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Start with the business mix
Lakshmi Mills is primarily a yarn producer, with smaller cloth and garment activities and a significant rental-services and investment-asset component. CARE Ratings’ August 12, 2025 assessment said yarn generated 86.89% of FY2025 revenue, while cloth and garments contributed 13.11%. That mix makes the company sensitive to the textile cycle, but rental income and listed investments can materially change the value investors assign to the whole company.
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The annual report describes installed spinning capacity of 1.44 lakh spindles. CARE reported 133,392 spindles at March 31, 2025; the difference reflects the reporting measure and date, so utilization comparisons should use a consistent denominator. The directors’ report also said that yarn production and turnover were affected by adverse domestic and export markets and that plant utilization was based on market demand.
What the latest numbers say
| Measure | FY2024 | FY2025 | What it indicates |
|---|---|---|---|
| Revenue from operations | ₹25,296.90 lakh | ₹26,316.27 lakh | Operating revenue increased year over year. |
| Gross revenue | ₹26,101.04 lakh | ₹26,953.50 lakh | Total reported revenue improved, but not enough to ensure a profit. |
| Profit/(loss) after tax | (₹1,379.29 lakh) | (₹467.53 lakh) | The loss narrowed, but earnings remained negative. |
| Rental-services income | ₹1,648.10 lakh | ₹2,303.47 lakh | Property income grew and provided a more stable revenue stream. |
| Export yarn and fabric revenue | ₹4,415.47 lakh | ₹3,371.88 lakh | Export revenue fell about 23.63%, illustrating demand sensitivity. |
| PBILDT margin | 0.44% | 8.30% | CARE reported a substantial operating-margin recovery, though net profit was still negative. |
PBILDT means profit before interest, lease, depreciation and tax. It is useful for seeing the operating spread before financing and non-cash charges, but it is not a substitute for net profit or free cash flow. A company can report a better operating margin while still carrying losses if interest, depreciation, taxes, exceptional items or other costs absorb the improvement.
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1. Yarn prices versus fibre costs
The central textile variable is the spread between the price Lakshmi Mills receives for yarn and the cost of cotton or man-made fibre. Spinning has substantial fixed costs, including machinery, labour, energy and maintenance. When yarn realizations rise faster than fibre costs, each additional kilogram can add disproportionately to operating profit. When fibre costs rise first or yarn prices weaken, the same fixed-cost structure magnifies the damage.
Cotton exposure
CARE states that cotton and cotton-yarn prices are influenced by cultivation area, the monsoon and international demand and supply. A poor harvest, weather disruption or stronger overseas demand can lift raw-cotton costs. Conversely, abundant supply can reduce input prices, although yarn prices may also fall if customers have excess inventory. The timing of purchases and inventory held at the mill means a quarter’s reported margin may reflect earlier cotton costs rather than the spot price visible on the reporting date.
Polyester and crude-linked inputs
For polyester-staple-fibre lines, CARE identifies paraxylene-derived PTA, monoethylene glycol (MEG) and crude-oil prices as relevant drivers. A rise in crude can move the cost of PTA and MEG and therefore polyester fibre. Investors should separate cotton-spinning trends from synthetic-fibre trends instead of assuming that one commodity explains the entire margin.
What to monitor
- Yarn realization per kilogram and the product mix sold.
- Average cotton and polyester-fibre cost, including inventory timing.
- Gross or contribution spread between yarn selling prices and fibre costs.
- Energy, labour and maintenance cost per kilogram.
- Whether margin improvement persists for several quarters rather than appearing in one inventory cycle.
2. Domestic and export demand
Demand determines both selling prices and how many spindles run. The FY2025 directors’ report explicitly attributed lower yarn production to adverse domestic and export markets. Export yarn and fabric revenue dropped from ₹4,415.47 lakh to ₹3,371.88 lakh, approximately 23.63%. That decline shows why a company can have installed capacity available but still produce less when customers delay orders or carry excess stock.
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Domestic demand is affected by apparel consumption, retailer inventories, festival and wedding seasons and the health of downstream fabric and garment makers. Export demand adds currency movements, freight costs, destination-country economic conditions, trade policy and customer concentration. A weaker rupee can improve the local-currency value of exports but does not guarantee higher profit if overseas prices or volumes fall.
Useful indicators include new orders, dispatch volumes, customer inventory commentary, export volumes, receivable days and the split between domestic and overseas sales. Revenue growth caused solely by higher prices is less durable than growth supported by volume and repeat orders.
3. Spindle utilization and operating efficiency
With capacity reported at 1.44 lakh spindles in the directors’ report, utilization is a major earnings lever. Fixed conversion costs are spread over output: running more spindles at a healthy spread can lift margins quickly, while low utilization leaves wages, depreciation, maintenance and other overheads against fewer kilograms of yarn.
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Compare production and utilization quarter by quarter, using the same capacity definition. Also examine electricity consumed per kilogram, machine downtime, product quality claims, labour productivity and maintenance spending. The company’s statement that utilization was based on market demand means low utilization may be a rational response to weak prices rather than an equipment failure. The investment case improves when demand recovers and the company can raise output without a proportionate increase in fixed costs.
4. Rental property: the stabilizing cash-flow leg
Rental-services income increased from ₹1,648.10 lakh in FY2024 to ₹2,303.47 lakh in FY2025. CARE reports the FY2025 figure as ₹23.03 crore. It also says 2.49 lakh square feet was leased to tenants including Lulu Hypermarket, Pricol, Westside, ITC and Adidas, with contracts ranging from three to fifteen years.
Rent can reduce dependence on the spinning cycle, but it is not risk-free. The value of this stream depends on occupancy, contracted escalations, lease renewals, tenant credit quality, fit-out and maintenance costs, property taxes, vacancy periods and the capital required for new development. A long lease can provide visibility, while a large tenant concentration can make one renewal disproportionately important.
Questions for property analysis
- What percentage of the 2.49 lakh square feet is occupied and what is the expiry schedule?
- Are rent escalations contractual, and when do they take effect?
- How much rental cash flow remains after property operating costs and taxes?
- What capital expenditure is required for lease-rental-property development?
- Are new projects funded by operating cash, asset sales or additional borrowing?
5. Lakshmi Machine Works investment value and monetization
CARE reported that Lakshmi Mills held 4.85 lakh shares of Lakshmi Machine Works, representing 4.54% of that company. Using Lakshmi Machine Works’ market price on August 7, 2025, CARE valued the holding at ₹755.24 crore. This is a market-value reference on that date, not a guaranteed sale price and not necessarily the amount shareholders would receive after taxes, transaction costs or market impact.
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In June 2025, Lakshmi Mills sold about 35,000 Lakshmi Machine Works shares for ₹57.83 crore. CARE said part of the proceeds reduced working-capital borrowings and the remainder was reserved for lease-rental-property development. Future sales could improve liquidity or fund projects, but they would also reduce exposure to any further rise in the investee’s share price. The market may apply a discount to a holding company’s portfolio because the assets are not immediately monetized, taxes may arise on sale and management must decide how to allocate the cash.
For valuation, calculate the current market value of the remaining holding from the latest disclosed share count and market price, then subtract any tax or realization discount that is justified. Do not carry the ₹755.24 crore figure into a current valuation without updating the Lakshmi Machine Works price and the number of shares held.
6. Margins, cash flow and leverage
CARE reported that PBILDT margin improved from 0.44% in FY2024 to 8.30% in FY2025. That is encouraging operationally, but the company still recorded a ₹467.53 lakh net loss. Long-term returns require the margin improvement to convert into cash after interest, taxes, maintenance capital expenditure and working-capital investment.
The business is working-capital intensive. CARE reported overall gearing of 0.16 times, total debt to gross cash accrual of 13.16 times and working-capital utilization of 77.38% for the twelve months ended June 2025. CARE also noted that the current ratio had remained below unity for several years. A low current ratio means short-term obligations exceed current assets under the accounting measure; it does not by itself prove insolvency, but it increases the importance of inventory turns, receivable collections, supplier credit and bank-line availability.
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- Reconcile operating cash flow with PBILDT and reported net profit.
- Track inventory days, receivable days and payable days.
- Separate recurring borrowing from temporary seasonal working-capital use.
- Check interest coverage under a weak yarn-price scenario.
- Include property-development spending and investment-sale proceeds when assessing free cash flow.
7. Dividends and shareholder return capacity
The FY2025 directors’ report said no dividend was recommended because there was no profit. Dividend investors should therefore avoid treating the company’s historical payout, if any, as a dependable annual income stream. Future dividends require distributable profit, adequate cash, board approval and compliance with applicable corporate-law requirements.
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Total shareholder return can instead come from a combination of normalized textile earnings, recurring rent, appreciation or monetization of investments and any eventual dividend. A sale of investments may create a one-time cash distribution, but it should not be mistaken for recurring earning power. Conversely, retaining cash to reduce borrowing or develop property may create value without an immediate dividend.
Independent reader supportYour contribution helps us test, update, and keep practical guides available for everyone.How to value Lakshmi Mills
A single earnings multiple can obscure the company’s mixed economics. A practical framework is to value the components separately:
- Normalize spinning earnings. Use a through-cycle yarn spread and realistic utilization rather than extrapolating either the weakest loss year or one unusually strong quarter.
- Value rental operations. Estimate sustainable rent after property expenses, apply an appropriate capitalization rate and account for vacancy, lease expiry and development capital.
- Mark investments to market. Update the Lakshmi Machine Works holding to the latest disclosed quantity and share price, then consider taxes and any holding-company discount.
- Subtract net debt and other obligations. Include working-capital borrowings, lease liabilities and committed capital expenditure where material.
- Compare the result with the market capitalization. The share price is attractive only if the implied valuation is supported by cash generation, not merely by an asset headline.
This sum-of-the-parts approach also clarifies why two investors can reach different conclusions: one may emphasize near-term textile losses, while another may assign greater value to property and listed investments. Both must still test whether the assets can generate or realize cash.
Scenario framework for long-term returns
| Factor | Constructive case | Adverse case | Evidence to check |
|---|---|---|---|
| Yarn/fibre spread | Yarn prices rise faster than cotton and polyester-fibre costs. | Fibre costs rise before yarn prices or yarn demand weakens. | Realization, input cost and inventory disclosures. |
| Demand | Domestic orders recover and exports stabilize. | Customers destock and export volumes continue falling. | Volumes, orders, export revenue and receivables. |
| Utilization | More spindles run at profitable spreads. | Market demand keeps capacity idle. | Production, spindle utilization and energy per kilogram. |
| Rentals | High occupancy, escalations and renewals lift recurring cash flow. | Vacancy, tenant concentration or development overruns reduce cash yield. | Occupancy, lease expiry and property cash costs. |
| Investments | Lakshmi Machine Works value rises or sales fund productive uses. | Market value falls, taxes reduce proceeds or assets are sold below expectations. | Latest holding, market price and sale disclosures. |
| Balance sheet | Working-capital borrowing and interest burden decline. | Inventory and receivables consume cash and borrowing rises. | Current ratio, utilization, debt coverage and cash flow. |
| Shareholder returns | Profits support dividends or accretive reinvestment. | Losses prevent dividends and require cash conservation. | Profit, board recommendation and cash balance. |
A monitoring checklist for investors
- Read each quarterly result for yarn volume, realization, raw-material cost and utilization, not just revenue.
- Update the domestic/export mix and investigate any large movement in export revenue.
- Recalculate rental income, occupied area, lease expiries and tenant concentration.
- Revalue the Lakshmi Machine Works stake using the latest share count and market price.
- Review inventory, receivables, current ratio, working-capital utilization and interest coverage.
- Look for operating cash flow that consistently supports reported margins.
- Check the latest dividend recommendation rather than assuming a recurring payout.
- Compare the market price with normalized textile earnings plus net asset value after liabilities.
What is not established by the available evidence
The FY2025 annual report and CARE’s August 2025 report explain the company’s exposures, but they do not establish a fixed long-term share-price beta or guarantee a future return. The ₹755.24 crore investment value is specifically measured using the August 7, 2025 market price. Current share price, subsequent quarterly performance, occupancy, investment value, valuation multiples and dividend decisions must be refreshed from the latest company filings and market data before making an investment decision.
Bottom line
Lakshmi Mills offers a cyclical textile recovery opportunity combined with rental income and a potentially valuable listed-equity holding. The strongest long-term setup would pair a sustained yarn-over-fibre spread with higher spindle utilization, reliable rent, disciplined working-capital management and sensible use of investment-sale proceeds. The main warning is that FY2025 revenue growth and better PBILDT margin did not yet produce a profit or a dividend. Investors should therefore value normalized operating cash flow and realizable net assets separately, then demand evidence that both are improving before paying a higher price.
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