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Lakshmi Mach. Works: Non-textile businesses suffer - Views on News from Equitymaster

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Lakshmi Mach. Works: Non-textile businesses suffer
Aug 6, 2013

Lakshmi Machine Works has announced its June quarter results. The company has reported an 11% drop in topline and a 25% fall in net profits for the quarter ended June 2013. Here is our analysis of the results.

Performance summary
  • Lakshmi Machine Works (LMW) reports an 11% YoY drop in topline during the quarter
  • More than 1% YoY drop in operating margins leads operating profits to fall by 19% YoY
  • Bottomline witnesses a decline of 25% YoY, exacerbated by an extraordinary loss to the tune of Rs 60 m

(Rs m) 1QFY13 1QFY14 Change
Net sales 4,690 4,168 -11.1%
Expenditure 4,127 3,712 -10.1%
Operating profit (EBDITA) 563 456 -18.9%
EBDITA margin (%) 12.0% 10.9%  
Other income 203 232 14.3%
Interest (net) 1 1 -46.1%
Depreciation 287 243 -15.2%
Profit before tax 477 444 -7.0%
Extraordinary items - (60)  
Tax 140 130 -7.1%
Profit after tax/(loss) 337 254 -24.8%
Net profit margin (%) 7.2% 6.1%  
No. of shares (m) 11.3 11.3  
Diluted earnings per share (Rs)*   96.8  
Price to earnings ratio (x)*   18.3  
(* on trailing twelve months earnings)

What has driven performance in 1QFY14?
  • Topline witnessed a fall of 11% YoY over the corresponding previous quarter. This was on account of the 34% YoY fall in the machine tool and foundry segment of the company. The impact on the overall topline was not that much as the segment is not a big contributor to the company's topline. The textile machinery segment, the key segment of the company, performed better in comparison, witnessing a decline in revenues of the order of 7% YoY.

  • The company observed that the textile machinery segment was showing signs of improvement. The reason the segment is not improving as fast as expected is because of deferments in machinery offtake on account of textile companies awaiting sanctions under the TUF scheme. Although there has been an in-principle agreement on the same, the delay is on account of sanction of loans as per the company. The company also opined that it is focusing on customer service and supply of spare parts and also the export market in order to tackle the slowdown.

    Segmental break up...
    Segment 1QFY13 1QFY14 Change
    Textile machinery
    Revenues 4,084 3,790 -7.2%
    PBIT 315 252 -19.9%
    PBIT margin 7.7% 6.6%  
    Machine tool & foundry
    Revenues 681 446 -34.4%
    PBIT 58 6 -89.3%
    PBIT margin 8.5% 1.4%  
    Advanced Technology Centre
    Revenues 7 9 21.3%
    PBIT (41) (40) -2.1%
    PBIT margin -556.3% -448.8%  

  • On the margins front, they suffered a marginal contraction to the tune of 1.1% YoY. This was on account of higher than proportionate rise in staff costs and other expenses. Raw materials costs however witnessed some softening as a percentage of sales

    Cost break-up...
    (Rs m) 1QFY13 1QFY14 Change
    Raw materials 2,816 2,447 -13.1%
    % sales 60.0% 58.7%  
    Staff cost 468 478 2.3%
    % sales 10.0% 11.5%  
    Other expenditure 843 787 -6.7%
    % sales 18.0% 18.9%  

  • Profit before tax fell 7% YoY during the quarter as higher other income and lower depreciation charges helped offset the poor operating performance to some extent

  • Bottomline however fell by 25% YoY as an extraordinary loss to the tune of Rs 60 m was incurred by the company. Absent this loss, the decline in bottomline would have come to just around 7% on a YoY basis. The extraordinary item represented compensation towards Voluntary Retirement Scheme opted by employees.
What to expect?
At the current price of Rs 1,784, the stock trades at around 9 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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