Mumbai: Textiles machinery maker Lakshmi Machine Works Ltd (LMW) is likely to face margin pressure and is aiming at a modest growth in FY09 revenue as it combats rising input costs, particularly steel.
The Coimbatore-based company is targeting year-on-year revenue growth of 10 %, but is not looking at any growth in annual profits, chief financial officer R Rajendran told Reuters after an analyst meet late on Wednesday.
“We will try and maintain our profitability in the coming year,” Rajendran said.
For FY08, the company had posted a 17.5% rise in profit to Rs2,423 million. But higher depreciation charges and input costs hurt its fourth quarter profit.
A price revision to pass on the cost push to customers was on the cards, but Rajendran did not give a timeframe for the move.
“We are likely to see a squeeze on margins,” J Sridhar, Senior General Manager of Finance, said without quantifying the impact.
The company, which is cutting costs by reducing headcount and stepping up automation, is setting up a greenfield machine manufacturing plant near Shanghai in China to gain pricing advantage. This will be a wholly-owned subsidiary.
“LMW will be able to procure castings and spindles at competitive rates in China, and supply technological parts from India to its unit in China,” Rajendran said.
“The China project is expected to start contributing to revenue from 2009-2010,” noted Sridhar. The company has planned an initial investment of up to $20 million for the project.
Rajendran said the company may invest more depending on the success of the project.
“The company’s month-on-month order inflow decreased since last September, and it recieved most of its orders in the first half of FY08,” Rajendran said.
The company said it is unlikely to face any cancellation of orders in the coming year, but may have to downsize some of its orders to meet the reduced requirements of customers.
“The order book inflow has become slower, though its definitely not drained out, we are still getting orders worth Rs30 - 40 crore a month,” Rajendran said. “We are agreeing for downsizing some orders,” he added.
The company’s FY08 order book stood at Rs44 billion versus Rs53 billion in the previous year. Shares of the company were down 0.85% at Rs1,660 in a weak Mumbai market.