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LMW: Recovery gathers steam - Views on News from Equitymaster

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LMW: Recovery gathers steam
Oct 26, 2010

LMW declared its 2QFY11 results. The company has reported 60% YoY growth in sales while its net profits have increased by 42% YoY. Here is our analysis of the results.

Performance summary
  • Sales grow 60% YoY in 2QFY11 - textile machinery sales grow by 61% YoY during the quarter.
  • Operating margins fall by 2.4% YoY during the quarter, owing to a substantial rise in raw material costs as well as other expenditure (as percentage of sales).
  • Net profits grow by 42% YoY during 2QFY11. Bottomline performance affected by the fall operating margins.

Financial performance snapshot
(Rs m) 2QFY10 2QFY11 Change 1HFY10 1HFY11 Change
Sales 2,686 4,293 59.8%   4,551   7,633 67.7%
Expenditure 2,222 3,653 64.4%   3,936    6,551 66.4%
Operating profit (EBDITA)     464     640 38.0%  615    1,082 76.1%
Operating profit margin (%) 17.3% 14.9% 13.5% 14.2%
Other income     241     289 19.7%  443   541 22.3%
Depreciation     218 251 15.1%  402   494 22.8%
Profit before tax     487     677 39.2%  655    1,129 72.4%
Tax     163 219 34.2%  220  370 68.2%
Profit after tax/(loss)     324     459 41.7%  435  759 74.6%
Net profit margin (%) 12.1% 10.7% 9.6% 10.0%  
No. of shares       12.4 12.4  
Diluted earnings per share (Rs)         110.9  
P/E ratio (x)*            24.4  
* on a trailing 12 months basis

What has driven performance in 2QFY11?
  • The 60% YoY growth in LMW's 2QFY11 net sales was largely a result of a robust 61% YoY growth in its textile machinery division. Machine tools and foundry division's sales too saw a healthy growth of 45% during the quarter. The contribution of this segment to the company's overall topline however fell to 13% during this period due to the fact that the textile machinery business saw a much higher growth than the former.

    Segment-wise performance
    (Rs m) 2QFY10 2QFY11 Change 1HFY10 1HFY11 Change
    Textile machinery            
    Revenue        2,383        3,847 61.4% 3,992 6,877 72.3%
    % share 85% 87%   84% 87%  
    PBIT margin 15.3% 13.5%   9.6% 12.9%  
    Machine tools & Foundry            
    Revenue   410 596 45.4%     734  1,043 42.1%
    % share 15% 13%   16% 13%  
    PBIT margin 2.3% 5.2%   3.9% 5.7%  
    Total          
    Revenue*        2,793        4,443 59.1% 4,726 7,920 67.6%
    PBIT margin 13.4% 12.4%   8.7% 11.2%  
    * Excluding inter-segment adjustments

  • LMW's operating margins went from 17.3% in the same quarter last year to 14.9% in 2QFY11. This was mainly due to a rise in both raw material costs as well as other expenditure as a percentage of sales during 2QFY11.

  • The company's net profits saw a rise of 42% YoY during 2QFY11. The performance at the bottomline level suffered as a consequence of the fall in operating margins. However, a marginal fall in effective tax rates for the company this quarter and a slower 15% YoY growth in depreciation expenses helped push up the net profit growth to some extent.

What to expect?
At the current price of Rs 2,700, the stock is trading at a multiple of 3 times our estimated FY12 book value. At current levels, we have a cautious view on the stock.

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