Lakshmi Precision Screws - Rs.60.00

Founded in 1972, Lakshmi Precision Screws (LPS) Ltd. is the second largest manufacturer and exporter of fasteners. It is the undisputed leader in certain specialized products like Durock Bolts, Wheel/hub bolts, Flange bolts, Connecting rod bolts, gear shafts, axles, studs etc. It produces a wide range of cold forged high tensile fasteners of over 6,000 varieties. These products are engineered as per respective international standards under ISO, ANSI / ASME, BS, JIS, DIN, etc. It is a single window for all fastening solutions for a wide range of industries like automobiles, tractors, earthmoving equipments, general industrial machinery, aviation, etc. LPS has a reputed large clientele like Tata Motors, Maruti, Bajaj Auto, Hero Honda, M&M, Godrej & Boyce, Voltas, BHEL, Greaves Cotton etc. and global giants like Volvo, Bosch, John Deere, Cummins, Textron, Visteon, F. Reyher to name a few. LPS has become the first Company of its kind in India to get TS16949:2002 certification.

LPS has two manufacturing units spread across 1,00,000 sq. metres in Rohtak, Haryana. Currently, its installed capacity stands at 14,500 MT but is working at a 75 per cent capacity utilization, which is being enhanced since the automobile industry, which contributes about 60 per cent of the total fastener demand, has been in an aggressive growth mode. In fact, LPS is expanding installed capacity by 7,500 MT taking it to 22,000 MT over the next three years with a total capex of Rs30 cr. It also intends to grow inorganically and is eyeing acquisitions in India and abroad for supplying to major OEMs worldwide. It finds exports a huge opportunity and is seriously concentrating on American & Europe markets. It has entered into synergistic cold forged auto components such as axles, engine components, shafts, piston pins etc., which have the potential to overtake fasteners sales since their market size is much larger. LPS has a 49:51 JV with the Switzerland based Bossard AG for select applications in electrical and electronics and also has an agreement with Textron of USA for marketing their TORX brand of proprietary products, which provide solutions to fastener assembly problems. LPS also is the sole distributor of Recoil tool kits of Alcoa of USA, which ensures better performance of fasteners.

The fastener industry is on a strong growth path due to the increasing demand from the auto sector, industrial segment, replacement market and exports. Of its total sales, 40% is to domestic OEMs, 25% in replacement markets and 35% in exports. Going forward, the company plans to improve on its profit margins through cost reduction and higher productivity. For the quarter ending 31st Dec 2004, its Sales grew by 35% to Rs38 cr. and NP more than doubled to Rs1.50 cr. resulting in a quarterly EPS of Rs2.50. Although input cost is increasing, LPS will improve its margin due to better product mix and may end FY05 with a total turnover of Rs140 cr. and NP of little more than Rs5 cr. This works out to an EPS of around Rs8.50 on its small equity of Rs6.02 cr. Thus this auto ancillary stock is trading quite cheap at 7 PE with a book value of around Rs60. In FY06, it is expected to perform much better and may report an EPS of Rs12 and its share price can double in 15 months. A perfect long term bet.