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LMW: Hit by the global slowdown - Views on News from Equitymaster
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LMW: Hit by the global slowdown
May 21, 2009

Performance summary
  • Sales fall 39% YoY in FY09, 70% YoY in 4QFY09 - textile machinery sales fall by 41% YoY during the fiscal.
  • Operating margins contract by 4.6% during the fiscal, owing to an increase in employee costs and other expenditure (as percentage of sales).
  • Net profits fall by 56% YoY during FY09. Profit performance impacted by a combination of a dip in operating margins and a jump in depreciation charges as a percentage of sales.
  • Board recommends dividend of Rs 15 per share (dividend yield of 1.9%).


Financial performance snapshot
(Rs m) 4QFY08 4QFY09 Change FY08 FY09 Change
Sales 6,040 1,808 -70.1% 22,052 13,380 -39.3%
Expenditure 5,045 1,832 -63.7% 18,057 11,568 -35.9%
Operating profit (EBDITA) 995 (24) 3,995 1,812 -54.6%
Operating profit margin (%) 16.5% -1.4% 18.1% 13.5%
Other income 293 231 -21.3% 875 906 3.5%
Depreciation 356 183 -48.5% 1,159 1,176 1.5%
Profit before tax 932 23 -97.5% 3,712 1,542 -58.5%
Tax 332 (57) 1,289 472 -63.3%
Profit after tax/(loss) 600 80 -86.6% 2,423 1,069 -55.9%
Net profit margin (%) 9.9% 4.5% 11.0% 8.0%
No.of shares 12.4 12.4
Diluted earnings per share (Rs) 195.9 86.4
P/E ratio (x) 9.1

What has driven performance in FY09?
  • The 39% YoY fall in LMW’s FY09 net sales was largely a result of a dismal 41% YoY fall in its textile machinery division’s sales. This segment contributed 88% to the company’s total sales during the fiscal (91% in FY08). LMW’s second business segment of machine tools and foundry recorded a sales decline of about 19% YoY during the fiscal.

    Segment-wise performance
    (Rs m) 4QFY08 4QFY09 Change FY08 FY09 Change
    Textile machinery
    Revenue 5,689 1,522 -73.2% 20,564 12,167 -40.8%
    % share 90.8% 80.8% 91.0% 88.1%
    PBIT margin 14.6% -9.8% 16.4% 8.7%
    Machine tools & Foundry
    Revenue 577 361 -37.3% 2,026 1,649 -18.6%
    % share 9.2% 19.2% 9.0% 11.9%
    PBIT margin 5.1% -9.3% 7.1% 2.1%
    Total
    Revenue* 6,266 1,883 -69.9% 22,590 13,816 -38.8%
    PBIT margin 13.7% -9.7% 15.5% 7.9%
    * Excluding inter-segment adjustments

  • LMW recorded a 4.6% contraction in its operating margins during FY09. This was mainly due to a 2.3% increase in employee costs as a percentage of sales during FY09 as compared to FY08, and an even higher 3% increase in other expenditure during the same period.

  • The company’s net profits fell by 56% YoY during FY09. This adverse performance at the bottomline level was a result of the above mentioned fall in operating margins as also a jump in depreciation charges as a percentage of sales.

  • During the year, the company has changed the basis of valuation of its inventories. As a result of this, the value of inventories and the profit for the year are more by Rs 44 m.

What to expect?
At the current price of Rs 790, the stock is trading at a multiple of 9.1 times its trailing twelve months earnings. We shall update our view on the stock subsequent to an interaction with the management.

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