L G Balakrishnan Bros: Robust revenues

ANALYSTS' CORNER

Emkay Research, in its visit note on L G Balakrishnan Bros, states that the company is a leading supplier of transmission chains, both to the automobile as well as industrial segments.

The management believes that with its business knowledge and client base, the company will achieve revenue growth of 30 per cent CAGR over 2006-08. Recent acquisitions and capacity expansion in metal forming and forging will drive the revenue and earnings growth over this period.

The management expects the revenues to increase from Rs 460 crore in financial year 2006 to Rs 777 crore by financial year 2008. Margins of the company are expected to improve with shift in product mix and easing raw material and capacity constraints.

The company has set a target of eight per cent PBT margin by FY08. It has 65 per cent market share in the original equipment manufacturer drive chains segment and 50 per cent in the replacement segment.

McNally Bharat Engg: Core sector push

IL&FS Investsmart, initiating coverage on McNally Bharat Engineering, recommends a "buy". The company is engaged in turnkey infrastructure projects and manufacture of engineering products.

The order book at the end of FY05 stood at Rs 700 crore. The government's continued thrust on infrastructure development in sectors such as roads, ports and power, the upswing in industrial investments, particularly in metals, and rising investments in coal and iron ore mining are expected to translate into robust growth in the company's order book.

The report hopes the company to report an EPS of Rs 6.7 and Rs 10.8 in FY07E and FY08E, respectively. The company is trading at a P/E of 12.4X FY08E earnings. Given the robust growth expectations, coupled with the expanding margins, the report is positive on the company's prospects.

Madras Cements: Demand leg-up

Batlivala & Karani, initiating coverage on Madras Cements, recommend a "buy". The report states that with 6 million tonne (mt) capacity, the company is arguably one of the most efficient cement producers in the southern region.

Strong demand growth in the region, inherent room to expand capacity utilisations, simplification of sales tax structure in Tamil Nadu and high retail sales mix will help the company show robust growth in its earnings over the next two years.

The company would be the biggest beneficiary of the robust demand growth in the southern markets. Currently, in FY06 the company is operating at a capacity utilisation of 75 per cent. With very little capacity being added, Madras Cements stands to gain the most from the current peak cycle.

The simplification of the dual sales tax structure in Tamil Nadu (accounts for 43 per cent of its dispatches) is likely to benefit the company by at least Rs 120 per tonne at the EBITDA level.