Stock Market Result Update on Lakshmi Machine Works for 2QFY2012

Stock Market Result Update on Lakshmi Machine Works for 2QFY2012 with a Buy recommendation and a Target Price of `2780 (12 months).

Lakshmi Machine Works (LMW) posted strong top-line growth of 31.2% yoy to `581cr (`443cr) during 2QFY2012. However, the company’s OPM fell by 226bp yoy to 15.3%, mainly due to higher raw-material cost and other expenditure. PAT grew modestly by 7.4% yoy to `49cr. We maintain our Buy recommendation on the stock.

Strong top-line growth with order book at `4,663cr: LMW registered strong top-line growth of 31.2% yoy to `581cr. The textile machinery division posted strong sales growth of 28.7% yoy to `495cr (`385cr). The others division also grew strongly by 48.0% to `88cr (`60cr). The company’s OPM contracted by 226bp yoy to 15.3% due to higher raw-material cost. PAT margin contracted by only 188bp yoy. PAT came in at `49cr, up 7.4% yoy. The company recorded a decline in its order inflow during the quarter, reflecting the current scenario of the textile industry. LMW’s order book now stands at `4,663cr vs. `4,800 in 1QFY2012, while total order inflow at 2QFY2012-end stood at ~`180cr.

Outlook and valuation: We remain positive on the company’s outlook, given a strong order book of `4,663cr. 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 utilization levels. At the CMP, the stock is trading at 11.0x and 8.2x 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.