Stock Pick From The Engineering
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Here Is Why:
- Recovery in the textile industry to boost the order book of the company
- Strong balance sheet with cash per share of Rs 743
- Consistent dividend payment since 1989
The textile sector after remaining in the lull for a while has again started to show signs of revival. This is mainly driven by the improving sentiments and economic conditions in the overseas markets like US and Europe. With an improvement in the sentiments, the textile players in the country have announced Capex of around Rs 4000 crore on an aggregate basis. This Capex plan is likely to percolate down and benefit the textile machinery companies. The most likely beneficiary of this is going to be Lakshmi Machine Works (LMW), one of the top three global manufacturers, having a market share of around 65 per cent in the domestic market.
At present, the company has an order book of Rs 3500 crore, of which around 40 per cent are active orders. LMW collects 10 per cent of the estimated values of the machine as advance, which is non-refundable in nature. The ultimate billing happens as per the price prevailing at the time of delivery.
Shareholding pattern
31/12/2013 |
| Promoter | 28.34 |
| FII | 1.88 |
| DII | 22.99 |
| Others | 46.79 |
| Total | 100 |
There are concerns that competitions have been gearing up with larger MNC players entering the Indian markets and setting up facilities here. Nonetheless, it should be noted that in addition to the established legacy and strong track record in the market, LMW’s products are available at 10-15 per cent lower cost compared to its competitors. Therefore, we believe that competition will not play a spoilsport for the company’s future order book.
Exports contribute 15 per cent to the overall revenues and the company is making conscious efforts to increase the same to more than 25 per cent of the revenues over the coming years. We believe that the depreciation in rupee will help it to attain it sooner.
The company is strategically investing in a Chinese plant where the demand for the machinery is huge and meets 45 per cent of global textile demand. The company is investing to the tune of USD29 million, out of which USD 12.5 million would be funded by the company as equity and rest form the debt.
The performance for 9MFY14 has been on the better side for the company. The net sales witnessed a growth of 12.7 per cent on YoY basis to Rs.1551.9 crore for 9MFY14. The PAT posted a strong growth of 51.2 per cent on YoY basis to stand at Rs.134.5 crore. LMW also has a strong balance sheet. The company has net cash and cash equivalent totalling Rs 818 crore, which is Rs 743 cash per share. Beside this, the company is also looking to monetise its idle land bank, which is likely to boost its cash position further. On the valuation front, the stock discounts its TTM earnings by 18.84x. The company is consistently paying dividend since 1989. We recommend a buy on the counter with a price target of Rs 3100 for a time horizon of one year.
| Last Five Quarters (Rs/Cr) |
| Particulars | 13/Dec | 13/Sep | 13/Jun | 13/Mar | 12/Dec |
| Total Income | 629.64 | 561.06 | 416.84 | 502.17 | 393.3 |
| Operating Profit | 57.3 | 50.62 | 21.29 | 13.45 | 15.26 |
| Interest | 0.17 | 0.27 | 0.06 | 0 | 0.11 |
| Tax | 24.96 | 24.33 | 13.01 | 15.71 | 9.75 |
| Net Profit/(Loss) For the Period | 52.4 | 52.21 | 25.37 | 28.5 | 20.36 |
| Equity Share Capital | 11.27 | 11.27 | 11.27 | 11.27 | 11.27 |