Hold Lakshmi Machine; target of Rs 1923: Emkay

Emkay Global Financial Services has recommended hold rating on Lakshmi Machine Works with a target price of Rs 1923 in its October 16, 2012 research report.

“Lakshmi Machine Works, revenue at Rs4.7bn declined 19% yoy (our est. of Rs4.4bn). Weak order inflows and higher proportion of inactive orders in total order book led to slow execution, resulting in revenue decline. Power issues in TN are adding woes to the weak macro environment, which is resulting in muted order inflows from textile units in TN. EBITDA at Rs608mn declined 32% yoy with margin at 12.9% declined 234bps yoy albeit improved 69bps qoq. PAT at Rs306mn (our est. of Rs315mn) declined 38% yoy. Other income was lower due to forex loss v/s gain in the last quarter.”

“Textile machinery division revenue stood at Rs4.1bn, declining 18% yoy. EBIT for the segment declined 39% yoy to Rs334mn with EBIT margin of 8.2% v/s 11.1% in Q3FY12. Spindle production during H1FY13 stood at 7lacs v/s 10.5lacs in H1FY12. Machine tools division revenue declined 32% yoy to Rs593mn. EBIT was at Rs48mn as compared Rs124mn in Q2FY12. Order inflow during the quarter was at Rs3.9bn. Order book at the end of Q2FY13 stood at Rs39.8bn v/s Rs39bn in Q1FY13. Due to challenging macro environment, active orders in total order book continue to remain at 30%.”

“Order inflows improved in Q2FY13 but sustainability is uncertain given the current business environment. Challenging economic scenario and high proportion of inactive orders in the total order book are the key concerns. Power issues in TN is also adding to the macro problems, as per management power issues are unlikely to get resolved in near term, which would continue to impact textile units. Maintain hold with revised price target of Rs 1923, based on 9x FY14E core EPS of Rs119 and net cash of Rs855 per share. At CMP of 1984, LMW trades at 14.5x and 12x FY13E/14E EPS of Rs137/166,” says Emkay Global Financial Services research report.

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