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LMW: On the path to recovery? - Views on News from Equitymaster

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LMW: On the path to recovery?

May 27, 2010

LMW declared its FY10 results. The company has reported 15% YoY decline in sales while its net profits have fallen by 2% YoY. Here is our analysis of the results.

Performance summary
  • Sales grow 96% YoY in 4QFY10, fall 15% YoY in FY10 - textile machinery sales grow by 104% YoY during the quarter. A large part of the growth during the quarter can be attributed to the very low base because of an extremely weak performance in 4QFY09.
  • Operating margins go from negative to positive during the quarter, owing to a substantial fall in employee costs as also a decrease in other expenditure (as percentage of sales).
  • Net profits grow by 281% YoY during 4QFY10. Profit performance helped by the significant expansion in operating margins.
  • Board recommends a dividend of Rs 15 per share (dividend yield of 0.8%)

Financial performance snapshot
(Rs m) 4QFY09 4QFY10 Change FY09 FY10 Change
Sales        1,808        3,539 95.8%       13,380         11,369 -15.0%
Expenditure        1,832        3,062 67.1%        11,568          9,727 -15.9%
Operating profit (EBDITA)              476             1,812           1,642 -9.3%
Operating profit margin (%) -1.4% 13.5%   13.5% 14.4%  
Other income            231 195 -15.4%   906    821 -9.4%
Depreciation            183            276 50.6%          1,176    958 -18.5%
Profit before tax    23            396 1608.6%          1,542           1,506 -2.3%
tax   (57)   89   472   459 -2.9%
Profit after tax/(loss)   80            307 281.3%          1,069          1,047 -2.1%
Net profit margin (%) 4.5% 8.7%   8.0% 9.2%  
No. of shares       12.4   12.4  
Diluted earnings per share (Rs)         84.6
P/E ratio (x)*           21.6  

What has driven performance in 4QFY10?
  • The 96% YoY growth in LMW’s 4QFY10 net sales was largely a result of a robust 104% YoY growth in its textile machinery division. Machine tools and foundry division’s sales too saw a healthy growth of 51% during the quarter. This segment contributed 15% to the company’s total sales during this period.

    Segment-wise performance
    (Rs m) 4QFY09 4QFY10 Change FY09 FY10 Change
    Textile machinery            
    Revenue       1,522       3,097 103.5%       12,167          9,998 -17.8%
    % share 81% 85%   88% 85%  
    PBIT margin -9.8% 8.4%   8.7% 9.7%  
    Machine tools & Foundry            
    Revenue           361 544 50.5%         1,649          1,743 5.7%
    % share 19% 15%   12% 15%  
    PBIT margin -9.3% 13.3%   2.1% 9.0%  
    Revenue*       1,883        3,641 93.3%       13,816        11,741 -15.0%
    PBIT margin -9.7% 9.1%   7.9% 9.6%  
    * Excluding inter-segment adjustments

  • LMW’s operating margins went from a negative 1.4% in the same quarter last year to 13.5% in 4QFY10. This was mainly due to a 6.6% fall in employee costs as a percentage of sales during 4QFY10 as compared to 4QFY09, and a substantial 9.9% fall in other expenditure during the same period.

  • The company’s net profits shot up by 281% YoY during 4QFY10. This great performance at the bottomline level was a result of the above mentioned expansion in operating margins and a very low base due to its depressed earnings during 4QFY09.

What to expect
At the current price of Rs 1,825, the stock is trading at a multiple of 2 times our estimated FY12 earnings. At current levels, we maintain our view on the stock.

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