KSB Pumps Ltd Result Update: Q4 CY 11

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1 KSB Pumps Ltd Result Update: Q4 CY 11 C.M.P: Rs Target Price: Rs Date: Mar 18 th, 2012 BUY Stock Data: Sector: Industrial Machinery Face Value Rs wk. High/Low (Rs.) / Volume (2 wk. Avg.) BSE Code Market Cap (Rs.In mn) Share Holding Pattern SYNOPSIS We initiated coverage of KSB Pumps Ltd and set a target price of Rs for Medium term investment. KSB Pumps Ltd was established in the year 1960 in India. The company manufacture power driven process pumps & industrial Valves.Castings are mainly produced for captive consumption. During the quarter ended, the Net profit of the company increased to Rs millions and registering a growth of 29.76%%. 1 Year Comparative Graph Net sales and PAT of the company are expected to grow at a CAGR of 19 % and 8% over 2010 to 2013E respectively. BSE SENSEX KSB Pumps Ltd The company has recommended Rs.3 per share (30%) on 3,48,07,844 equity shares of Rs. 10/- each fully paid up as final dividend. Years Net sales EBITDA Net Profit EPS P/E CY CY 12E CY 13E

2 Peer Group Comparison Name of the company CMP(Rs.) Market Cap.(Rs.Mn.) EPS(Rs.) P/E(x) P/Bv(x) Dividend (%) KSB Pumps Ltd Kirloskar Brothers Dynamatic Technologies WPIL Investment Highlights Q4 CY11 Results Update KSB Pumps Ltd disclosed a phenomenon rise in standalone net profit for the quarter ended December During the quarter, the profit of the company surged 35.00% to Rs million from Rs million in the same quarter previous year. Net sales for the quarter rose 29.76% to Rs million from Rs million, when compared with the prior year period. It reported earnings of Rs 4.65 a share during the quarter, registering 32.52% decreases over previous year period. Quarterly Results - Standalone (Rs in mn) As At Dec-11 Dec-10 %change Net sales % PAT % Basic EPS % 2

3 Break up of Expenditure Revenue Segment Quarterly 3

4 Revenue Segment Yearly Payment of Final Dividend KSB Pumps Ltd has recommended Rs. 3 per share of Rs. 10/- each (30%) on 3,48,07,844 equity shares of Rs. 10/- each fully paid up as final dividend for the year ended December 31, 2011, making a total dividend of Rs. 4 per share of Rs. 10/- each (40%) (Including 10% interim dividend paid during the year). Company Profile The company was incorporated in the Year The Company was promoted by Lein, Schanzlin & Becker A.G., West Germany, Industrial & Prudential Investment Co. Ltd., Mumbai and Mr. F.K. Heller, an expatriate German national. The Company manufacture power driven process pumps for use in the fertiliser, chemical and petrochemical industries and pumps for nuclear power stations. 4

5 In the Year 1977, the project for the manufacture of nuclear power pumps was to beset up in the MIDC Industrial Area in Pimpri-Bosari. The Company took up a new project for the manufacture of 4 submersible pumps and valves at Coimbatore. A technical collaboration agreement was signed with VELAN inc., Montreal, Canada for this purpose and ICICI sanctioned term loans of Rs 640 lakhs. Important Milestone 1960: KSB Pups Ltd, India is established. 1984: Set up a company in Australia 1986: The leading French pump manufacturer, Paris based Pompes Guinard S.A. join the KSB group 1987: KSB Pumps Ltd., India commences production of ANSI Valves at a new plant in Coimbatore, TamilNadu 1988: KSB acquires a majority interest in US Slurry Pump Manufacture GIW Industries 1989: Acquisition of Amri S.A., Paris, the world s Second-Largest manufacturer of Butterfly valves. 1991: KSB takes over Pumpenwerk Halle and converts it into an environment engineering center. 1994: The Company acquires a majority stake in KSB Shanghai Pumps Co. 1996: KSB become 100% shareholder in GIW (Georgia Ironworks) 1997: Acquisition of MIL Controls Ltd., India- producer of ANSI and control Valves. 5

6 Plant & Products 1. Location: Pimpri, Pune Plant: Irrigation & Process Products: Multistage Pumps Chemical Process Pumps Non-clog Pumps Submersible Motor Pumps 2. Location: Chinchwad, Pune Plant: Power Projects Products: High pressure Multistage pumps 3. Location: Coimbatore Plant: Valves Products: Globe Valves Gate Valves Check Valves Butterfly Valves Ball Valves 6

7 4. Location: Vamvori, Ahmednager Plant: Foundry Products: Stainless Steel Castings Cast Iron Castings Non-Ferrous Castings 5. Location: Sinnar, Nashik Plant: Water Pump Products: Multistage Pumps Water Pumps 6. Location: Mala Plant: Control Valves Products: Control Valves Level Instruments 7

8 Key Projects Talla water supply 560KW Pump Motor set used for city Drinking Water Supply Advance microprocessor based Safety Control Features in MCC. Designed with 36Mtr. Head. Kalighat Drainage Pumping station Designed for both Dry & Storm Weather Flow. 64 KW and 37 KW Pump each. Control Panel designed with Electronic Logic Circuit. 8

9 Financials Results 12 Months Ended Profit & Loss Account (Standalone) Value(Rs.in.mn) CY10 CY11 CY12E CY13E Description 12m 12m 12m 12m Net Sales Other Income Total Income Expenditure Operating Profit Interest Gross profit Depreciation Profit Before Tax Tax Profit After Tax Equity capital Reserves Face value EPS

10 Quarterly Ended Profit & Loss Account (Standalone) Value(Rs.in.mn) 30-Jun Sep Dec Mar-12E Description 3m 3m 3m 3m Nets ales Other income Total Income Expenditure Operating profit Interest Gross profit Depreciation Profit Before Tax Tax Profit After Tax Equity capital Face value EPS

11 Key Ratios Particulars CY10 CY11 CY12E CY13E No. of Shares(In Million) EBITDA Margin (%) 15.53% 11.58% 11.80% 11.70% PBT Margin (%) 12.07% 8.29% 8.85% 8.96% PAT Margin (%) 8.38% 5.72% 6.24% 6.32% P/E Ratio (x) ROE (%) 14.19% 10.14% 11.55% 11.95% ROCE (%) 31.35% 25.22% 26.18% 26.26% Debt Equity Ratio EV/EBITDA (x) Book Value (Rs.) P/BV Charts: Net Profit & PAT 11

12 P/E Ratio (X) Debt Equity Ratio 12

13 EV/EBITDA(X) P/BV Ratio 13

14 Outlook and Conclusion At the current market price of Rs , the stock is trading at x CY12E and x CY13E respectively. Earning per share (EPS) of the company for the earnings for CY 12E and CY13E is seen at Rs and Rs respectively. Net Sales and PAT of the company are expected to grow at a CAGR of 19% and 8% over 2010 to 2013E respectively. On the basis of EV/EBITDA, the stock trades at 7.72 x for CY12E and 6.71 x for CY13E. Price to Book Value of the stock is expected to be at 1.69 x and 1.48 x respectively for CY12E and CY13E. We expect that the company will keep its growth story in the coming quarters also. We recommend BUY in this particular scrip with a target price of Rs for Medium term investment. Industry Overview The industrial sector of India with its future opportunities and high employment potential embraces the path to the economic development of the country. India has attained a realistically sufficient level of self-sufficiency in manufacturing a range of basic and capital goods. Progress in the manufacturing sector has the prospective to the standard of living of the general public of India above poverty line. In order to do this, it is very important to avert bulk of the workforce out of low-wage agriculture sector. This will in turn create a steady and flourishing economy and, in turn, invite more business opportunities. The country is well on its way to becoming the foremost manufacturing location for companies around the world. Liberalisation, Privatisation and Globalisationare the major promoters that have been the cause of the transition in the Indian economy and the manufacturing sector. The last decade following the liberalisation has seen revolutionary changes in the scenario 14

15 Of manufacturing in India. This fresh spurt in progress is pushed by fundamental restructurings such as the elimination of limitations on foreign investment and industrial de-licensing. Modifying the Export and Import Policy (EXIM) policy to endorse exports and supporting the import duties to meet WTO commitments further contributed to this development. Further favored by efficient business policy environment, tax deductions, and reduced interest rates have assisted in the growth of the manufacturing sector in India. Growth trend The Indian manufacturing sector which accounts for nearly 80 per cent of the Index of Industrial Promotion (IIP), witnessed a growth of 7.9 per cent in March 2011, which was relatively higher than the 3.6 per cent growth that was recorded for the months of January and February Out of the total 17 sub sectors in the sector, 13 sub sectors recorded an expansion during march 2011, the first five sub sectors accounted for 7.2 per cent of the 7.9 per cent growth in manufacturing in that month. Machinery & Equipment (other than transport equipment), with a weight of nearly 10 per cent in the IIP index, expanded by 11.1 per cent, Transport Equipment & Parts recorded a robust growth of 16.3 per cent, Automobile production remained soundat 21 per cent, Food products displayed a growth of 18.4 per cent, and other Manufacturing Industries moderated, albeit to a robust 25.6 per cent. Growth in the output of Rubber, Plastic, Petroleum and Coal Products was sizeable at 16 per cent. Investments The Spanish company, Kider SAU, a store fittings provider, has built up the first non-european manufacturing facility near Pune, with an investment of US$ 10 million. The company already has 5 facilities in Europe, 4 in Spain and one in France. The company deals in manufacturing ready to install store fittings for super- and hyper markets. 15

16 The Gujarat-based Meghmani Organics Ltd (MOL) will enter into a joint venture with Japan's Mitsui & Company Ltd and Kaneka Corporation for manufacture of chlorinated polyvinyl chloride (CPVC) at Dahej in Bharuch district. The joint venture is expected at an investment of US$ 120 million and plans to manufacture 20,000 tonnes of CPVC per year. Toto, a leading global sanitary ware brand from Japan, is planning to set up a manufacturing facility in India with an investment of around US$ 100 million. The company may set up its facility either in the western or northern part of the country. Though Toto products are available in the Indian market for several years now, the company set up its wholly owned marketing company, Toto India in April, The State Government of Rajasthan, has already set up a heavy industrialization base in the plains, and lately, it has shifted its focus to the hills, amending the existing policy to attract small manufacturing units there. A total of 11 new industrial hubs will be developed, with the government promising modern infrastructure complete with a slew of sops under the 2008 hill industrial policy. Besides, the government has also decided to bring four new areas Sahaspur and Raipur in Dehradun district and Ramnagar and Haldwani in Nainital district under the policy, despite their locations in the plains. Government Initiatives The Indian Government has cleared a new manufacturing policy in October 2011, which aims to create 100 million jobs and augment the share of manufacturing in India's gross domestic product from the existing 16 per centto 25 per cent by The policy stresses on setting up more manufacturing zones, industrial townships, and industrial hubs across the country. Units in these zones will enjoy singlewindow clearance, a liberal exit policy, incentives including exemptions from capital gains tax, and incentives for green manufacturing and technology acquisitions. Also, the proposed manufacturing policy intends to bridge the vast skills gap in India through public-private partnerships. 16

17 Salient features of the first national manufacturing policy: Creation of 100 million additional jobs in the next 10 years. Increasing the share of manufacturing from current GDP of around 16 per cent to 25 percent by Liberalisation in labour and environment regulations. Single window clearance for all issues related to industrial units. Setting up of national investment and manufacturing zones. Mega Industrial Township equipped with world-class infrastructure proposes to be autonomous and self-regulated. Special purpose vehicle created to develop infrastructure on public-privatepartnership mode. Incentives to states for the purpose of infrastructure development. Incentives to the promotion of green technology. Financial and tax incentives to small and medium enterprises. Road Ahead The manufacturing sector in the country has achieved a significant competitive edge as a result of increasing demands, and positive market conditions and government policies. The country has been self-sufficient in the sector and promotes itself as one of the industry leaders. The forthcoming period is highly promising for the Indian manufacturing sector. Disclaimer: This document prepared by our research analysts does not constitute an offer or solicitation for the purchase or sale of any financial instrument or as an official confirmation of any transaction. The information contained herein is from publicly available data or other sources believed to be reliable but do not represent that it is accurate or complete and it should not be relied on as such. Firstcall India Equity Advisors Pvt. Ltd. or any of it s affiliates shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. This document is provide for assistance only and is not intended to be and must not alone be taken as the basis for an investment decision. 17

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