The topline of Lloyd Electric (Lloyd) remained flat at Rs186.9 crore (Rs187.1cr) y-o-y, in Q1FY2010. However, it has grown by 7.3% on a sequential basis during the quarter.
The company improved its performance after suffering for a major part of last year, due to a sluggish demand for white goods on account of the overall economic slowdown.
FY2009 sales had, in fact, declined by 12%. We expect the demand for Air Conditioners (AC) to remain at the current levels in the future also, and have factored in a lower volume growth into our model.
For Q1FY2010, the net profit declined by 29.6% to Rs10.3 crore (Rs14.6cr). The decline in the net profit is primarily due to a flattish topline and the pressure on the OPM.
Moreover, the pain was aggravated by an increase in the interest cost, which increased by 13.7% and by a decrease in the other income by 26.2% y-o-y.
However, we foresee that the interest costs would reduce going ahead, in line with the overall measures taken by the RBI to ease liquidity, which would benefit the company.
Lloyd is the largest manufacturer of AC coils in India and also manufactures completely built units of ACs on a contract basis. Most of the AC manufacturers in India feature in the client list of Lloyd.
The penetration of ACs is very low in India, at approximately 1.5 - 2%, compared to approximately 20% in developed countries, which will continue to drive the Sales of ACs in India.
Further, during FY2009, the company has acquired a plant in Czech, from Luvata, which would give Lloyd a foothold in Europe and add to its topline and bottomline.
The company has registered a flattish Top-line and de-growth in its Bottomline during 1QFY2010, primarily due to the tight liquidity scenario and a slowdown in the white goods segment.
The development of the new plant at JNPT, near Mumbai, has not been up to the mark during the quarter. But, due to the slower-than-expected demand, the company is not likely to face any capacity constraints in the short term.
Moreover, the company would save on depreciation and set up costs of the new plant, which is likely to be beneficial in the current scenario.
At the CMP, the stock trades at 4.3x its FY2011E EPS. The company enjoys excellent positioning in the AC market in India, and we believe that the stock has a limited downside from its current level.
Thus, we maintain a BUY view on Lloyd, with a revised target price of Rs48 (Rs40).