Aug 28, 2015 - Analyst Contacts ...... services, realty services, data management, data analytics, market research, sola
Aug 28, 2015 KSB Pumps Ltd Aug 28, 2015
Industrials - Machinery - Flow Control Equipment
KSB Pumps Ltd Bloomberg Code: KSB IN
BUY
India Research - Stock Broking
Recommendation (Rs.)
Priming a Promising Future Investment cycle recovery to drive revenues at a CAGR of 11% during FY14-16E: We expect the investment cycle to recover and ordering activity to pickup for KSB as demand from sectors such as power generation, oil & gas, petchem and chemicals could contribute significantly towards order book build-up and revenues are expected to grow at 11% CAGR during FY14-16E.
Strong backing from KSB AG - a key differentiator for market leadership: KSB has strong backing from parent KSB AG, which we believe could continue to act as a key differentiator going forward as there are only few players in India capable of manufacturing technologically complex products meeting standards of DNI, ANSI and API. KSB has recently announced manufacturing of boiler feed pumps for super critical thermal power plants with a CapEx of Rs.2,500 mn over 5 years, which only few players in India could compete. Initial cost vs. Total cost of ownership – the swing factor for agri pumps solarisation: KSB has recently launched solar powered pumps focusing on agriculture sector which effectively opens-up new market for KSB. The fulcrum of choice for agri pumps could shift from initial cost of product to total cost of ownership, focus migrating towards efficiency could act as a swing factor for the Indian pumps industry. Estimates show that replacing of grid connected and diesel power pumps with solar pumps could yield an IRR of 30%-33% including crop yield improvements over 5 years makes the case for solarisation. Ordering activity is yet to pick up visibly to account for any growth in near term.
Exports share to increase to 18% by FY16E: Exports to constitute over 18% of sales and over 90% of exports are to KSB AG. KSB India is part of global supply chain and is currently exploring optionality of manufacturing API certified pumps in India, apart from being a key player in end suction pumps globally.
Valuation and Outlook
CMP (as on Aug 27, 2015)
603
Upside (%)
16.0
Target Price
699
Stock Information Mkt Cap (Rs.mn/US$ mn)
20982 / 318
3M Avg. daily volume (mn)
0.01
52-wk High/Low (Rs.) Beta (x)
Sensex/Nifty
825 / 500
0.90
26231 / 7948
O/S Shares(mn)
34.8
Face Value (Rs.)
10.0
Shareholding Pattern (%) Promoters
66.4
DIIs
14.8
FIIs
0.2
Others
18.6
Stock Performance (%) 1M Absolute
(1)
Relative to Sensex
4
3M
6M
12M
4 (13)
16
10
(3)
17
Source: Bloomberg
Relative Performance* 150 130
Given the cyclical nature of the business, we expect KSB to trade at higher multiples than the FY04-14 mean multiple of 18x. We initiate a coverage on KSB pumps with a ‘BUY’ rating for a target of Rs 699 representing an upside potential of 16.0% based on FY16E EPS of Rs.26.9 at a 26x P/E (+1SD of mean P/E during FY04-14).
Key Risks
yySlower domestic capex cycle recovery; continued slowdown in global economy
110 90 Aug-14
Nov-14
Feb-15
KSB
May-15
Aug-15
Sensex
Source: Bloomberg; *Index 100
Exhibit 1: Valuation Summary (Rs. Mn) YE Dec (Rs. Mn)
FY12
FY13
FY14
FY15E
FY16E
Net Sales
7224
7313
8017
8819
9877
EBITDA Margin (%)
12.6
13.8
12.4
11.7
14.0
EPS (Rs.)
16.7
18.8
17.2
21.2
26.9
PE (x)
13.4
15.7
35.2
28.5
22.4
EBITDA
Adj. Net Profit RoE (%)
913 580
13.6
1006
598
12.9
993 654
12.9
1032
736
12.9
1385
937
14.4
Source: Company, Karvy Research, * Represents multiples for FY12, FY13 & FY14 are based on historic market price
For private circulation only. For important information about Karvy’s rating system and other disclosures refer to the end of this material. Karvy Stock Broking Research is also available on Bloomberg, KRVY, Thomson Publishers & Reuters
Analyst Contacts Ankit Soni
040 – 3321 6280
[email protected] De Arul Kaarthick 040 – 3321 6280
[email protected]
1
Aug 28, 2015 KSB Pumps Ltd
Company Background
Company Financial Snapshot (Y/E Dec) Profit & Loss (Rs. Mn) FY14
FY15E
FY16E
Net sales
8017
8819
9877
EBITDA
993
1032
1385
Optg. Exp (Adj for OI)
7024
Depreciation
276
Interest
21
Other Income
275
Tax
317
PBT
Adj. PAT
7787 234
25
320
8491 240
28
277
971
1093
1395
654
736
937
357
455
Profit & Loss Ratios EBITDA margin (%)
12.4
11.7
14.0
P/E (x)
35.2
28.5
22.4
0.8
0.9
1.2
Net margin (%)
8.2
EV/EBITDA (x)
21.7
Dividend yield (%)
8.3
18.8
9.5
13.7
Source: Company, Karvy Research
KSB Pumps Ltd is a Pune headquartered pump manufacturer founded in 1960 as a subsidiary of KSB AG. The company manufactures power driven pumps and industrial valves with operating segment inclusive of pump, valves and others. Pumps segment contributes to over 80% of revenues and valves segment contributes the rest. The Pumps segment includes manufacturing and trading of all types of pumps like industrial, submersible, effluent treatment, spares and services. The valves segment consists of manufacturing and trading of industrial valves, spares and services.The company’s products cater to sectors such as water, waste water, power generation, oil & gas, construction etc,. KSB’s products include Ama Porter, Ama Drainer, MEGA, Etanorm G, Movi, Movitec B, and Hydrobloc, among others. It has five manufacturing facilities located at Pimpri, Chinchwad, Vambori, Coimbatore and Nashik in India. KSB has constantly been expanding its distribution network to grow its retail segment and the network reach has crossed over to 700 authorized dealers and 101 authorized service centres. Cash Flow (Rs. Mn)
Balance sheet (Rs. Mn) FY14
FY15E
FY16E
Total Assets
8622
9280
10318
Current assets
5902
6261
7088
Net Fixed assets
1908
Other assets
811
Total Liabilities Networth
Non current liabilities
943
9280
10318
244
200
150
363
Current Liabilities
895
2286
8622
5057
Debt
2125
2958
5707
372
3001
6524
397
3245
Balance Sheet Ratios RoE (%)
12.9
RoCE (%)
12.3
Net Debt/Equity
Equity/Total Assets
12.9 12.5
14.4 14.0
(0.3)
(0.3)
(0.3)
4.7
3.9
3.4
0.6
P/BV (x)
0.6
Source: Company, Karvy Research
Exhibit 2: Shareholding Pattern (%)
0.6
PBT
Depreciation
FY14
FY15E
FY16E
971
1093
1395
21
25
28
276
Interest (net)
234
240
Changes in WC
(380)
(326)
(216)
Tax
(300)
(357)
(455)
Others
(243)
CF from Operations
(236)
345
433
(253) 739
Capex
(399)
(217)
(162)
CF from Investing
(177)
(32)
39
Dividends
(183)
(245)
(312)
7
(314)
(390)
Others
222
Interest paid
184
(21)
Inc/Dec in borrowings
212
CF from Financing Change in Cash
176
(25) (44)
87
201
(28) (50) 387
Source: Company, Karvy Research
Exhibit 3: Revenue Segmentation (%) Valves 18.4%
Others 18.6%
DIIs 14.8% Promoters 66.4%
Pumps 81.6%
FIIs 0.2% Source: BSE, Karvy Research
Source: Company, Karvy Research
2
Aug 28, 2015 KSB Pumps Ltd
Impressive product mix to sustain leadership in the industrial segment KSB is among the few players in India with product offerings which are highly specialized towards process industries like power generation, oil & gas and chemicals. Industrial segment contributes close to 70% of revenues and majority of revenues are driven by sectors like power generation and oil & gas sectors during FY14. The portfolio mix meets some of the stringent global standards like German Institute for Standardization (DNI), American National Standards Institute (ANSI) and American Petroleum Institute (API) for supply of pumps and valves for use in process industries.
CapEx cycle recovery in the process industries to drive industrial segment growth Capex in the process industries is crucial for industrial pumps demand where KSB has strong and diverse product offerings. We expect revival in industrial CapEx to gain momentum going forward as we observe a declining trend in stalling of projects and positive policy directions in the core sectors like power generation, oil & gas. Investment intentions announced as a proportion of total outstanding investments in key sectors like thermal power generation, refinery expansion and modernisation programs range between 15%-55% and we expect a cumulative transition rate of 30% plus from announcement to implementation stage during FY15E-17E that could trigger significant ordering activity. This apart, the yet to be announced Ultra Mega Power Projects (UMPP) as guided by Union Budget 2015-16 with investment of over Rs.100bn presents significant opportunity in the powergen equipment space under ‘Make in India’ program. We expect the ordering activity from thermal power sector for pumps to pickup and the estimated market size is over Rs.5bn. We expect the revenues to grow at a CAGR of 11% during FY14-16E driven by growth in the process industries during FY14-16E. Exhibit 4: Investment announcements in the user industries 80% 60% 40%
47.7%
45.2%
43.6%
35.6% 26.1%
20% 0%
61.4%
55.4%
Oil & Gas
22.2%
16.4%
15.4% Powergen
Petchem
Announced
Mining
Ferrous
Implementation Stalled
Non-ferrous
Pharma
Chemicals
No Information
17.2% Paper
Food products
Real Estate
Under Implementation
Source: Prowess, Karvy Research
KSB AG’s backing a key differentiator KSB has a strong parental backing in terms of Research & Development (R&D) expertise for cutting edge products and manufacturing technology. The company over the years has spent less than one-fourths of a percent of its sales on R&D but has constantly been accessing technology from the parent company KSB AG. This acts as a key differentiator as the technological complexity involved in pumps manufacturing to the standards of DNI, ANSI and API are met only by few players operating in India. With the manufacturing of products meeting stringent standards KSB India has enabled itself to become a critical supplier in the KSB AG’s global supply chain. KSB India has paid over an average of 2.7% of sales during FY09-14 in terms of royalty, professional fees, technical services and other charges to KSB AG. Exhibit 5: Lower R&D spend and higher royalty payment 4.0% 3.0%
Exhibit 6: Transfers to KSB AG as royalty & other payments
3.37% 2.29%
2.85%
2.85%
2.68%
1% 3% 3%
80%
2.32%
2.0%
2%
0%
1%
18%
23%
23%
19%
13%
7%
60%
1.0% 0.0%
100%
0.10% FY09
0.01%
0.08%
FY10
FY11
FY12
0.03%
40%
0.03% 0.05%
FY13
Royalty and other payment to Sales (%) R&D to Sales (%) Source: Company, Karvy Research
FY14
93%
73%
20% 0%
FY09
Other matters
FY10 Royalty
5% 28% 19%
58%
63%
FY11
FY12
Professional fees
48% FY13
1% 27% 34%
38% FY14
Technical services
Source: Company, Karvy Research
3
Aug 28, 2015 KSB Pumps Ltd
Exhibit 7: Technology absorbed by KSB The project of extending existing high pressure valve range from 12" to 24" is progressing as per schedule. 2009
Development of variants of multistage open-well submersible & surface pumps. Introduction of hydro-pneumatic booster systems for commercial building service application. Introduction of 75 mm diameter submersible motor.
2010
High pressure valve range from 12" to 24", which is mainly used in large energy projects, is complete product and this should be available in the market shortly. Introduction of higher suction self priming jet pump and introduction of higher head submersible pump sets. High pressure valve range from 12" to 24", which is mainly used in large energy projects, the product is available in the market.
2011
The recent introduction of vertical multistage open well submersible pumps are found to be useful for long distance pumping needs of agriculture sector. Based on the market needs, further extension of the range shall be undertaken. Worldwide rationalization of end suction pumps is under progress. The company is playing major role in this project.
2012
Optimization of submersible motors is under progress. Development of submersible pumps with high head per stage is also under progress. Introduction of end suction pumps for handling high temperature liquids. Worldwide rationalization of end suction pumps is under progress. The company is playing a major role in this project. New hydraulics was introduced in 4” submersible products thereby increasing the available range.
2013
4” submersible products now have better performance and are also cost effective. Worldwide rationalization of end suction pumps is under progress. The company is playing major role in this project. New hydraulics introduced in 4”, 6”, 7” and 8” submersibles thereby increasing the available range.
2014
Introduction of new series catering to API market. The project of worldwide rationalization of end suction pumps is now complete. The company has played a major role in this project.
Source: Company, Karvy Research
New product launches to help penetrate in the domestic market KSB has constantly evolved its product offerings in the domestic market for both industrial and retail segments. The company has recently launched solar powered pumps in the retail segment focusing on the agriculture sector. Solar product line opensup a new market for KSB and we are optimistic about the opportunity for the entire pumps sector as the fulcrum could shift from initial cost of pumps to total cost of ownership offering a compelling choice for all the stakeholders. KSB has recently launched products for oil & gas, chemicals sector in the industrial segment.
Solarisation of agriculture pumps a huge opportunity Demand from agriculture sector remains a major driver of demand for pumps in the domestic market which is dominated by over 800 unorganized and regional players fighting for a slice in the pie. The agriculture pump market is extremely price-sensitive with significant hold of unorganized sector providing low cost cast iron pump sets. Even a marginal increase in pump set price could lead the farmer to switch to a different product. Exhibit 8: Major organized players in the Indian pumps industry CRI 11%
KSB 8%
Kirloskar 12%
Exhibit 9: Top 5 attributes for pump selection Standards
Crompton Greaves 7% Texmo 6%
2.6 2.4 Grundfos 4% WPIL 3%
3.5 Price
2.7
Suguna 1% Shakti 1% Rota 1%
Source: Industry, Company, Karvy Research
After sales service
1.0
V-Guard 2% Unorganised 44%
1.7
3.5 Warranty gurranty 4.0 Farmer
2.4 Works at low 2.5 voltage Retailer
Source: Shakti Foundation, Karvy Research
4
Aug 28, 2015 KSB Pumps Ltd
Initial cost Vs. Total cost of ownership – the swing factor for agri pumps solarisation Agri pump market thrives on the assumption that the fuel for operating pumps could be available at subsidized rates or for free in some states which drives farmers to choose cheaper products irrespective of efficiency of the pumps. For instance, average electricity rates for agriculture are cheaper by 2.5 times than the average electricity rates paid by other users. In the total cost of ownership, fuel costs account for about 70% whether it is diesel or electricity. Agri sector has installed over 20mn electric pumps and close to 6.2mn diesel pumps to irrigate over 35mn hectares of land. The level of energy consumption by these pumps is close to 18% of the total electricity consumed and over 10,500 barrels of oil equivalents of diesel, ranking India among one of the least efficient and least productive agriculture models across geographies. Fuel supply to agriculture remains a major electoral issue where economics takes a back seat. The gross subsidy to agriculture electricity is close to 45% of the total electricity subsidy necessitating multiple demand management strategies like feeder separation, rationalization in power availability and solarisation of pumps. Indian government is perusing renewal energy targets on a mission critical mode and solarisation of agriculture pumps presents an attractive opportunity for farming community when considered with yield improvements. The Internal Rate of Return (IRR) could be at 33% for diesel pumps and 30% for grid connected electric pumps over a five year period.
500
35%
0
Avg. tariff (paisa/kwh)
FY11
FY12
165.4
183.1
FY13
FY14
-5%
Replacement of Replacement of Replacement of diesel pumps diesel pumps grid connected (with yield (without yield pumps (with benefits) benefits) yield benefits) IRR (current)
Avg. agri tariff (paisa/kwh)
Source: CEA, Karvy Research
11%
30%
439.0
143.6
0.30%
FY10
5% 138.1
13%
FY09
21%
FY08
15%
19%
94.7
100
25%
10%
200
387.3
326.6
77.6
101.6
306.5
325.8
300
367.2
400
33%
Exhibit 11: Solar is a natural choice 479.8
Exhibit 10: Average agri power tariff is 2.5 times lesser
Replacement of grid connected pumps (without yield benefits)
IRR (after 5 years)
Source: Industry, Karvy Research
Exports share to increase to 18% by FY16E; Key player in the KSB AG’s supply chain We expect exports to increase to 18% of total sales by the end of FY16E. Historically, KSB exports grew at a CAGR of over 8% between FY10-14; the share of exports in overall revenue has increased from 10% in FY10 to 14% by FY14. KSB India has consistently been increasing its export sales through sales to associate companies, by FY14 the share of sales to associates accounts for over 90% of exports. KSB India contributes close to 17.5% of the KSB AG’s profits and the company has played a major role in the restructuring of end suction pumps project globally and is currently exploring optionality of manufacturing API certified pumps in India for global operations as products are cost competitive.
FY09 FY10 FY11 FY12 FY13 FY14 FY15E FY16E Total sales(Rs.Mn)
Source: Company, Karvy Research
0%
Export to sales %
400 0
92%
92%
92%
100%
1464
89%
1331
1210
800
1034
10%
88%
80%
76%
20%
13% FY09 FY10 FY11 FY12 FY13 FY14 FY15E FY16E Export sales (Rs.Mn)
60% 40%
701
1200
83%
1067
1600
15%
5%
2000 0
20%
633
18.1% 10477
8504
Exhibit 13: Export sales vs Sales to associates
7934
5917
7698
9.9%
6000 4000
8.8%
14.2% 13.4% 13.6% 7850
13.2%
8000
6416
10000
16.0% 9354
12000
782
Exhibit 12: Exports share to grow to 18% by FY16E
0%
% of Exports to associates
Source: Company, Karvy Research
5
Aug 28, 2015 KSB Pumps Ltd
Robust CapEx outlay to be completed in phases starting FY17 Exhibit 14: Capex to be funded from internal accruals
500 239
(17)
450
372
712
(558)
-400 -600
(28)
0 -200
495
222
283
200
83
400
476 116
780
600
789
800
FY09 FY10 FY11 FY12 FY13 FY14 FY15E FY16E
Capex(Rs.Mn)
Free cash flow(Rs.Mn)
Source: Company, Karvy Research
KSB has recently announced capacity expansion programme at its Pune plant in which it intends to manufacture pumps for use in super critical thermal power plants at a CapEx of Rs.2,500 mn. KSB intends to implement the expansion plan in a phased manner over the next five years with production commencing from FY17 onwards. We believe the capex could benefit in the long term with strong revenue visibility going forward given the capex outlay for the thermal power projects in India. KSB is a debt free (net) company and is funding its entire capex with internal accruals. By end of FY16E ,we expect the company to generate a free cash flow of Rs.239mn.
Exhibit 15: Business Assumptions Y/E Dec (Rs. Mn)
FY14
FY15E
FY16E Comments
Revenue
8017
8819
9877
Revenue Growth (%)
9.6
10.0
12.0
We expect the revenues to grow at CAGR 11% during FY14-16E on the back of improvement in demand environment.
EBITDA
993
1032
1385
EBITDA Margin (%)
12.4
11.7
14.0
PAT (normalized)
654
736
937
17.2
21.2
26.9
Capex (ex. Acquisition) - cash capex
372
450
500
Net CFO
345
433
739 We expect improvement in working capital management.
Net Debt
(1477)
(1608)
(28)
(17)
EPS
EPS Growth (%)
(8.6)
Free Cash Flow
Source: Company, Karvy Research
23.2
27.2
(2045)
We expect stable material cost and lower other operating expenses aid in improvement in operating margins.
We have assumed marginally higher investment income and tax at marginal rate.
We have normalized the capex outgo, which the company is expected to make, over multiple years. Capex to be funded with internal accurals and on net basis the company to remain debt free.
239 We expect the FCF to improve significantly over next two years.
Exhibit 16: Karvy vs Consensus Karvy
Consensus
Divergence (%)
Comments
Revenues (Rs. Mn) FY15E
8819
8621
2.2
FY16E
9877
9949
(0.7)
FY15E
1032
1071
(3.8)
FY16E
1385
1329
4.1
FY15E
21.2
18.4
13.3
FY16E
26.9
23.1
14.2
We have assumed stable demand environment.
EBITDA (Rs. Mn) We have assumed lower cost for FY15E and a slightly higher expenses ratio during FY16E.
EPS (Rs.)
Source: Bloomberg, Karvy Research
We accomodate a marginally higher other income given the improvement in free cash flows and have assumed taxes at marginal rates.
6
Aug 28, 2015 KSB Pumps Ltd
Exhibit 17: Revenues to expand at a CAGR of 11% during FY14-16E 12000
23%
20%
Net sales (Rs.Mn)
9877
10% 0% -10%
FY16E
8819 FY15E
8017 FY14
7313
7224 FY12
FY11
5639
FY10
0
FY09
3000
6085
6000
7495
8%
12%
10% 10%
-4% 1%
FY13
9000
30%
KSB has experienced growth of revenue at a CAGR of 8% during FY09-14. Exports played a major role by growing at a CAGR of 11% during FY09-14 aggregating to 14% of total sales. KSB’s revenue is expected to grow at a CAGR of 11% during FY14-16E driven by a robust demand environment going forward. We expect KSB to maintain exports momentum going forward as the products to become cost competitive and expect exports to contribute to 18% of total sales by FY16E.
Growth(%)
Source: Company, Karvy Research
Exhibit 18: EBITDA margin to expand by 200bps to 14 % by FY16E
1385
1032
993
EBITDA (Rs.Mn)
20% 10%
FY15E
FY16E
0%
FY14
1006 FY13
913
FY11
724
9.7%
771
1115 FY09
0
12.7%
13.8% 11.7% 12.4% 12.6%
FY12
1000 500
14.0% 30%
19.8%
FY10
1500
KSB’s EBITDA stood at Rs. 993Mn and margins reached to 12.4% by FY14. The company has constantly been improving its operational efficiency and has recently expanded its casting facilities to stablise costs and margins. We have assumed moderate cost structure and in an acceptable range. We expect EBITDA to reach to Rs.1,385 mn and margins to reach to 14.0% by FY16E.
EBITDA Margin (%)
Source: Company, Karvy Research
Exhibit 19: PAT to improve at a CAGR of 19% during FY14-16E
PAT(Rs.Mn)
8.3%
9.5%
15%
937 FY16E
736
10%
FY15E
654 FY14
598 FY13
580
430
8.0% 8.2% 8.2%
FY11
0
662
200
FY09
400
5.7%
FY12
8.5%
600
516
800
11.7%
FY10
1000
5% 0%
KSB during the slack period was able to maintain its PAT profitability at 8% during FY12-14 while the absolute profits grew at a CAGR of 6.2% during FY12-14 on the back of slowest revenue growth of 5.4% during the same period. We expect the company to improve its PAT margin to 9.5% with PAT growing to Rs.937 mn by FY16E while we maintain our tax assumptions at marginal rate which is lower than the historical tax rates.
Pat margin(%)
Source: Company, Karvy Research
Exhibit 20: Return Ratios to Improve Moderately 25% 19.9%
RoE (%)
FY16E
FY10
FY09
13.1% 12.8% 12.3% 12.5%14.0%
FY11
9.5%
13.6% 12.9% 12.9% 12.9%14.4%
FY15E
13.7%
5% 0%
11.0%
FY14
10%
14.2%
FY13
15% 19.5%
FY12
20%
Return on Equity and Return on Capital Employed have gone down to 11% and 9% respectively in FY11, from the levels of 20% and 19% in FY09 due to increased borrowings in FY11. For FY14 the ratios remained constant as the borrowings were repaid. For coming years, we expect the ratios to be flat and remain at 14%.
RoCE (%)
Source: Company, Karvy Research
7
Aug 28, 2015 KSB Pumps Ltd
FY16E
FY15E
FY14
FY13
FY12
0.0 -0.2
-0.2 -0.3
FY11
-0.1
FY10
0.0
FY09
Exhibit 21: Net Debt to Equity Ratio
-0.2
-0.3
-0.3
-0.4
-0.3
-0.3 -0.3
The company is a debt free company having net debt to equity ratio ranging between (0.33x) to (0.27x). Net debt to equity surged to (0.05x) in FY11 because of increased borrowings. In FY14 it has come down to (0.29x). We expect the ratio to reach (0.33x) by FY16E with improved cash flow from operating activities and repayment of borrowings.
Net debt to equity
Source: Company, Karvy Research
Exhibit 22: Company Snapshot (Ratings) Low 1
High 2
3
Quality of Earnings
33
Exports
33
Working Capital Requirement
33
Domestic Sales
Net Debt/Equity
Quality of Management Depth of Management Promoter
Corporate Governance Source: Karvy Research
33
4
5
33 33 33 33 33
8
Aug 28, 2015 KSB Pumps Ltd
Valuation & Outlook We expect the demand environment to pick-up and EBITDA and PAT margins improving to 14.0% and 9.5% by FY16E respectively. Given the cyclical nature of the business, we expect KSB to trade at higher multiples than the FY04-14 mean multiple of 18x. We initiate a coverage on KSB pumps with a ‘BUY’ rating for a target of Rs. 699 representing an upside potential of 16.0% based on FY16E EPS of Rs.26.9 at a 26x P/E (+1SD of mean P/E during FY04-14). Exhibit 23: PE Valuation 40 30 20 10 0
FY04
FY05
FY06
FY07
TTM P/E
FY08
Mean
FY09
FY10
+1 SD
FY11
-1 SD
FY12
FY13
FY14
+2 SD
- 2SD
Source: Prowess, Karvy Research
Exhibit 24 (a): Comparative Valuation Summary CMP (Rs.) KSB Pumps Ltd
603
WPIL Ltd
483
Shakti Pumps Ltd Kirloskar Brothers Ltd
Source: Bloomberg, Karvy Research
135
EV/EBITDA (x)
Mcap (Rs. Mn)
EPS (Rs.)
FY14
FY15E
FY16E
FY14
FY15E
FY16E
FY14
FY15E
FY16E
20982
21.7
18.8
13.7
35.2
28.5
22.4
17.2
21.2
26.9
4717
4.6
9.9
8.0
5.4
26.7
17.3
37.9
21.8
27.4
2260
203
P/E (x)
16152
5.2
7.1
7.4
4.7
9.4
8.9
4.7
20.5
12.1 36.7
7.7
29.0
16.2 8.1
16.8 5.2
17.2 7.0
Exhibit 24 (b): Comparative Operational Metrics Summary CAGR % (FY14-16E) KSB Pumps Ltd
Shakti Pumps Ltd WPIL Ltd
Kirloskar Brothers Ltd
Source: Bloomberg, Karvy Research
RoE (%)
Price Perf (%)
Sales
EBITDA
EPS
FY14
FY15E
FY16E
3m
6m
12m
11.0
18.1
25.2
12.9
12.9
14.4
4.0
(13.0)
16.0
1.9
(6.4)
3.2
24.5
9.6
12.0
(16.7)
(17.1)
8.5 2.3
21.5
1.4
3.2
(7.2)
20.7 6.7
15.5
4.1
11.3
(31.5)
5.3
9.2
(38.6)
(47.6)
2.4
(26.7)
3.5
9
Aug 28, 2015 KSB Pumps Ltd
Peer Comparison Exhibit 25: Revenue Growth (%)
Exhibit 26: EBITDA Growth (%)
41%
50%
31%
40%
21%
30% 9.6%
10.0%
12.0%
20% 10%
11%
0%
1% -9%
34.2%
FY14
FY15E
KSB pumps Ltd WPIL Ltd
FY16E
-10%
-1.3% FY14 KSB pumps Ltd WPIL Ltd
Source: Bloomberg, Company, Karvy Research
Source: Bloomberg, Company, Karvy Research
Exhibit 27: EPS Growth (%)
Exhibit 28: RoE (%) 23.2%
30% 10%
27.2%
FY14
-10%
FY15E
FY16E
Shakti pumps Kirloskar brothers
20 13.0
13.0
14.0
10 5
-30% -50%
FY16
25
15
-8.6%
FY15
-20%
Shakti pumps Kirloskar brothers
50%
3.9%
0 KSB pumps Ltd WPIL Ltd
Shakti pumps Kirloskar brothers
Source: Bloomberg, Company, Karvy Research
FY14 KSB pumps Ltd WPIL Ltd
FY15E
FY16E Shakti pumps Kirloskar brothers
Source: Bloomberg, Company, Karvy Research
Key Risks yySlower than expected recovery in domestic capex cycle.
yyContinued slowdown in global economy lowering exports opportunity.
yySolarisation of agri pumps picking up at a faster than expected phase.
10
Aug 28, 2015 KSB Pumps Ltd
Financials Exhibit 29: Income Statement YE Dec (Rs. Mn)
FY12
FY13
FY14
FY15E
FY16E
Revenues
7224
7313
8017
8819
9877
Operating Expenses
6310
6308
7024
7787
8491
Growth (%)
26.2
10.1
(1.3)
3.9
34.2
Other Income
181
162
275
Growth (%) EBITDA
Depreciation & Amortization EBIT
Interest Expenses PBT Tax
Adjusted PAT Growth (%)
Source: Company, Karvy Research
(3.6) 913 235 859
52
1.2
1006
265 902
26
9.6
993
992
1118
1423
1093
1395
21
971
580
598
654
35.0
3.0
1385
234
876 278
1032
12.0
276
807 226
10.0
317
320 25
357 736
240 277
28
455 937
9.4
12.6
27.2
Exhibit 30: Balance Sheet YE Dec (Rs. Mn)
FY12
FY13
FY14
FY15E
FY16E
Cash & Equivalents
1002
1546
1721
1808
2195
Inventory
1935
1833
2018
2236
2482
Sundry Debtors
Loans & Advances Investments Net Block CWIP
Miscellaneous Total Assets
Current Liabilities & Provisions Debt
Other Liabilities
Total Liabilities
Shareholders Equity Reserves & Surplus Total Networth
Total Networth & Liabilities Source: Company, Karvy Research
1453 706
64
1260 798
63
1780 874
63
1777 1035
63
1990 1063
63
1585
1812
1908
2125
2286
102
111
159
137
139
267
82
100
100
100
7122
7506
8622
9280
10318
169
32
244
200
150
2411
284
2863
348
3911
4259 7122
2549
293
2874
348
4284
4632 7506
2958
363
3565
348
4709
5057 8622
3001
372
3572
348
5359
5707 9280
3245
397
3792
348
6176
6524
10318
11
Aug 28, 2015 KSB Pumps Ltd Exhibit 31: Cash Flow Statement YE Dec (Rs. Mn)
FY12
FY13
FY14
FY15E
FY16E
PBT
807
876
971
1093
1395
Depreciation Interest
Inc/dec in Net WC
235
52
511
265
26
359
276
21
(380)
25
(326)
28
(216)
(142)
(143)
Tax
(209)
(343)
(300)
(357)
(455)
Inc/dec in capital expenditure
(534)
(256)
(399)
(217)
(162)
144
142
222
184
201
(44)
(50)
(183)
(245)
(312)
7
(314)
(390)
Cash flow from operating activities Inc/dec in investments Others
Cash flow from investing activities Inc/dec in borrowings Issuance of equity
(7)
1246
0
6
1045
0
0
(177)
(32)
0
0
0
0
(137) (223)
Cash flow from financing activities
(677)
(385)
Source: Company, Karvy Research
0
433
(114)
(463) (162)
Net change in cash
345
0
(390)
Dividend paid Interest paid
(6)
(236)
240
Other Income
Other non cash items
(237)
234
(52) 180
(26) 546
212
(21) 176
(25) 87
(253)
0
739
0
39
0
(28) 387
Exhibit 32: Key Ratios YE Dec
FY12
FY13
FY14
FY15E
FY16E
EBITDA Margin (%)
12.6
13.8
12.4
11.7
14.0
Net Profit Margin (%)
8.0
8.2
8.2
8.3
9.5
EBIT Margin (%)
Dividend Payout ratio (%)
11.9 33.0
12.3 29.3
12.4 32.0
12.7 26.7
14.4 26.7
Net Debt/Equity
(0.2)
(0.3)
(0.3)
(0.3)
(0.3)
RoCE (%)
13.1
12.8
12.3
12.5
14.0
RoE (%)
Source: Company, Karvy Research
13.6
12.9
12.9
12.9
14.4
Exhibit 33: Valuation Parameters YE Dec
FY12
FY13
FY14
FY15E
FY16E
EPS (Rs.)
16.7
18.8
17.2
21.2
26.9
BV (Rs.)
117.2
127.7
139.2
154.7
175.7
P/BV (x)
1.9
2.1
DPS (Rs.) PE (x)
EV/EBITDA (x) EV/Sales (x)
5.5
13.4
7.6 1.0
5.5
15.7
7.8 1.1
5.5
35.2
4.7
21.7
2.7
5.6
28.5
3.9
18.8
Source: Company, Karvy Research; *Represents multiples for FY12, FY13 & FY14 are based on historic market price
2.2
7.2
22.4
3.4
13.7
1.9
12
Aug 28, 2015 KSB Pumps Ltd Stock Ratings Buy
:
Sell
:
Hold
:
Absolute Returns > 15%
5-15%