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LMW: Recovery momentum continues - Views on News from Equitymaster

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LMW: Recovery momentum continues

Aug 2, 2010

LMW declared its 1QFY11 results. The company has reported 79% YoY increase in sales while its net profits have risen by 170% YoY. Here is our analysis of the results.

Performance summary
  • Sales grow 79% YoY in 1QFY11 - textile machinery sales grow by 88% YoY during the quarter.
  • Operating margins expand from 8.1% to 13.2% during the quarter, owing to a substantial fall in all the company's cost heads (as percentage of sales).
  • Net profits grow by 170% YoY during 1QFY11. Profit performance helped by the significant expansion in operating margins.

Financial performance snapshot
(Rs m) 1QFY10 1QFY11 Change
Sales 1,865 3,341 79.1%
Expenditure 1,714 2,898 69.1%
Operating profit (EBDITA) 151 442 193.1%
Operating profit margin (%) 8.1% 13.2%  
Other income 201 252 25.4%
Depreciation 184 243 32.0%
Profit before tax 168 452 168.7%
Tax 57 151  
Profit after tax/(loss) 111 301 170.4%
Net profit margin (%) 6.0% 9.0%  
No. of shares 12.4 12.4  
Diluted earnings per share (Rs)   100.0  
P/E ratio (x)*   20.1  

What has driven performance in 1QFY11?
  • The 79% YoY growth in LMW's 1QFY11 net sales was largely a result of a robust 88% YoY growth in its textile machinery division. A large part of the growth during the quarter can be attributed to the very low base because of a weak performance in 1QFY10. Machine tools and foundry division's sales too saw a healthy growth of 38% during the quarter. This segment contributed 13% to the company's total sales during this period.

    Segment-wise performance
    (Rs m) 1QFY10 1QFY11 Change
    Textile machinery      
    Revenue 1,608 3,030 88.4%
    % share 83% 87%  
    PBIT margin 1.2% 10.3%  
    Machine tools Foundry      
    Revenue 324 447 37.8%
    % share 17% 13%  
    PBIT margin 6.0% 6.3%  
    Revenue* 1,932 3,476 79.9%
    PBIT margin 2.0% 9.8%  
    * Excluding inter-segment adjustments

  • LMW's operating margins went from 8.1% in 1QFY10 to 13.2% in 1QFY11. This was due to a fall in all the company's different cost heads as a percentage of sales. Raw material costs and employee costs saw the biggest fall as a percentage of sales.

  • The company's net profits shot up by 170% YoY during 1QFY11. 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 1QFY10.

What to expect?
At the current price of Rs 2,011, the stock is trading at a multiple of 2.2 times our estimated FY12 book value. At current levels, we maintain our view on the stock.

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