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LMW has significant competitive advantages: Lakshmi Machine
Works (LMW) is the second largest player in the world in the
textile spinning machinery segment, behind Rieter. Being the
market leader in India, the second largest market for spinning
machinery in the world, gives LMW strong advantages. It has
been providing its customers with strong service and world class
technology at cheapest rates. The company has service centres
at all textile hubs across the country, addressing clients' problems
within 24 hours of complaint. It services around 1300 clients out
of a total universe of 1600 in India.
LMW has proven its technological prowess by developing its
products through in-house R&D over the last 15 years. The
company spends about 1% of its revenues on R&D annually,
making its R&D expense comparable to global peers. The
machinery with the highest number of spindles being
manufactured in India is LMW's LR9 series of machines,
developed in-house. LMW also has a cost advantage over its
European peers who have set up manufacturing plants in India,
on the back of its cheaper historical asset cost and backward
integration.
Strong order book position; improving business outlook: LMW
has a strong order book of `4,100cr, which is to be executed
over 12-14 months. Recently, there has been a demand upturn
in the yarn spinning industry, backed by a strong increase in
yarn prices over the past two years. Currently spinning players
are operating at utilisation levels of around 95%. Going ahead,
we expect these player to expand capacities, thereby benefiting
LMW. Order inflow for 9MFY2011 for LMW has been around
`2,300cr, which is more than three times the total order inflow
in FY2010. This is indicative of the strengthening demand outlook
for the company.
Current valuations are attractive: At the CMP, the stock is trading
at attractive valuations of 11.9x FY2012E EPS and 2.2x FY2012E
BV. We have valued the stock at P/E of 16.0x FY2012E EPS and
arrived at a target price of `2,891. We have a Buy rating on the
stock.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
LMW has significant competitive advantages: Lakshmi Machine
Works (LMW) is the second largest player in the world in the
textile spinning machinery segment, behind Rieter. Being the
market leader in India, the second largest market for spinning
machinery in the world, gives LMW strong advantages. It has
been providing its customers with strong service and world class
technology at cheapest rates. The company has service centres
at all textile hubs across the country, addressing clients' problems
within 24 hours of complaint. It services around 1300 clients out
of a total universe of 1600 in India.
LMW has proven its technological prowess by developing its
products through in-house R&D over the last 15 years. The
company spends about 1% of its revenues on R&D annually,
making its R&D expense comparable to global peers. The
machinery with the highest number of spindles being
manufactured in India is LMW's LR9 series of machines,
developed in-house. LMW also has a cost advantage over its
European peers who have set up manufacturing plants in India,
on the back of its cheaper historical asset cost and backward
integration.
Strong order book position; improving business outlook: LMW
has a strong order book of `4,100cr, which is to be executed
over 12-14 months. Recently, there has been a demand upturn
in the yarn spinning industry, backed by a strong increase in
yarn prices over the past two years. Currently spinning players
are operating at utilisation levels of around 95%. Going ahead,
we expect these player to expand capacities, thereby benefiting
LMW. Order inflow for 9MFY2011 for LMW has been around
`2,300cr, which is more than three times the total order inflow
in FY2010. This is indicative of the strengthening demand outlook
for the company.
Current valuations are attractive: At the CMP, the stock is trading
at attractive valuations of 11.9x FY2012E EPS and 2.2x FY2012E
BV. We have valued the stock at P/E of 16.0x FY2012E EPS and
arrived at a target price of `2,891. We have a Buy rating on the
stock.
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