Well poised to seize textile opportunity!!! Lakshmi Machine Works :: ICICI Securities, link

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Well poised to seize textile opportunity!!!
We recently met the management of Lakshmi Machine Works (LMW) to
understand the growth in both domestic as well as global textile
machinery segments. Globally, LMW is the fourth largest player in the
textile machinery segment with 10% market share in ring frame
technology while in the domestic market it commands nearly 65% market
share by volume. LMW has three main segments, the textile machinery
division (TMD), machine tools division (MTD) and the advanced
technology centre (ATC) besides the foundry and the windmill division. At
| 3200 crore, more than 90% of the order book comes from the TMD
segment followed by the MTD segment at | 90 crore. LMW has a healthy
export order book of ~| 170 crore with clients in selected geographies
such as Indonesia, Bangladesh, Thailand, Pakistan and some African
countries. LMW’s revenue posted steady growth at ~20 CAGR over FY10-
14 while EBITDA posted growth of 9% over the same period. However,
the EBITDA margin during the period contracted from 17% in FY10 to
11.6% in FY14 as the company tries to maintain its market share and has
resisted an increase in product price. PAT for LMW posted a healthy
CAGR of ~17% over FY10-14 buoyed by increased other income.
TMD provides strong base; exports to guide growth
The Indian spindle shipment is expected to grow at a CAGR of ~6% over
2011-15E with current capacity of 52 million spindles countrywide. TMD
with | 3200 crore order book forms the bed rock for LMW. The order
book for TMD remains evenly distributed in the north, south and west at
35%, 35% and 30%, respectively. Capex growth in the spinning segment
has remained sluggish in the past few years. Consequently, 50% of the
order book for TMD segment remains slow moving but any pick-up in
capex activity of spinners is expected to provide considerable volume
delta to LMW. Further, with growth in exports to multiple geographies like
Indonesia, Turkey, Bangladesh, etc, the export segment is expected to
grow at 15-20% YoY. Also, a segment like MTD is showing considerable
traction and is expected to record growth of nearly 10-12%.
Sturdy balance sheet, pick-up in export provide cushion
LMW’s unlevered balance sheet and healthy FCF provide cushion against
a slow moving order book. Further, high level of cash and strong
networth growth (12% CAGR in the past eight years) provide muscle to
hold prices in the industry thereby maintaining leadership. Also, the
return ratios, RoE & RoCE improved over the past year to 17% and 15%
from 13.5% and 11.3%, respectively. Going ahead, exports are expected
to grow at 15-20% besides growth in the TMD and MTD segment by 10-
12% in the next couple of years.

LINK
http://content.icicidirect.com/mailimages/IDirect_LakshmiMachine_MgmtNote.pdf