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Lakshmi Machine Works (CMP: `2,703/ TP: `2,977/ Upside: 10%)
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 `3,600cr, with the current quoted delivery time of
8-10 months. The company has seen strong order inflows in 2QFY2011 of about
`800cr, which is more than 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 `2,045/share, giving a limited downside to the stock price.
We believe reasonable valuations of 14.5x FY2012E EPS provides a good entry
point for investors. We have valued the stock at 16x FY2012E EPS which result into
target price of `2,977.
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