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Lakshmi Mach. Works: Lower taxes boost profits
May 24, 2013

Lakshmi Machine Works has announced its March quarter results. The company has reported a flat topline and a huge 308% growth in net profits for the quarter ended March 2013. Here is our analysis of the results.

Performance summary
  • Lakshmi Machine Works (LMW) reports a flat topline during the quarter
  • More than 1% drop in operating margins leads operating profits to fall by 12% YoY
  • Bottomline witnesses a strong jump of 308%, mainly on account of higher other income and lower tax provision in the current quarter
  • Profits for the full year period fall 14% YoY on the back of a 9% fall in topline
  • Announces a dividend of Rs 1 per share for the full year, translating into a yield of around 1% on the share price

(Rs m) 4QFY12 4QFY13 Change FY12 FY13 Change
Net sales 5,020 5,022 0.0% 21,135 19,171 -9.3%
Expenditure 4,533 4,595 1.4% 18,556 17,071 -8.0%
Operating profit (EBDITA) 487 427 -12.4% 2,578 2,101 -18.5%
EBDITA margin (%) 9.7% 8.5%   12.2% 11.0%  
Other income 193 308 59.2% 845 787 -6.9%
Interest (net) 50 -   50 4  
Depreciation 312 292 -6.3% 1,140 1,177 3.3%
Profit before tax 319 442 38.8% 2,234 1,707 -23.6%
Extraordinary items - -   - -  
Tax 249 157 -36.8% 864 532 -38.4%
Profit after tax/(loss) 70 285 307.9% 1,370 1,175 -14.3%
Net profit margin (%) 1.4% 5.7%   6.5% 6.1%  
No. of shares (m) 11.3 11.3   11.3 11.3  
Diluted earnings per share (Rs)*         104.3  
Price to earnings ratio (x)*         19.3  
(* on trailing twelve months earnings)

What has driven performance in 4QFY13?
  • Topline remained nearly the same as corresponding previous quarter. This was on account of the 36% fall in the machine tool and foundry segment of the company. The impact on the overall topline was limited as the segment is not a big contributor to the company's topline. The textile machinery segment, the key segment of the company, performed well however, growing revenues by 10% YoY.

  • The company expects things to look up in the future. The order book position of the company stood at Rs 37 bn, nearly two times its standalone FY13 revenues and the company is of the view that bookings are actually happening as compared to the recent past when companies were deferring delivery schedule. Overall, the prospects seem better in the coming year than FY13 as per the company

    Segmental break up...
    Segment 4QFY12 4QFY13 Change FY12 FY13 Change
    Textile Machinery
    Revenues 4,135 4,571 10.5% 18,179 16,951 -6.8%
    PBIT 283 279 -1.7%  1,608 1,166 -27.5%
    PBIT margin 6.9% 6.1%   8.8% 6.9%  
    Machine tool and foundry
    Revenues 920 587 -36.2%  3,274 2,389 -27.0%
    PBIT 78 19 -75.5%  282 138 -51.0%
    PBIT margin 8.4% 3.2%   8.6% 5.8%  
    Advanced technology centre
    Revenues 14 19 33.6%  15 47 NM
    PBIT (118)  (41) -65.1% (131)  (203) 55.7%
    PBIT margin NA NA   NA NA  

  • On the margins front, they suffered a marginal contraction to the tune of 1.2% YoY. This was on account of higher than proportionate rise in staff costs and other expenses.

    Cost break-up...
    (Rs m) 4QFY12 4QFY13 Change FY12 FY13 Change
    Raw materials 3,165 3,137 -0.9% 13,109 11,789 -10.1%
    % sales 63.0% 62.5%   62.0% 61.5%  
    Staff cost 392 463 18.2% 1,735 1,796 3.5%
    % sales 7.8% 9.2%   8.2% 9.4%  
    Other expenditure 976 995 2.0% 3,712 3,486 -6.1%
    % sales 19.4% 19.8%   17.6% 18.2%  

  • Despite poor operating performance, PBT (Profit before Tax) grew by 39% YoY, mainly on account of 59% YoY growth in other income. Growth in net profits came in even better, with profits going up by more than 300% on the back of a sharp 37% fall in tax expenses. The fall was on account of lower provisions as compared to same quarter last year

  • At a consolidated level, the topline fell by 13% YoY while the bottomline came in lower by 7% YoY for the full year.

What to expect?
At the current price of Rs 2,020, the stock trades at around 10 times its expected FY14 earnings per share. It should be noted that on account of muted FY13 performance, we had revised downwards the price target of the company to Rs 2,450 per share from 1-2 year perspective. We stick to this view and maintain our HOLD view on the stock.

We would like to gently remind you that your allocation to equities should be decided upon after keeping aside some safe cash. Also within your overall exposure to equities please ensure that you broadly follow our suggested asset allocation and that no single mid cap stock comprises more than 4-5% of your portfolio.

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