Stock Market Result Update on Lakshmi Machine Works for 1QFY2012

Stock Market Result Update on Lakshmi Machine Works for 1QFY2012 with a Buy recommendation and a Target Price of `2780 (12 months).

Lakshmi Machine Works (LMW) posted strong top-line growth of 47.9% yoy to `511cr (`346cr) during 1QFY2012. However, OPM fell by 227bp yoy to 13.9%, lower than our estimates, mainly due to higher raw-material cost and other expenditure. PAT grew strongly by 36.7% yoy to `41cr. We maintain our Buy recommendation on the stock.

Strong top-line growth with order book swelling to `4,800cr: LMW registered strong top-line growth of 47.9% yoy to `511cr. The textile machinery division posted strong sales growth of 44.6% yoy to `438cr (`303cr). The others division also grew strongly by 69.0% to `75cr (`45cr). OPM contracted by 227bp to 13.9% due to higher raw-material cost and other expenditure. PAT margin contracted by only 66bp yoy due to lower tax provision and higher other income. The company has recorded yet another quarter of high order inflow, reflecting the strong demand from textile machinery manufacturers. The company’s order backlog now stands at `4,800cr, while total order inflow during 1QFY2012 stands at ~`550cr.

Outlook and valuation: We remain positive on the company’s outlook, given a strong order book of `4,800cr. Although yarn prices have shown signs of correction in the recent past, overall demand, as reflected in the order inflow, is still robust. Spinning mills continue to operate at high utilisation levels. At the CMP, the stock is trading at 11.0x and 8.5x its FY2012E and FY2013E EPS, respectively, which we believe is attractive. We maintain our Buy recommendation on the stock with a target price of `2,780.