(Investment Pick) Lakshmi Machine Works | Analysis

Lakshmi Machine Works, or LMW is one of India's largest textile machinery manufacturer. It is one among the top three in the world to produce the entire range of spinning machinery. It leads the industry in exports. LMW-Voltas command a 70% market share. Voltas holds 4% in LMW. LMW also has collaborations with Rieter, Switzerland, who also holds a little over 13.19% in LMW. Lakshmi-Rieter machines have been dominating the Indian market since a long time.

LMW was one of the many companies that got severely affected by this economic crisis. The top line fell 37% from Rs. 2205 cr to Rs. 1375 cr. Net profit fell from Rs. 242 cr to Rs. 107 cr (YoY figures from fy08 to fy09). However, reserves rose (that was natural due to a net profit) from Rs. 745 cr to Rs. 830 cr.

What impresses me about LMW is that it went ahead with its China project amidst the global turmoil. Most of the managements- large or small would have delayed/scrapped/relooked into their projects. LMW has formed a company — LMW Textile Machinery (Suzhou) Company Ltd — after taking over a readymade factory on lease at Suzhou. It got the Chinese govt's approval last year, and operations commenced on Mar 09. It is a greenfield textiles machinery unit. There, LMW plans to manufacture 1 million spindles in a phased manner. Finally, if feasible, it will export from China.

LMW is a fundamentally strong company with strong, and loyal strategic collaborations. Although the quarterly results (Jun09) have been dismal, the company has not made loss. The results were slightly higher than the previous quarter. It currently trades at a P/E of around 12-13, and estimated EPS for this year is around 134. That gives it a P/E of 8.3. This is not an expensive proposition, although investors may buy on dips with a cautious approach. The historic price of the share is highlighted below:

Current Price: Rs. 1113.15 (closing on BSE, 18 Aug '09)
3 yr Low: Rs. 415.1 (9 Mar '09)
3 yr High: Rs. 4250 (2007)

I would suggest, if an investment decision be made, this company should be considered. Over a year's time, the share price is expected to be around Rs. 2000-2300 if conditions improve, and it may go back to the Rs. 3000-3500 level if the economy revives. Then, with the Chinese unit kicking in more sales in the Chinese market (and may be even exporting), the earnings are seen to rise significantly over the previous good times'. Then the stock may go to the Rs. 5000 level- but that is wishful thinking, for the time being!