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Lakshmi Mach. Works: Topline woes continue - Views on News from Equitymaster
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Lakshmi Mach. Works: Topline woes continue
Aug 8, 2012

Lakshmi Machine Works has announced its June quarter results. The company has reported a 15% fall in topline and 25% YoY fall in net profits for the quarter ended June 2012. Here is our analysis of the results.

Performance summary
  • Lakshmi Machine Works (LMW) suffers a 15% YoY fall in topline during the quarter
  • Rise in staff costs leads to 1.3% contraction in operating margins and 23% fall in operating profits
  • Bottomline witnesses a drop of 25% YoY, mainly on account of poor operating performance and higher depreciation

(Rs m) 1QFY12 1QFY13 Change
Net sales 5,091 4,330 -15.0%
Expenditure 4,399 3,799 -13.6%
Operating profit (EBDITA) 692 531 -23.3%
EBDITA margin (%) 13.6% 12.3%  
Other income 166 195 17.6%
Interest (net) 3 1 -64.1%
Depreciation 248 274 10.6%
Profit before tax 606 450 -25.8%
Extraordinary items - -  
Tax 195 140 -28.2%
Profit after tax/(loss) 411 310 -24.6%
Net profit margin (%) 8.1% 7.2%  
No. of shares (m) 11.3 11.3  
Diluted earnings per share (Rs)*   113  
Price to earnings ratio (x)*   15.7  
(* on trailing twelve months earnings)

What has driven performance in 1QFY13?

    Segmental break up...
    Segment 1QFY12 1QFY13 Change
    Textile machinery      
    Revenues 4,381 3,688 -15.8%
    PBIT 423 287 -32.1%
    PBIT margin 9.7% 7.8%  
    Other      
    Revenues 755 688 -8.8%
    PBIT 55 17 -69.4%
    PBIT margin 7.3% 2.4%  

  • Topline fell by 15% during the quarter. The fall however was not entirely unexpected. With the consuming sector i.e. textile mills going through tough times, it was natural for the performance of the machinery manufacturing unit to suffer as well. But there is a possibility that things might start looking up next quarter onwards. The company also opined that decision with respect to exporting machineries to China is at an advanced stage and the results will soon be known.

    Cost break-up...
    (Rs m) 1QFY12 1QFY13 Change
    Raw materials 3,077 2,571 -16.4%
    % sales 60.4% 59.4%  
    Staff cost 435 441 1.2%
    % sales 8.6% 10.2%  
    Other expenditure 887 788 -11.2%
    % sales 17.4% 18.2%  

  • On the margins front, they suffered a contraction to the tune of 1.3% YoY. This was on account of higher staff costs as also higher other expenditure as a percentage of sales. The company was however able to minimise the damage due to a strict control on raw material expenses.

  • Growth in depreciation charges further impacted profits and led to a 25% fall in the same on a YoY basis for the quarter.

What to expect?
At the current price of Rs 1,768, the stock trades at around 9 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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