Lakshmi Machine Works – No growth visibility

Lakshmi Machine Works – LMW reported Q4FY08 results below our expectations. While Net sales grew by 7.4% yoy to Rs6251mn (11% growth in the textile machinery business and a 21% decline in the machine tools & foundry division), Operating profits remained flat at Rs1206mn. (margins declined by 150bps yoy to 19.3% mainly due to the rise in raw material prices ).

APAT (ex one off items) declined by 12.6% yoy to Rs601mn (attributable to the sharp increase in depreciation owing to higher capex). LMW ended FY08 with revenue growth of 18% (as compared to the growth guidance of 30%) and a PAT growth of 15.5%. Although LMW started the year with a strong order backlog of Rs53.3bn, the lower than expected (as well as guided) growth reflects, higher than anticipated slowdown in the textile sector.

The company faces a double whammy in the form of (1) Declining demand (thus impacting revenue growth) and (2) Rising raw material prices (hitting margins, though management indicated an intention for upward revision in prices post Q1FY09)