Tuesday, May 20, 2008

LMW setting up plant in China

Coimbatore, May 19 Textile machinery manufacturing major Lakshmi Machine Works (D.Jayavardhanavelu Chairman and MD) plans to set up a greenfield project in China to manufacture textile spinning machinery.

“It would be a wholly owned subsidiary of LMW and only complement our operations,” LMW’s Chief Financial Officer, Mr Rajendran.

The company has identified three geographies and would select one, Mr Rajendran said, preferring not to reveal the location and estimated investment. He, however, indicated that the company would opt for an industrial park.

“Since the infrastructure in such industrial parks would be in place, though not according to our specifications, the gestation period will not be long. We envisage to kick start the operations in about a year and will start with one product,” he said.

He said the company proposed to mop up the investment partly through equity capital, loan assistance from LMW and borrowings in China.

Asked why China, Mr Rajendran said “it is the largest consumer of textile machinery with an installed spindleage of 90 million, compared to 38 million spindles in India. We cannot afford to keep out of China.”

Reverting to performance, he said the company has not effected a price revision in the last three years.

LMW posted a net profit of Rs 60 crore for the quarter ended March 2008 compared with Rs 68.62 crore the corresponding quarter of the earlier fiscal, its top line increased to Rs 603.99 crore (Rs 549.18 crore). The board recommended a final dividend of Rs 25 equity share of Rs 10 each for 2007-08 , taking the total to Rs 450 against Rs 400 a share in 2006-07.

Asked if the company was contemplating a price revision, Mr Rajendran said “we want to watch the steel price movement. It has not stabilised yet.”

Can LMW afford to maintain the price at the existing levels? “If there is an unabated increase in the cost of inputs, we would probably review. But, the prices are market-driven today and not based on production cost.”

To tide over such situations, the company constantly evolved and rolled out newer products. “Such roll outs add value and absorb a portion of the increase in cost,” he said.

LMW has exhibited three new products — both in the preparatory and spinning line — at the Munich show this year. These are expected to be introduced to the India market soon.
He admitted that the operational costs had gone up by 2- 2.5 per cent in the last one year, but VAT and deemed export due to EPCG benefit went a long way in helping the company tide over the crisis.

Mr Rajendran further said that LMW benefited from the interest earnings. The company has parked over Rs 500 crore in banks and the interest from these deposits “is better”.

In keeping pace with demand, the company has reduced its delivery period from 24 and 30 months to just about a year now. “We take about 8 to 10 months for projects and 4 to 8 months on unitary demand proposals. Invariably, we negotiate and refix delivery schedules.”

To a query on the market prospects, he said “we may not grow as in the past. TUF has been a driving force. We however are confident of maintaining our present market share of 60 to 63 per cent. The present lull is only a temporary phenomenon. The mills would have to eventually modernise, automate and upgrade their plant and machinery to sustain, grow and compete. And, we will introduce newer value added products at regular intervals.”

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