Monday, September 20, 2010

>LAKSHMI MACHINE WORKS: Machining growth

Lakshmi Machine Works (LMW) has dominated the Indian textile machinery sector for decades, providing its clients with world class products at the lowest prices available. The company has a healthy order book of Rs3,300cr (2.9x FY2010 sales), providing good revenue visibility. During FY2010-12E, we expect the company to register top-line CAGR of 48.3% and bottom-line CAGR of 51.8%. At the current price of Rs2,476, the stock is quoting at 19.4x and 13.3x FY2011E and FY2012E EPS respectively, which we believe is attractive. The company has announced plans to buy-back its shares at a maximum price of Rs2,045/share.

We recommend an Accumulate on the stock, with a Target Price of Rs2,819. Ability to defend market share: LMW is one of the largest players in the world and one of only three players globally that manufacture the entire range of spinning machinery. In India, it has high market share of around 70% in yarn spinning and preparatory machines. It has been able to sustain this market share on the back of strong after-sales service coupled with providing world’s best technology to customers at the cheapest rates. LMW has service centres at all the textile hubs
across the country, which gives it a strong advantage over its European peers, who at the most have service centres in only 3-4 cities. LMW also enjoys an edge over competition as it caters to a huge 1,300 domestic textile players out of the total universe of around 1,600. The company has been innovating on technology for the past 15 years. In terms of prices, LMW’s products are at least 10% cheaper than its European peers who have manufacturing base in India.

Strong order book to translate into robust sales growth: LMW has a strong order book of Rs3,300cr. The upturn in the spinning industry has lent a boost to the company’s order inflow. The yarn prices have increased at 15.0% CAGR over the last two years and most listed yarn manufacturers surveyed by us are operating at utilisation rates of around 95%. This indicates that there is low probability of order deferments and the company’s robust order book is expected to result in strong growth.

To read the full report: LAKSHMI MACHINE WORKS