LMW is a conservatively managed company that is not willing to take undue risks
21-Oct-2013 •Research Desk
Most of the current investors may not know much about this nondescript Rs 2,000 crore company called Lakshmi Machine Works (LMW). Yet LMW is no pushover. It is one of the world's only three textile machinery manufacturers that produces the entire range of spinning machinery and has a market share of 65 per cent in yarn spinning machinery in India.
Why does LMW find a place here? India's textile sector is huge. It accounts for 14 per cent of the country's industrial production and employs heads in the millions. Yet the sector has been mired in one crisis after another for many years now -- insufficient power, a rapidly declining manpower, antiquated infrastructure and government apathy. The shelling in the sector and flurry of FII exits from smaller cap stocks has seen FII shareholding in LMW fall from 4.47 per cent to 1.16 per cent in the last 12 months.
Should you follow the FII route?
Government has started moving in support of the sector through measures like the extension of Technology Up-gradation Fund (TUF) scheme to the 12th Five Year Plan period, enhanced fund allocation for textile parks and the removal of excise duty on readymade garments and higher allocations.
But the first thing to bear in mind is that textile and its allied companies are highly cyclical in nature. When the textile cycle is down, it will remain in the dumps for many years together. So do not invest in LMW if you expect a quick doubling of your investment -- it will not happen -- not in a month, not even in a year or two.
LMW is a slow mover. Those looking for a conservatively managed company that is not willing to take undue risks can still invest in LMW. RoCE has averaged at 20 per cent over the past five years and the current cash balance amounts to 37 per cent of LMW's market price. Hold.