KSB Pumps Ltd - Karvy Online

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


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


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


2


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


3


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.


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


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)


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


5


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)


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


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


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(%)


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 (%)


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(%)


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 (%)


7


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


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


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


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


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


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


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%


50%

3.9%

0 KSB pumps Ltd WPIL Ltd



FY14 KSB pumps Ltd WPIL Ltd

FY15E

FY16E Shakti pumps Kirloskar brothers


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


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 (%)


(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)


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 (%)


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%