Analysts' corner: Lakshmi Machine Works

Emkay Securities recommends a "hold" on Lakshmi Machine Works. LMW continues to witness robust addition to its order book and has accordingly increased its delivery period to 22 months for projects and 26 months for unitary sales. Reduction in duties and softer raw material prices are expected to improve the margins in FY07.

Acquisition of Jeetstex and installation of mother machines in FY06-FY07, will increase the spindle capacity from 1.8 mn to 2.7 mn by the end of FY07. Revenues as per the company are expected to increase by 30-35% in FY07 and further 10-15% in FY08.

At present the company has an outstanding order book of Rs 3,200 crore. The addition in the order book has been mainly on account of the new projects (mainly cotton), which now constitute 65-70% of the total order book.

Suryalakshmi Cotton Mills

Angel Broking gives a "buy" call on Suryalakshmi Cotton Mills. SCML is implementing its Rs 120-crore capex plan in the current fiscal to expand its denim capacity from 20 mn meters per annum to 40 mn meters per annum.

The company has witnessed a margin expansion of 14.1% on a y-o-y basis and recorded an impressive Q3 FY06 performance on the back of de-merger of the low-margin spinning division at Mehbubnagar and new capacities coming onstream.

But the margins on a sequential basis declined on account of lower realizations in denim, which declined from Rs 94 in Q2 FY06 to Rs 90 in Q3 FY06.

Besides, a sequential 384 bps increase in other overheads also affected the margins adversely. A further significant fall in the realizations is not expected.

Precot Mills

Emkay Research, in its visit note on Precot Mills, notes that the company, a partial vertical integrated player with presence in spinning and weaving, is planning forward integration into garmenting through acquisition of a garmenting business or setting up a greenfield garmenting capacity.

It has an installed base of 121,000 spindles and 88 looms for woven fabric and has recently acquired a group company, Meridian Industries, which has 33,000 spindles.

This acquisition will broaden the product mix of Precot with exposure to knit yarn. It plans to increase the capacity under Meridian by another 30,000 spindles by end of FY07.

Going forward with capacity expansions, Meridian absorption and focus towards value added segments will drive the company's revenues and margins.

The company has manufacturing units in four southern states; Kerala, Andhra, Tamil Nadu and Karnataka. The company has a presence in the entire count range from 10s to 100s and manufactures both cotton and polyester sewing thread.