Established in 1962, Lakshmi Machine Works (LMW) is one of India’s largest textile machinery manufacturers. The company is primarily engaged into manufacturing Machine tools. LMW has 60% market share in the domestic Textile Spinning Machinery Industry. It manufactures spindles, rings, top rollers, flyers, cots & aprons and gears. The company caters to both domestic and international markets.
Valuation and view
LMW is the largest player in the textile industry enjoying benefits of big clients, cost competitiveness and a high cash balance on its books. Going forward we expect the company gain from the government thrust on the textile sector and increasing competitiveness of its existing clients.
We expect LMW’s net profit to grow by 8% during FY15-FY17E and the RoE and RoCE to stay at 15.1% and 20.9% respectively. At the current market price (CMP) of Rs. 3,577.0, the stock trades at a P/E multiple of 21.2x FY16E and 17.0x FY17E. We recommend ‘BUY’ with a target price of Rs. 4,289, assigning a forward P/E multiple of 22.0x, which implies a potential upside of ~20% to the CMP from 12 months perspective.
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