Lakshmi Machine Works – Review

Lakshmi Machine Works – LMW, is today a global player and among the top three manufacturers of the entire range of textile machinery in the world. The company currently has 60% market share in the domestic Textile Spinning Machinery Industry. LMW has diversified into CNC machine tools and is a brand leader in manufacturing customized products.

For Q2 FY09, Textile machinery division’s revenues were down 24% while the foundry division’s revenues declined 22%.Operating profit for the quarter was down by 33.7% to Rs.91.93cr despite a decline in overall expenditure costs – because of lower sales and other income. Both the segments under operation were under pressure because of sluggishness in the overall macro business environment and the problems being faced by the textile industry in particular given the recessionary trends in key markets like US and Europe.

Order book at the quarter end stands at Rs.3600 Crs, as against Rs 5327Crs for the corresponding period in last year. This deceleration in order book is on the back of compression of delivery-period, coupled with slower order inflow from the user industry.

The company has announced plans to set up a greenfield textiles machinery unit in China through a wholly-owned subsidiary. With the Chinese market comprising 52% of spinning capacity additions in the world, the Chinese venture could be viewed as a positive step, as China offers a vast opportunity to quality and value players like LMW.

LMW healthy cash on its books, Rs.417/ share (73% of the market capitalization), would provide cushion from any downside. LMW is expected to report an EPS of Rs 174 for FY09.