Normal Monsoon, Demand Growth: Consider  KSB Pumps, Kirloskar , Shakti Pumps | CORPORATE ETHOS

Normal Monsoon, Demand Growth: Consider  KSB Pumps, Kirloskar , Shakti Pumps

By: | May 9, 2018
pump

Indias’ pump manufacturers have withstood the price competition posed by the Chinese industry and attained a compounded annual growth rate (CAGR) of 10% as against the global average of 6%. About 35 percent of the pump consumption is accounted for by the agriculture sector followed by oil and gas, thermal, nuclear power, public water supply, petrochemicals and other industries.

A good monsoon and increased agricultural credit often is positive for the pump industry in the country. Increasing urbanization and economic growth will also create demand across industries. According to Technavio, a market research agency, pumps market in India will witness the emergence of intelligent pump systems and micro disc pump technology very soon. It can control and regulate the flow or pressure of the fluid and adjust to process changes. More energy efficient disc pump with usage in medicine are also expected.
Amidst the positive sentiments in the pump market, we analyse the prospects of major listed players in this domain.

#Kirloskar Brothers Ltd (BSE:500241, NSE: KIRLOSBROS) Category: Mid Cap
Kirloskar Brothers is a world class pump manufacturing company that was established in 1888 and incorporated in 1920 as the flagship of the $2.1 bn Kirloskar Group.  The company design and develop industrial, agriculture and domestic pumps, valves and hydro turbines.

It has expanded across the globe through acquisitions and new ventures in Netherlands, USA, Japan, UK, South Africa among others.

The company received ‘Export Excellence Award’ for three decades from India Ministry of Commerce. It pioneered centrifugal pumps in India and is also the largest manufacturer and exporter of centrifugal pumps. Among other achievements, Kirloskar is the only manufacturer of metallic volute pumps, world’s largest concrete volute pump manufacturer.

The company’s revenues in 2016-17 grew 6% to Rs 1823.03 cr as against Rs 1712.22 cr the previous year while profit was Rs 32.99 cr as against Rs 10.77 cr the previous year.  Small Pump Business recorded a growth of 13% over last year. The company was aggressive in marketing across the country holding plumber meets, mechanics meets, campaigning by wall painting and reach activity with special focus on Maharashtra.

The company reported 333.40% growth net profit in Q3FY18 at Rs 9.10 cr while sales rose 3.13% to Rs 442.10 cr. Return on equity of 0.42, on assets of 0.15, net profit margin of 0.14 are below peer average while cash flow and liquidity seems better. It is trading at a higher Price Earnings Ratio of 45 indicative of higher valuation by market.

On technical charts, RSI of 41.49 indicates bearishness while ADX of 20 indicates range bound trading and MACD line has witnessed a bullish crossover signaling an uptrend.
Target : 310  Duration : 3 weeks

#KSB Pumps Ltd  (BSE: 500249, NSE: KSBPUMPS) Category : Mid Cap
KSB Pumps was established in 1960 by F K Heller and V C Setalvad bringing German technology to India with the setting up of a factory in Pimpri, Pune. The company developed expertise in high pressure multi stage pumps, end suction stock pumps, mini mono bloc series, submersible pumps, centrifugal monobloc pumpsets among others.

The turnover of the company was Rs 1000 cr  for the year ended December 2017 as against Rs 905.24 cr the previous year while profit rose to Rs 67.70 cr as against Rs 65.34 cr the previous year. Exports rose by Rs 22.8 cr to Rs 136.1 cr. A new production facility at MIDC, Shirwal in Maharasthra commenced operations.

In Q4 FY18, net profit has fallen 16.04% to Rs 11.20 cr while sales rose 3.45% to Rs 212.50 cr. On an annual basis, the company has provided returns of 24.47% while on a quarterly basis it was 8.33%.

Return on equity of 9.97%, assets of 6.95%, net profit margin of 7.50% looks attractive while cash flow and liquidity seems adequate. It is trading at a PE of 44.79 indicative of higher valuation by market. On technical charts, RSI of 58 indicates bullish trend, while ADX of 19 indicates range bound trading and MACD has witnessed a crossover indicative of change in price movements.

Target: Nil
#Shakti Pumps (India) Ltd (BSE:531431, NSE: SHAKTIPUMP) Category: Small Cap
Established in 1982, Shakti Pumps is a leading manufacturer of energy efficient submersible pumps catering to agricultural, industrial, domestic and horticultural purposes. They are pioneers in the manufactuer of 100% submersible stainless steel pumps and motors. The factory is situated at Pithampur in Madhya Pradesh and caters to domestic and export market. R& D strength, high standards of innovation has elevated the company to a leadership position. The company has presence in 100 countries with its product range. The company is also a pioneer and  leader in manufacture of energy efficient solar pumps. India Government focus on 100 GW solar power capacity by 2022 augurs well for Shakti Pumps. The International Solar Alliance had floated floated tenders for 500,000 solar pumps

The company is led by Dinesh Patidar, Managing Director, Sunil Patidar and Ramesh Patidar, Executive Directors.
The company reported 51/24% growth in revenue in 2016-17 at Rs 411.71 cr while net profit grew to Rs 21.32 cr from Rs 1.97 cr.  The company reported Rs 16.68 cr net profit in Q4FY18, while sales was Rs 147.67 cr. The company has given 24%, 61% and 171.24% price returns quarterly, half-yearly and annually. Return on equity of 9.28%, assets of 4.89%, net profit margin of 4.83%, adequate liquidity and cash flow makes it attractive for investors. It is trading at a PE of 43 suggestive of higher valuation by market.
On technical charts, RSI of 55 indicates bullishness, MACD has witnessed a bearish crossover while ADX of 30 indicates uptrend.
Target: 754 Duration: 3 weeks.

Summary
India Government has envisaged doubling farmer incomes by 2022 through technology and equipment-led productivity improvement. The smart cities and Swachh Bharat Programesare expected to boost demand for energy-efficient pumps in the domestic market. Good monsoon, strong policy support, growing demand for energy efficient pumps, exports is expected to give a boost to pump industry in the country.
According to some estimates, market for Indian pumps is growing 16-18% domestically while there is potential for export growth. Presently, the industry exports Rs 1500 cr worth pumps annually. The water pump market is projected to surpass $3.8 bn by 2022.  Other companies worth watching are V-Guard Industries, Roto Pumps,  Hawa Engineersw Ltd, WPIL Ltd among others.

With India’s major pump makers also having presence overseas, they also stand to gain from global growth. Investors may gain by selective exposure to the industry ahead of monsoon.