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Lakshmi Machine Works 3QFY2012 performance highlights and results update

Contributed by Angel Broking

Lakshmi Machine Works (LMW) posted top-line growth of 9.6% yoy to Rs.538cr (Rs.491cr) during 3QFY2012. However, OPM fell by 263bp yoy to 12.8%, lower than our estimates, mainly due to higher raw-material cost and other expenditure. PAT declined by 13.5% yoy to Rs.40cr. We maintain our Buy rating on the stock.

Mediocre top-line growth with order book at Rs.4,500cr: LMW registered mediocre top-line growth of 9.6% yoy to Rs.538cr. The textile machinery division posted sales growth of 11.0% yoy to Rs.471cr (Rs.425cr). The others division also reported growth during the quarter, up 3.1% to Rs.72cr. OPM contracted by 263bp to 12.8% due to higher raw-material cost. PAT came in at Rs.40cr, down 13.5% yoy. PAT margin contracted by only 197bp yoy. The company recorded a decline in its high order inflow during the quarter, reflecting the current weak demand scenario from textile machinery manufacturers. The company’s order backlog now stands at Rs.4,500cr, while total order inflow during 3QFY2012 stands at ~Rs.150cr.

Outlook and valuation: We remain positive on LMW’s outlook, given a strong order book of Rs.4,500cr. Although yarn prices have shown signs of correction in the recent past, overall demand, as reflected in the order inflow, is still robust. We have revised our estimates downwards, taking into consideration the weak sentiments in the textile industry. At the CMP, the stock is trading at 11.4x and 8.6x its FY2012E and FY2013E EPS, respectively, which we believe is attractive. We continue to maintain our Buy rating on the stock with a revised target price of Rs.2,214 (Rs.2,780 earlier).