Buy Lakshmi Machine Works; target of Rs 4500: Religare

Religare's research report on Lakshmi Machine Works

Lakshmi Machine Works’ Q2FY16 PAT at Rs 566mn (+6% YoY) was ahead of expectations on account of higher growth in textile revenues (+8% YoY), which in turn was driven by the domestic geography and the spares business. Order inflows, however, remained lacklustre at Rs 3.9bn. Management expects execution to pick up in ensuing quarters as the proportion of active orders in backlog increased. We reiterate BUY with a Mar’17 TP of Rs 4,500, valuing the stock at an exit P/E multiple of 17.5x.

Order inflows remain lacklustre: LMW’s order backlog as at end-Q2FY16 was broadly flat QoQ at Rs 2.7bn (domestic textile machinery Rs 2.5bn, exports Rs 2bn). Order inflow totalled Rs 3.9bn, of which Rs 3.5bn was contributed by the textile machinery segment and Rs 400mn by the machine tools segment.

Margins down YoY: Gross margins were down 150bps YoY and 360bps QoQ to 37.2% – management attributed this to lower exports in the quarter. EBITDA margins at 11.6% were down 150bps YoY due to lower gross margins and higher power cost (classified in other expenses) which stemmed from a 30% YoY drop in captive wind power.

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