Emkay Global Financial Services has maintained `Accumulate` on Lakshmi Machine Works with a price target of Rs 1,980 as against the current market price (CMP) of Rs 1,569 in its report dated Jan. 24, 2012. The broking house gave the following rationale:
Weaker than expected results:
LMW reported lower than expected results for Q3FY12. Revenue for the quarter stood at Rs5383mn (our est. of Rs 5,655 million) up 9.7% yoy. Revenue from Textile and machine tool segment grew by 11.0% and 3.1% yoy, respectively. 18.7% yoy increase in raw material cost led to lower than expected EBITDA. EBITDA for the quarter stood at Rs 687 million declining 9.1% yoy with EBITDA margin at 12.7% declining 263bps yoy. PAT at Rs 396 million declined 13.5% yoy, despite of 13.3% yoy growth in other income.
Order inflow moderates, order book at Rs 45 billion v/s Rs 47 billion in Q2FY12:
Order inflow during Q3FY12 has seen signs of significant moderation. Order inflow for the quarter stood at Rs 1.5 billion v/s Rs 2.2 billion in the last quarter. Order book at the end of quarter stood at Rs45billion v/s Rs 47 billion in Q2FY12. Order inflow for textile division was at Rs 600 million while for machine tool segment it stood at Rs 900 million. Order book at Rs 45 billion provides adequate revenue visibility for the next 18-24 months.
Price hikes unable to sustain cost pressures:
Management`s guidance of comfortably achieving +20% yoy revenue growth (stated in last quarter) looks optimistic so, we have cut our revenue estimate to 20% from 23% yoy growth earlier. After showing some resilience in the last quarter, EBITDA margin in Q3FY12 again declined primarily due to higher input costs and rupee depreciation. Price hike taken in the range of 3-7.5% in the start of current fiscal is unable to sustain the cost pressures. The management indicated that margins are likely to stay at current levels unlike its earlier guidance margin at 15% level (as reported in 2FY12).
Revision in estimates:
With the lower than expected revenue growth and significant margin contraction has led to revision in our estimates. We have revenue growth for current fiscal to 20.0% v/s 23% earlier. Considering higher raw material cost our EBITDA estimate gets revised downwards by 13.4%/13.8% for FY12E/FY13E. Our revised EBITDA margin stands at 13.7/14.1% for FY12/13E.
Maintain Accumulate with revised target price of Rs 1,980 (earlier Rs 2,466):
Maintain Accumulate rating on the stock with revised price target price of Rs 1.980, based on 8x FY13E core EPS of Rs137.4 and net cash of Rs 880 per share. At CMP of 1,553, LMW (Q,N,C,F)* trades at 10.4x and 8.9x FY12/13E EPS of Rs149.3/ 175.3.
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