Lokesh Machines Ltd - 94.00 Rs

Established in1983 and promoted by Mr. Lokeshwara Rao - first generation entrepreneur & technocrat, Lokesh Machines Ltd (LML) is engaged in the design, development and manufacture of custom built special purpose machines(SPM) and general purpose CNC (computerized numerical controls) machines along with their components. From a modest beginning by handling job works, today company has emerged as an integrated machine tool manufacturer with operations in two main business segments namely machine tools and auto parts. Over a period LML has developed various range of SPMs including single and multi spindle machines, shuttle type, way type, linear and rotary indexing machines, linear transfer lines etc. Under the CNC segment, it manufactures horizontal and vertical machining centre, turning centre, milling and boring machines etc. And in the auto component sector, it has been concentrating on manufacturing / machining auto components like cylinder blocks, cylinder heads etc to original equipment manufacturers. Hence LML primarily caters to customers in the auto OEM, auto ancillaries and general engineering space. Presently, company derives 70% revenue from machining division whereas rest 30% comes from auto component division.

LML has five manufacturing units all located in Andhra Pradesh and under technical association with Grob Gmbh-Germany, Fagima-Italy, SCMS-Japan, AVM Angelini-Italy, Wenig Wemas-Germany & IMT Intermato-Italy. In the domestic market company supplies mainly to M&M, Ashok Leyland, Force Motors, Cummins, Tata Motors, Bajaj Auto, Bharat Forge, Kirloskar Oil Engines, Everest Kanto Cylinders etc. LML has a capacity for machining and supply of 1,20,000 units per annum each of cylinder blocks and cylinder heads, especially for M&M. And recently, it has set up an additional facility for machining of 40,000 units per annum each of cylinder blocks and cylinder heads, especially for Ashok Leyland. After successful trial runs, the production at this facility has commenced only from April 2007. Off late, LML has also made a foray in the overseas markets with orders from M/s FPT Industries Spa-Italy, Honda Motorcycles-Japan and HOWA-Japan. Further, its technical partner Wenig Wemas-Germany has also placed initial order of 100 machines worth 20 cr. So going forward company is looking to gradually increase its share from international market as well.

In April 2006, LML came out with an IPO at Rs.140 per share and raised Rs.42 cr. This entire proceed has been utilized for setting up new facility for Ashok Leyland and also to meet the cost of modernization and to upgrade the existing facilities for the manufacture of CNC machine tools. Financially, company is doing well and reported a sales and NP of 90 cr and 10.80 cr respectively for FY07. Hence it posted an EPS of more than 9 Rs on equity of 11.80 cr. For Q1FY08, it recorded 35% growth in sales to 19 cr whereas NP increased by 25% to 2.90 cr. The continuing growth in the domestic demand for machine tools both in the capital goods and auto component sectors offers an opportunity for further progress. Accordingly for FY08 it is expected to clock a turnover of 110 cr and PAT of 15 cr i.e. EPS of 13 Rs on equity of 11.80 cr. Therefore, the scrip is currently trading at a P/E ratio of merely 7x times which is extremely cheap for such a fast growing engineering company. Considering its 52 week H/L as 181/79 Rs and IPO price of 140 Rs the downfall risk is minimal from current levels. Investors are strongly recommended to buy at current levels as at a modest discounting by 14x times scrip can double in 12~15 months.