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Lakshmi Mach. Works: Bottomline reduced to half - Views on News from Equitymaster
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Lakshmi Mach. Works: Bottomline reduced to half
Jan 29, 2013

Lakshmi Machine Works has announced its December quarter results. The company has reported a 26% fall in topline and 49% YoY fall in net profits for the quarter ended December 2012. Here is our analysis of the results.

Performance summary
  • Lakshmi Machine Works (LMW) suffers a 26% YoY fall in topline during the quarter
  • Marginal drop in operating margins leads operating profits to fall by 28% YoY
  • Bottomline witnesses a drop of 49% YoY, mainly on account of poor operating performance and higher depreciation
  • Profits for the nine month period fall 37% YoY on the back of a 20% fall in topline

(Rs m) 3QFY12 3QFY13 Change 9mFY12 9mFY13 Change
Net sales 5,307 3,933 -25.9% 16,114 12,959 -19.6%
Expenditure 4,694 3,492 -25.6% 14,016 11,379 -18.8%
Operating profit (EBDITA) 613 441 -28.0% 2,098 1,580 -24.7%
EBDITA margin (%) 11.5% 11.2%   13.0% 12.2%  
Other income 274 150 -45.4% 652 466 -28.6%
Interest (net) 1 1   7 4  
Depreciation 300 289 -3.6% 828 847 2.3%
Profit before tax 587 301 -48.7% 1,915 1,195 -37.6%
Extraordinary items - -   - -  
Tax 190 98 -48.7% 615 375 -39.0%
Profit after tax/(loss) 397 204 -48.7% 1,300 820 -36.9%
Net profit margin (%) 7.5% 5.2%   8.1% 6.3%  
No. of shares (m) 11.3 11.3   11.3 11.3  
Diluted earnings per share (Rs)*         79.0  
Price to earnings ratio (x)*         27.3  
* On a trailing 12 months basis

What has driven the performance in 3QFY13?
  • Topline fell by 26% during the quarter. This was on account of the 27% fall in the company's main business division of textile machinery. As per the management, the performance reflects the overall situation of the textile industry. It is also of the view that there were signs of improvements during recent months but the spinning mills will take some time before deciding on investments

  • The capacity utilisation for the textile division stood at around 65% during the quarter. For the remainder of the year, there is not likely to be much improvement and the company expects to close the year with a drop of around 15% in overall topline on a YoY basis.

    Cost break-up...
    (Rs m) 3QFY12 3QFY13 Change 9mFY12 9mFY13 Change
    Raw materials 3,392 2,324 -31.5% 9,944 7,764 -21.9%
    % sales 63.9% 59.1%   61.7% 59.9%  
    Staff cost 408 395 -3.3% 1,324 1,245 -5.9%
    % sales 7.7% 10.0%   8.2% 9.6%  
    Other expenditure 895 773 -13.6% 2,748 2,370 -13.8%
    % sales 16.9% 19.7%   17.1% 18.3%  

  • On the margins front, they suffered a marginal contraction to the tune of 0.3% YoY. This was on account of lower than proportionate fall in staff costs and other expenses.

  • Marginal growth in depreciation charges further impacted profits and led to a 49% fall in the same on a YoY basis for the quarter.

What to expect?
At the current price of Rs 2,160, the stock trades at around 11 times its expected FY14 earnings per share. As per reports, the company is expecting 15% drop in revenues in FY13 in view of a tough macroeconomic environment. Thus, with this quarter's performance, there is now a strong chance that the company may not be able to meet our earnings estimates for FY14. Consequently, we now revise the target price of the company to Rs 2,450 per share, down 15% from the earlier target price of 2,850. Also, the stock now becomes a HOLD from a BUY earlier.

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