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Lakshmi Mach. Works: Runs into headwinds - Views on News from Equitymaster
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Lakshmi Mach. Works: Runs into headwinds
Jun 1, 2012

Lakshmi Machine Works has announced its March quarter results. The company has reported a 6% fall in topline and 84% YoY fall in net profits for the quarter ended March 2012. Here is our analysis of the results.

Performance summary
  • Lakshmi Machine Works (LMW) suffers a 6% YoY fall in topline during the quarter
  • Rise in other expenses leads to 2.7% contraction in operating margins and 27% fall in operating profits
  • Bottomline witnesses a drop of 84% YoY, mainly on account of poor operating performance and higher tax outgo
  • Bottomline for the full year falls 17% YoY on the back of a 17% growth in topline
  • The company announced a dividend of Rs 50 per share that also includes a special golden jubilee year dividend of Rs 25 per share (dividend yield 3%).

(Rs m) 4QFY11 4QFY12 Change FY11 FY12 Change
Net sales 5,348 5,020 -6.1% 18,037 21,135 17.2%
Expenditure 4,683 4,533 -3.2% 15,402 18,556 20.5%
Operating profit (EBDITA) 665 487 -26.8% 2,636 2,578 -2.2%
EBDITA margin (%) 12.4% 9.7%   14.6% 12.2%  
Other income 227 193 -14.8% 797 845 6.1%
Interest (net) 13 50 284.6% 13 50 284.6%
Depreciation 284 312 9.8% 1,041 1,140 9.5%
Profit before tax 595 319 -46.5% 2,378 2,234 -6.1%
Extraordinary items - -     -  
Tax 152 249 63.9% 719 864 20.2%
Profit after tax/(loss) 444 70 -84.3% 1,660 1,370 -17.4%
Net profit margin (%) 8.3% 1.4%   9.2% 6.5%  
No. of shares (m) 11.3 11.3   11.3 11.3  
Diluted earnings per share (Rs)*         121.6  
Price to earnings ratio (x)*         12.7  
(*On a trailing 12-month basis)

What has driven performance in 4QFY12?
  • Topline fell by 6% during the quarter. It was due to a combination of adverse factors like non-favorable budget, absence of post-spinning policy and the worsening power situation in the state of Tamil Nadu. The only saving grace seemed to be other major segment of the company i.e. machine tools. The segment reported a growth of 7% during the quarter and logged in an impressive growth of 26% for the full year. The company believes that there is a huge opportunity to grow in this space as currently only about 30% of the country’s machine tool requirement is through domestic manufacturers.

  • On the margins front, they suffered a significant contraction to the tune of 2.7% YoY. This was on account of higher other expenses. The company was however quick to minimise the damage with a strict control on both staff costs as well as raw material expenses.

    Cost break-up...
    (Rs m) 4QFY11 4QFY12 Change FY11 FY12 Change
    Raw materials 3,382 3,165 -6.4% 10,720 13,109 22.3%
    % sales 63.2% 63.0%   59.4% 62.0%  
    Staff cost 537 392 -27.0% 1,668 1,735 4.0%
    % sales 10.0% 7.8%   9.2% 8.2%  
    Other expenditure 763 976 27.8% 3,013 3,712 23.2%
    % sales 14.3% 19.4%   16.7% 17.6%  

  • Growth in depreciation charges as well as higher interest expenses further impacted profits and led to a huge 84% fall in the same on a YoY basis for the quarter. The jump in tax outgo of 64% also contributed to the significant fall in net profits. It should however be noted that a significant portion of interest expenses as well as tax outgo pertains to previous period and to that extent, the fall in net profits is not that high.

What to expect?
At the current price of Rs 1,545, the stock trades at around 8 times its expected FY14 earnings per share. As per reports, the company is expecting no growth in FY13 in view of a tough macroeconomic environment. However, we believe that it will be able to make up for it in subsequent years. Besides, it also boasts of a rock solid balance sheet and a dominant market position. We remain positive on the stock despite its near term hiccups.

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