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Lakshmi Mach. Works: Weakness as usual

Oct 31, 2012

Lakshmi Machine Works has announced its September quarter results. The company has reported an 18% fall in topline and 38% YoY fall in net profits for the quarter ended September 2012. Here is our analysis of the results.

Performance summary
  • Lakshmi Machine Works (LMW) suffers an 18% YoY fall in topline during the quarter
  • Rise in all the cost heads leads to 1.0% contraction in operating margins and 23% fall in operating profits
  • Bottomline witnesses a drop of 38% YoY, mainly on account of poor operating performance and higher depreciation

(Rs m) 2QFY12 2QFY13 Change 1HFY12 1HFY13 Change
Net sales 5,716 4,696 -17.8% 10,807 9,026 -16.5%
Expenditure 4,923 4,088 -17.0% 9,322 7,887 -15.4%
Operating profit (EBDITA) 793 608 -23.4% 1,485 1,139 -23.3%
EBDITA margin (%) 13.9% 12.9%   13.7% 12.6%  
Other income 212 121 -42.9% 378 316 -16.4%
Interest (net) 3 2   6 3  
Depreciation 280 283 1.2% 528 558 5.6%
Profit before tax 722 444 -38.5% 1,329 894 -32.7%
Extraordinary items - -   - -  
Tax 230 138 -40.2% 425 278 -34.7%
Profit after tax/(loss) 492 306 -37.8% 904 616 -31.8%
Net profit margin (%) 8.6% 6.5%   8.4% 6.8%  
No. of shares (m) 11.3 11.3   11.3 11.3  
Diluted earnings per share (Rs)*         96.1  
Price to earnings ratio (x)*         20.9  
*trailing twelve month earnings

What has driven performance in 2QFY13?
  • Topline fell by 18% 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 what was heartening was the order inflow data where order booking increased to Rs 3.9 bn, significantly higher than the Rs 1.8 worth of orders the company received during same quarter last year. Active orders remained unchanged though and stood at 30%, the same level as of 1QFY13.

    Cost break-up...
    (Rs m) 2QFY12 2QFY13 Change 1HFY12 1HFY13 Change
    Raw materials 3,476 2,869 -17.5% 6,552 5,440 -17.0%
    % sales 60.8% 61.1%   60.6% 60.3%  
    Staff cost 480 410 -14.6% 916 851 -7.1%
    % sales 8.4% 8.7%   8.5% 9.4%  
    Other expenditure 967 809 -16.3% 1,854 1,597 -13.9%
    % sales 16.9% 17.2%   17.2% 17.7%  

  • On the margins front, they suffered a contraction to the tune of 1.0% YoY. This was on account of lower than proportionate fall in all the major cost heads.

  • Marginal growth in depreciation charges further impacted profits and led to a 38% fall in the same on a YoY basis for the quarter.

What to expect?
At the current price of Rs 2,012, the stock trades at around 10.3 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 maintain our BUY view on the stock despite its near term hiccups.

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