve power situation in the state and its but obvious that such dismal power situation can’t remain for too long in any state.

Rgds.

Lg Balakrishnan Bros Ltd. subscribes to almost 40 % of the LGB forge rights issue thereby increasing its stake in the company to 19.33 % from current 10.55 %… Rest of the issue subscribed by promoters themselves…seems turnaround of LGB Forge is in the offing…Promoters have shown good confidence in LGB Forge’s prospects…

Rgds.

Just had a word with my cousin who works with PWC in Chennai, he said the situation of power cuts still persists and daily there is 2-3 hrs power cut and once in a week outage of 5-6 hrs. Not sure if Q1 results would be similar to what happnd last quarter. Would wait till Q1.

Hi,

Yes Power situation in Tamil Nadu hasn’t improved yet. It is the same as last year. May be as Darshit Says, one might catch a little lower after q1 Fy 13. But there are hardly sellers around these days. Already the stock is at mouth watering levels. Benjamin Graham would have applauded this stock purchase. (Good div yield, Gr8 earning yield, price less than book value). Sadly I give this a miss due to lack of funds. Couldn’t take meaningful position with paltry funds. So adding only to existing portfolio stocks. But Value investors would get excited with this stock.

Hi there,

Firstly, I would like to point out that I do like the company but I would like to point out a few ‘holes’ in the analysis so far. The data taken below is from the 2010 - 2011 annual report which is the latest ones available.

  1. Value of imports was 94.4 crores for FY2011 and considering the fact that sales have only grown this year it is likely to be more for FY2012. Even by conservative standards a 10% depreciation in the Rupee will probably dent profits by 9.4 crores which is a significant amount. Can someone please clarify if the company can pass on raw material price increases due to Re depreciation? I believe there must be some clause in customer contracts that allows for such increases but probably with a lag of a quarter.
  2. The company’s main raw material is steel so I believe the price of steel will have an impact on margins. Anyone have any clarity on latest steel prices although my perception is that steel prices have decreased slightly over the last year.
  3. Another concern is power and fuel which is shown on page 34 of the latest annual report at 24.7 crores in FY2011 up from 16.3 crores in FY 2010. Sales growth was about 27.6% (between FY2010 and FY2011) but power and fuel increased by 50% mainly due to power situation in TN which I believe was better in FY2011 than FY2012. I believe power and fuel will rise by another 10 crores in FY2012 which should dent margins.
  4. Lastly, under segmental results in the latest FY2012 results profit from transmission is 59.9 crores and metal forming - 12.8 crores. However capital employed in transmission is 174.2 crores and 138.6 crores. Can someone please explain why the company is carrying on in the metal forming industry which has such low return on capital i.e. less than 10% while transmission is such a high return business? Can’t management just focus on transmission or is metal forming business a requisite to perform well in transmission i.e. the company is forced to ‘loss lead’ on metal forming so that it can do well in transmission?
  5. Overall, I like the corporate governance of the company with ample disclosures and good dividend payout but I think margins will contract further as power situation worsens, Re depreciates and I do not see it rerating for the next couple of quarters. However on a long-term basis it should rerate eventually over a 2-5 year horizon when power situation improves and raw material prices stabilise.

Any rebuttals to the above point are welcome.

Hi there,

Firstly, I would like to point out that I do like the company but I would like to point out a few ‘holes’ in the analysis so far. The data taken below is from the 2010 - 2011 annual report which is the latest ones available.

  1. Value of imports was 94.4 crores for FY2011 and considering the fact that sales have only grown this year it is likely to be more for FY2012. Even by conservative standards a 10% depreciation in the Rupee will probably dent profits by 9.4 crores which is a significant amount. Can someone please clarify if the company can pass on raw material price increases due to Re depreciation? I believe there must be some clause in customer contracts that allows for such increases but probably with a lag of a quarter.
  2. The company’s main raw material is steel so I believe the price of steel will have an impact on margins. Anyone have any clarity on latest steel prices although my perception is that steel prices have decreased slightly over the last year.
  3. Another concern is power and fuel which is shown on page 34 of the latest annual report at 24.7 crores in FY2011 up from 16.3 crores in FY 2010. Sales growth was about 27.6% (between FY2010 and FY2011) but power and fuel increased by 50% mainly due to power situation in TN which I believe was better in FY2011 than FY2012. I believe power and fuel will rise by another 10 crores in FY2012 which should dent margins.
  4. Lastly, under segmental results in the latest FY2012 results profit from transmission is 59.9 crores and metal forming - 12.8 crores. However capital employed in transmission is 174.2 crores and 138.6 crores. Can someone please explain why the company is carrying on in the metal forming industry which has such low return on capital i.e. less than 10% while transmission is such a high return business? Can’t management just focus on transmission or is metal forming business a requisite to perform well in transmission i.e. the company is forced to ‘loss lead’ on metal forming so that it can do well in transmission?
  5. Overall, I like the corporate governance of the company with ample disclosures and good dividend payout but I think margins will contract further as power situation worsens, Re depreciates and I do not see it rerating for the next couple of quarters. However on a long-term basis it should rerate eventually over a 2-5 year horizon when power situation improves and raw material prices stabilise.

Any rebuttals to the above point are welcome.

Hi Subbu,

Please find my replies in bold :

Yes… any major escalation in input costs is more or less passable but in a gradual way, probably with a lag of one quarter…The import value of 94 cr. that you have put out is including machineries meant for manufacturing and therefore you have covered capex part in that which is not proper way of analysing the data…Excluding that the value of imports including raw material and other things is 68.98 cr… However, here you are missing two important things… first, its the yearly import figures that you are seeing and second, you are missing the yearly export figure of 47.84 cr…so, net import is just 21 cr. for FY11.

Yes… steel prices had softened but because of budget provisions and other issues again theyhave increased again recently… but that will have only a slight affect on margins unless there is sudden significant increasein costs.

Yes, Power is a concern but it should start easing from 2hFY13 or FY14…FY12 is a history and now we need to focus on FY13.

Metal Forming is critical for transmission since chain manufacturing is a specialised process and its like having a backward integrated operation…Also, transmission has so far riden the two wheeler boom rate and its important for the company to derisk its business into other segments of auto which Metal Forming provides…Crucial will be the size and tech. of acquired co. of US for Metal Forming segment.

Yes… its a long term story but current valuations at 275-280 is gross undervaluation and normal stabilisation rate for lgb has to be 310-330 w/o any sort of rerating.

Rgds.

Hi Mahesh,

Thanks for your responses. I agree with everything and had one further query. I re-read the whole post from the beginning and discovered that the company is expected to gain new orders from_Ashok Leyland, ZF , Eaton and Daimler._

I waswondering if any capex is required tofulfillthis order and what is the spare capacity available in the metal forming division.

Regds,

Subbu

_** fromAshok

Daimler.I waswondering

**_ tofulfillthis

We need to wait for AR2012 to see whether any capacity additions are done in FY12…Last year, it worked at 75 % utilisation in fine blanking division…It is also in the process of acquiring a company in USA in fine blanking space so that details also need to taken into account.

Rgds.

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Hi Mahesh,

Bad results for Q-1 too. Any updates on why the profit has taken a downward trend? How is the OEM and replacement market sales now? The industry hasnt shown such declines, are they losing out to competition?

The dividend was good and gave some respite.

Cheers

Vinod

Hi Vinod,

The same power problem is pitched as the reason for lower profitability by the management…However, there seems to be aggressive pricing pressures by the OEMs as per industry sources…

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Replacement segment has taken a severe beating (for which TI was impacted more than LGB) in the quarter… The main reason for this is significant build-up of inventory by OEM guys to cater to replacement segment which will take atleast 2 more quarters to correct…OEM segment so far has been good but starting next quarter if demand doesn’t pick-up production cuts will follow… All ancillary units are informed of these eventuality and therefore requested to prepare for lower supplies…

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The industry resilience that you are seeing in reported numbers is because they are counting billing to dealers rather than actual billing to consumers…There has been lot of build-up of inventories on ground and coming festive season is going to be crucial… if demand doesn’t pick up you will see the effects in reported numbers too…

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Operationally, LGB is unlikely to loose to the competition and is expected to maintain its leadership position… its just that operating segment is going through tough times…

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Ethically, there seems to be some issues which I am extremely concerned of…first being no details of status of acquisition which was to be completed by 30th June 2012… there has not been any mention of that in AR2012 too !!!..second thing is non-reporting to the stock exchanges regarding strike at one of the major plants of the company (Pantnagar) in Q1FY13-end…This two aspects make me extremely concerned regarding management credibility and although its available at decent valuations having corrected so much, I will not advise a fresh buy at current levels…

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Feel free to get back to me in case of any query.

Rgds.

Hi Mahesh, there has been no updates from you since a long time. In the meantime, LGB has acquired 100 percent of the shares of “GFM INC” located in Detroit Michigan. This Company posted a turnover of USD 15 Million in the previous financial year. The deal consideration was approximately USD 5.5 Million. Your view on this acquisition & when would LGB start reporting better nos. It has been a big laggard.