Lakshmi Machine Works (CMP: Rs.2,490/ TP: Rs.2,819/ Upside: 13%) says Angel Broking

Lakshmi Machine Works (CMP: Rs.2,490/ TP: Rs.2,819/ Upside: 13%)
􀂄 Lakshmi Machine Works (LMW) is the market leader in textile machinery space in
India, the world’s second largest market, giving it strong competitive advantages.
The company has a strong service network, with service centres in each textile hub
of the country, again a strong advantage over its European peers. LMW also has
the advantage of having a huge client base of about 1300 out of the total universe
of 1600 players. LMW has proved its technological prowess by developing its
products using in-house research and development for the past 15 years.
􀂄 LMW has a strong order book of Rs3,300cr, with the current quoted delivery time
of 8-10 months. We have assumed 60% of the order book to be executed in
FY2011E. As per our estimates, the company has seen strong order inflows in
1QFY2011 of about Rs600cr, which is more than 90% of the total order inflow in
the entire FY2010. Going ahead, we believe that the deferment of orders would
reduce, as yarn demand outlook is strong and spinning players are operating at
high utilization levels of around 95%.
􀂄 Moreover, the promoters have announced a buyback of shares at a maximum
price of Rs2,045/share, giving a limited downside to the stock price.
􀂄 We believe reasonable valuations of 13.4x FY2012E EPS provides a good entry
point for investors. We have valued the stock at 15x FY2012E EPS which result into
target price of Rs2,819.