The quarter was characterised by sequential revenue contraction, compressed profitability margins, and an unusually high effective tax rate of 50.34%, which significantly eroded bottom-line performance. Net sales declined 7.74% sequentially to ₹758.24 crores from ₹821.88 crores in Q2 FY26, whilst also registering a marginal 1.07% year-on-year decline from ₹766.43 crores in Q3 FY25. This marks a concerning trend for a company that historically demonstrated robust growth trajectories in the textile machinery space.
The stock, trading at ₹14,572 as of January 28, 2026, has remained relatively resilient despite the weak quarterly performance, posting a modest 0.08% gain on the day. However, the broader picture reveals underlying weakness, with the stock down 2.45% over the past year and underperforming the Sensex, which gained 8.49% during the same period. The company's shares are currently trading below all key moving averages, reflecting bearish technical sentiment that aligns with deteriorating fundamentals.
| Quarter | Dec'25 | Sep'25 | Jun'25 | Mar'25 | Dec'24 | Sep'24 | Jun'24 |
|---|---|---|---|---|---|---|---|
| Net Sales (₹Cr) | 758.24 | 821.88 | 694.14 | 803.63 | 766.43 | 768.99 | 672.96 |
| QoQ Growth | -7.74% | +18.40% | -13.62% | +4.85% | -0.33% | +14.27% | — |
| Net Profit (₹Cr) | 14.66 | 40.92 | 11.47 | 47.82 | 19.30 | 24.46 | 11.02 |
| QoQ Growth | -64.17% | +256.76% | -76.01% | +147.77% | -21.10% | +121.96% | — |
| PAT Margin (%) | 1.93% | 4.98% | 1.65% | 5.95% | 2.52% | 3.18% | 1.64% |
| Operating Margin (%) | 5.49% | 5.36% | 1.98% | 7.21% | 4.67% | 4.19% | 1.97% |
Financial Performance: Margin Compression and Tax Headwinds
The third quarter of FY2026 exposed significant operational challenges at LMW, with profit before tax declining sharply to ₹29.52 crores from ₹54.92 crores in Q2 FY26, representing a 46.24% sequential contraction. Year-on-year, PBT fell 25.98% from ₹39.88 crores in Q3 FY25. The quarter's most alarming feature was an effective tax rate of 50.34%, substantially higher than the 25.49% recorded in Q2 FY26 and the 31.97% average tax ratio. This tax anomaly alone accounted for a significant portion of the profit decline, with tax outgo rising to ₹14.86 crores despite lower pre-tax profits.
Operating performance showed marginal improvement, with operating profit excluding other income rising to ₹41.65 crores from ₹44.05 crores in Q2 FY26, though this represented a sequential decline of 5.45%. Operating margins excluding other income improved slightly to 5.49% from 5.36%, suggesting some stabilisation in core operations. However, gross profit margins contracted to 7.89% from 10.35% in the previous quarter, indicating pricing pressures or unfavourable product mix shifts in the textile machinery segment.
Employee costs remained elevated at ₹94.70 crores, though marginally lower than ₹98.60 crores in Q2 FY26, representing 12.49% of net sales. The company's ability to manage fixed costs becomes increasingly critical as revenue growth remains elusive. Depreciation charges stood at ₹30.29 crores, continuing an upward trajectory that reflects ongoing capital investments in manufacturing capabilities and technology upgrades.
On a nine-month basis for FY2026, the company reported net sales of ₹2,274.26 crores, representing a modest 3.26% year-on-year growth from ₹2,208.38 crores in the corresponding period of FY2025. However, net profit for the nine-month period stood at ₹67.05 crores, marking a 21.78% increase from ₹55.03 crores in 9M FY25, suggesting that the third quarter's weakness was particularly acute and not representative of the full year-to-date performance.
Critical Concern: Tax Rate Anomaly
The effective tax rate of 50.34% in Q3 FY26 stands out as a major red flag, nearly double the company's historical average of 31.97%. This suggests either one-time tax adjustments, disallowed expenses, or other non-recurring factors that require clarification from management. Such tax volatility significantly impacts earnings predictability and complicates valuation analysis for investors.
Operational Challenges: Weak Returns and Efficiency Concerns
LMW's return on equity (ROE) averaged 9.95% over recent periods, falling short of the double-digit threshold typically expected from quality industrial manufacturers. The latest ROE of 4.25% for the most recent period marks a significant deterioration, reflecting the compressed profitability witnessed in recent quarters. This weak ROE performance places LMW at a competitive disadvantage compared to peers in the industrial manufacturing sector, where companies like Jyoti CNC Automation achieve ROE levels of 18.64%.
Return on capital employed (ROCE) averaged 15.04% historically, indicating reasonable capital efficiency during normalised periods. However, the latest ROCE of 3.18% represents a dramatic decline, underscoring the challenges in generating adequate returns from deployed capital. This deterioration is particularly concerning given LMW's zero-debt status and substantial cash reserves of ₹1,409.15 crores, which should theoretically enable higher returns through strategic investments or expansion initiatives.
The company's balance sheet remains fundamentally strong, with shareholder funds of ₹2,777.42 crores as of March 2025 and zero long-term debt. This fortress balance sheet provides significant financial flexibility and insulates the company from interest rate risks. However, the inability to translate this financial strength into superior operational returns raises questions about capital allocation efficiency and growth strategy execution.
Working capital management presents mixed signals, with the debtors turnover ratio declining to 13.31 times on a half-yearly basis, marking the lowest level in recent periods. This suggests either lengthening credit cycles to customers or potential collection challenges in the textile machinery market. Current assets stood at ₹2,640.34 crores against current liabilities of ₹1,006.01 crores, providing a comfortable current ratio of 2.63, though this has marginally improved from previous periods.
Other Income Dependency: A Double-Edged Sword
Other income constituted 72.31% of profit before tax in Q3 FY26, highlighting excessive dependence on non-operating income sources. Whilst other income of ₹29.66 crores provides cushioning to bottom-line performance, this reliance masks underlying weakness in core manufacturing operations. For a company of LMW's stature, such high dependency on treasury income, dividends, or other non-operational sources raises concerns about the sustainability of reported earnings and the health of the core textile machinery business.
Industry Context: Navigating Textile Sector Headwinds
LMW operates in the textile machinery manufacturing space, serving primarily Indian textile mills with spinning technology solutions. As one of only three global manufacturers offering the complete range of textile machinery, LMW enjoys a unique competitive position. However, the company's recent performance reflects broader challenges in the Indian textile sector, including muted capital expenditure by textile mills, competitive pressures from Chinese machinery imports, and cyclical demand patterns.
The company's diversification into CNC machine tools, heavy castings, and aerospace components provides some insulation from textile sector volatility. However, the textile machinery segment remains the primary revenue driver, and any prolonged weakness in textile mill capital expenditure directly impacts LMW's order book and revenue visibility. The marginal year-on-year revenue decline in Q3 FY26 suggests that demand recovery in the textile sector remains elusive.
LMW's market leadership in the industrial manufacturing sector, with the largest market capitalisation among peers at ₹15,580 crores, reflects investor confidence in its long-term franchise value. However, maintaining this leadership position requires consistent execution, margin improvement, and successful navigation of cyclical industry dynamics. The company's five-year sales compound annual growth rate of 19.40% demonstrates historical growth capability, but sustaining this trajectory in the current environment poses significant challenges.
| Company | P/E (TTM) | P/BV | ROE (%) | Debt/Equity | Div Yield (%) |
|---|---|---|---|---|---|
| LMW | 129.44 | 5.50 | 9.95 | -0.62 | 0.21 |
| Honeywell Automation | 54.23 | 6.68 | 13.84 | -0.82 | 0.33 |
| Kaynes Technology | 61.79 | 5.00 | 9.72 | -0.04 | — |
| Jyoti CNC Automation | 55.14 | 10.43 | 18.64 | 0.29 | — |
| Jupiter Wagons | 48.28 | 4.96 | 13.69 | 0.02 | 0.31 |
| Syrma SGS Technology | 60.65 | 4.96 | 7.32 | -0.15 | 0.21 |
The peer comparison reveals LMW's valuation premium, with a P/E ratio of 129.44x significantly exceeding the peer average of approximately 56x. This elevated multiple appears difficult to justify given LMW's inferior ROE of 9.95% compared to peers like Jyoti CNC Automation (18.64%) and Honeywell Automation (13.84%). Whilst LMW's zero-debt status provides comfort, the price-to-book ratio of 5.50x also trades at a premium to most peers, suggesting limited margin of safety at current valuations.
Valuation Analysis: Premium Pricing for Mediocre Performance
LMW currently trades at a trailing twelve-month P/E ratio of 129.44x, placing it in "very expensive" territory according to proprietary valuation metrics. This represents a significant premium to the industrial manufacturing sector average P/E of 73x, and more than double the peer group average. The elevated multiple reflects historical franchise value and market leadership position, but appears increasingly disconnected from current operational performance and profitability trends.
The price-to-book ratio of 5.50x suggests investors are paying ₹5.50 for every rupee of book value, which stands at ₹2,600.58 per share. Whilst this premium is somewhat justified by the company's zero-debt balance sheet and strong asset base, the deteriorating ROE of 4.25% in the latest period makes this valuation multiple difficult to rationalise. Typically, companies commanding P/BV multiples above 5x demonstrate ROE levels exceeding 20%, which LMW falls far short of achieving.
Enterprise value multiples paint an even more concerning picture, with EV/EBITDA at 91.08x and EV/EBIT at 408.54x, both reflecting the compressed profitability in recent quarters. The EV/Sales multiple of 4.47x appears elevated for a cyclical industrial manufacturer, particularly one experiencing revenue stagnation. These metrics collectively suggest that the stock has built in significant growth and margin expansion expectations that current fundamentals fail to support.
The dividend yield of 0.21% provides minimal income attraction for investors, with the latest dividend of ₹30 per share representing a conservative payout ratio of 21.44%. Whilst the low payout ratio suggests room for dividend growth, the recent earnings decline raises questions about dividend sustainability. The stock currently trades 19.89% below its 52-week high of ₹18,190 and 8.29% above its 52-week low of ₹13,456.85, indicating significant volatility and uncertainty around fair value assessment.
Shareholding Pattern: Institutional Caution Evident
Promoter holding remained stable at 30.80% in Q3 FY26, unchanged from the previous quarter but marginally lower than the 31.13% held in March 2025. The promoter group, led by entities such as Lakshmi Cargo Company Ltd (10.08%) and Lakshmi Technology And Engineering Industries Ltd (6.52%), maintains significant skin in the game with zero pledging of shares. This provides comfort regarding governance and alignment of interests, though the modest promoter stake leaves substantial room for potential dilution or acquisition scenarios.
Foreign institutional investor (FII) holdings declined marginally to 5.47% in Q3 FY26 from 5.53% in Q2 FY26, continuing a gradual downward trend from 5.91% in March 2025. This sequential reduction, though modest, signals waning foreign investor confidence in LMW's near-term prospects. With 93 FII entities holding stakes, the diversified foreign investor base provides liquidity but also suggests limited conviction from any single large foreign institution.
| Shareholder Category | Dec'25 | Sep'25 | Jun'25 | Mar'25 | QoQ Change |
|---|---|---|---|---|---|
| Promoter | 30.80% | 30.80% | 30.80% | 31.13% | 0.00% |
| FII | 5.47% | 5.53% | 5.81% | 5.91% | -0.06% |
| Mutual Funds | 2.88% | 2.88% | 2.96% | 2.80% | 0.00% |
| Insurance | 6.82% | 6.83% | 6.83% | 6.83% | -0.01% |
| Other DII | 0.08% | 0.08% | 0.07% | 0.01% | 0.00% |
| Non-Institutional | 53.95% | 53.88% | 53.53% | 53.32% | +0.07% |
Mutual fund holdings remained flat at 2.88% in Q3 FY26, with only 10 mutual fund schemes holding positions in the stock. This limited domestic institutional participation reflects cautious sentiment among professional fund managers, who appear to prefer other opportunities in the industrial manufacturing space. Insurance company holdings also remained largely stable at 6.82%, showing minimal change quarter-on-quarter.
The non-institutional shareholding category, comprising retail and high-net-worth individuals, increased marginally to 53.95% from 53.88% in Q2 FY26. This substantial retail holding base of nearly 54% provides stability but also suggests limited institutional sponsorship. The overall institutional holding of 15.25% appears modest for a company of LMW's market capitalisation, indicating that the stock remains under-owned by professional investors who may be waiting for clearer signs of operational improvement before building meaningful positions.
Stock Performance: Bearish Technicals Align with Weak Fundamentals
LMW's stock performance over the past year reflects the underlying business challenges, with shares declining 2.45% compared to the Sensex's 8.49% gain, resulting in negative alpha of 10.94 percentage points. The underperformance accelerates over shorter timeframes, with the stock down 7.62% over three months versus the Sensex's 2.70% decline, and down 4.45% over six months against the benchmark's 1.80% gain.
Technical indicators paint a uniformly bearish picture, with the stock currently in a "bearish" trend that commenced on January 7, 2026 at ₹14,599.75. The shares trade below all key moving averages, including the 5-day MA (₹14,061.14), 20-day MA (₹14,490.02), 50-day MA (₹14,884.22), 100-day MA (₹14,982.34), and 200-day MA (₹15,534.79). This alignment of moving averages in descending order creates significant overhead resistance and suggests continued near-term pressure.
| Period | Stock Return | Sensex Return | Alpha |
|---|---|---|---|
| 1 Week | +6.13% | +0.53% | +5.60% |
| 1 Month | -2.18% | -3.17% | +0.99% |
| 3 Months | -7.62% | -2.70% | -4.92% |
| 6 Months | -4.45% | +1.80% | -6.25% |
| 1 Year | -2.45% | +8.49% | -10.94% |
| 3 Years | +31.47% | +38.79% | -7.32% |
| 5 Years | +187.07% | +75.67% | +111.40% |
The stock's beta of 1.35 indicates higher volatility than the broader market, with a volatility measure of 28.39% compared to the Sensex's 11.24%. This elevated volatility, combined with negative returns, places LMW in the "medium risk low return" category—an unfavourable risk-reward profile for investors. The one-week return of 6.13% represents a technical bounce rather than a trend reversal, as the stock remains well below key resistance levels.
Long-term performance metrics provide some solace, with five-year returns of 187.07% significantly outpacing the Sensex's 75.67% gain, generating positive alpha of 111.40 percentage points. Similarly, ten-year returns of 315.27% versus the Sensex's 236.52% demonstrate LMW's historical wealth-creation capability. However, these long-term gains increasingly reflect past glory rather than current momentum, with recent performance deterioration raising questions about the sustainability of the long-term outperformance trend.
Investment Thesis: Multiple Headwinds Cloud Near-Term Outlook
LMW's investment proposition faces significant challenges across multiple dimensions. The proprietary Mojo Score of 30 out of 100 places the stock firmly in "sell" territory, reflecting concerns about valuation, financial trends, and technical momentum. The quality grade of "average" suggests that whilst the company maintains certain strengths, it no longer commands the premium quality status it once enjoyed.
The valuation assessment of "very expensive" creates limited margin of safety for investors, particularly given the deteriorating operational performance. With a P/E ratio of 129.44x and compressed profitability margins, the stock appears to be pricing in a recovery scenario that current trends do not support. The financial trend classification of "flat" for Q3 FY26 masks underlying weakness, as the quarter witnessed significant profit decline despite modest revenue stability.
Technical indicators uniformly point to bearish sentiment, with the stock trading below all moving averages and multiple technical indicators flashing negative signals. The MACD shows bearish readings on both weekly and monthly timeframes, whilst Bollinger Bands indicate mildly bearish to bearish conditions. The KST indicator similarly reflects bearish momentum, and on-balance volume trends suggest distribution rather than accumulation.
KEY STRENGTHS ✅
- Zero-Debt Balance Sheet: Complete absence of long-term debt provides financial flexibility and eliminates interest rate risk, with net cash position reflected in negative debt-to-equity ratio of -0.62.
- Strong Cash Reserves: Cash and cash equivalents of ₹1,409.15 crores on a half-yearly basis provide significant cushion for capital allocation, acquisitions, or weathering cyclical downturns.
- Market Leadership Position: Largest company in industrial manufacturing sector with market cap of ₹15,580 crores, one of only three global manufacturers offering complete textile machinery range.
- Diversified Revenue Base: Presence across textile machinery, CNC machine tools, heavy castings, and aerospace components reduces dependence on single segment.
- No Promoter Pledging: Zero pledged shares demonstrate promoter confidence and eliminate refinancing risks.
- Long-Term Growth Track Record: Five-year sales CAGR of 19.40% and EBIT CAGR of 19.63% demonstrate historical execution capability.
- Strong Interest Coverage: Average EBIT to interest coverage of 100x reflects negligible debt servicing burden.
KEY CONCERNS ⚠️
- Deteriorating Profitability: Net profit declined 64.17% QoQ and 24.04% YoY in Q3 FY26, with PAT margin compressing to 1.93% from 4.98% in previous quarter.
- Tax Rate Volatility: Effective tax rate of 50.34% in Q3 FY26 significantly exceeded historical average of 31.97%, raising questions about sustainability and one-time adjustments.
- Weak Return Metrics: Latest ROE of 4.25% and ROCE of 3.18% fall well short of cost of capital, indicating poor capital efficiency.
- Excessive Other Income Dependency: Other income constituted 72.31% of PBT in Q3 FY26, masking weakness in core manufacturing operations.
- Valuation Disconnect: P/E ratio of 129.44x appears unjustified given deteriorating fundamentals, with stock trading at significant premium to peers and sector.
- Revenue Stagnation: Sequential revenue decline of 7.74% and marginal YoY decline of 1.07% in Q3 FY26 signal demand challenges.
- Limited Institutional Participation: Total institutional holding of only 15.25% suggests lack of professional investor conviction, with FII holding declining sequentially.
Outlook: What to Watch in Coming Quarters
The forward outlook for LMW hinges on several critical factors that will determine whether the third quarter represents a temporary blip or the beginning of a more sustained downturn. Management commentary on order book trends, particularly in the core textile machinery segment, will provide crucial insights into demand visibility. Any recovery in capital expenditure by Indian textile mills would serve as a positive catalyst, potentially driving revenue growth and margin expansion.
The unusually high tax rate in Q3 FY26 requires explanation and normalisation in subsequent quarters. If the 50.34% effective tax rate proves to be an aberration rather than a new normal, profitability could recover meaningfully even with modest revenue growth. Conversely, if tax-related headwinds persist, the earnings outlook would deteriorate further. Investors should closely monitor the effective tax rate in Q4 FY26 and management's guidance on normalised tax expectations.
POSITIVE CATALYSTS 📈
- Normalisation of tax rate to historical 32% levels would significantly boost net profit
- Revival in textile sector capital expenditure could drive order book growth
- Margin expansion from operating leverage as revenue scales up
- Successful execution of aerospace and CNC machine tool diversification strategy
- Deployment of ₹1,400+ crore cash for strategic acquisitions or capacity expansion
RED FLAGS 🚩
- Sustained high tax rates above 40% would severely impact earnings
- Further sequential revenue decline in Q4 FY26 would confirm demand weakness
- Continued compression in operating margins below 5% threshold
- Declining institutional holdings, particularly further FII exits
- Deteriorating working capital metrics, especially debtors turnover ratio
Margin trajectory remains critical, with operating margins of 5.49% in Q3 FY26 representing improvement from Q2's 5.36% but still well below the 7.21% achieved in Q4 FY25. The company's ability to sustain margins above 7% through pricing power, cost optimisation, or favourable product mix will determine profitability recovery. Gross margin compression to 7.89% from 10.35% sequentially suggests pricing pressures that need reversal for sustainable profit growth.
"With a P/E ratio exceeding 129x and deteriorating return metrics, LMW's valuation appears increasingly disconnected from operational reality, demanding either significant earnings recovery or valuation correction."
The Verdict: Challenging Risk-Reward at Premium Valuations
Score: 30/100
For Fresh Investors: Avoid initiating positions at current valuations. The combination of deteriorating fundamentals, elevated multiples, and bearish technical setup creates an unfavourable entry point. Wait for meaningful operational improvement and valuation correction before considering investment.
For Existing Holders: Consider reducing exposure, particularly for investors with significant gains from long-term holdings. The stock's 187% five-year return provides an opportune exit window before further deterioration. Maintain small positions only if conviction exists in long-term franchise value and cyclical recovery potential.
Fair Value Estimate: ₹11,500-12,500 (21-14% downside from current levels), based on normalised earnings of ₹110-120 crores annually and a more reasonable P/E multiple of 90-100x reflecting average quality status.
Rationale: The sell rating reflects multiple concerns including compressed profitability, elevated valuation multiples unjustified by current performance, weak return on equity metrics, and bearish technical indicators. Whilst the zero-debt balance sheet and market leadership position provide some comfort, these strengths are already priced in at 129x earnings. The sharp 64% quarter-on-quarter profit decline, combined with tax rate volatility and revenue stagnation, suggests near-term earnings visibility remains poor. Until operational metrics stabilise and valuation multiples moderate to more reasonable levels, the risk-reward equation favours caution.
Note- ROCE= (EBIT - Other income)/(Capital Employed - Cash - Current Investments)
⚠️ Investment Disclaimer
This article is for educational and informational purposes only and should not be construed as financial advice. Investors should conduct their own due diligence, consider their risk tolerance and investment objectives, and consult with a qualified financial advisor before making any investment decisions.
