KSB Pumps money.umakant.info Q2 2010

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Stock Review of Techno Funda Research Product Portfolio Track Buy                                                                                                       10, 2010
                                                                                                                                                                  June 10 2010
    Portfolio Track Information Data                                  BSE Code                    Grade                 FV (Rs.)                 CMP              52Weeks H/L
             KSB PUMPS LTD.                                           500249                        D                     10                    Rs.433             Rs. 499/347
                                                         ► KSB Pumps Ltd. (KSB) is engaged in the business of manufacturing of power driven pumps and industrial valves, which
                STOCK DATA                                 are used in various applications that range from building services to industrial processes, water engineering, mining &
                                                           energy technology. KSB is also specialized in pumps for Ultra Mega Power Plant (UMPP) projects. It has manufacturing
Target Price
Target Price                                  Rs 600
                                              Rs.600       plants in Pimpri, Chinchwad, Vambori & Sinnar in Maharashtra, Coimbatore in Tamil Nadu, and Mala in Kerala.
Reuters Code                            KSBP.BO          ► KSB’s Pumps and Valves provide and distribute water to private, public and industrial buildings. It has about 12%
Bloomberg Code                            KSB IN           market share in pump business and manufactures 50% customized & 50% standard pumps. During CY09, KSB sold
NSE Symbol                            KSBPUMPS             about 121398 pumps as against 105656 pumps during CY08. It also manufactured and sold the biggest condensate
Mkt.Cap.               Rs. 7536 mn                         extraction pumps (WKTA 350/3) for first UMPP in India, ordered by Costal Gujarat Pvt. Ltd. for their 5x800 MW project.
                                                         ► The Company sold about 98727 valves during CY09 as against 146350 valves during CY08. The substantial decline in
Shares  
                           17.4 mn
                           17 4 mn                                                                                                                    players,
                                                           the valves division was mainly due to increased competition as one of the leading Indian players which used to export
Outstanding(*)
                                                           majority of its production earlier, started selling in domestic market due to sluggish global conditions. However, KSB
Avg. Daily  
                      10,104 Shares                        has taken necessary steps to improve contribution from the division by introducing new range of high pressure valves.
Volume  (6m)
                                                         ► During CY09, KSB’s consolidated net revenues stood at Rs. 5658.2 mn showing a marginal decline of 5.4% YoY.
Price Performance (%)                                      However, its EBIDTA increased by 7.5% YoY, while the EBIDTA margins improved by 240 bps YoY to 20%. The
    1M         3M          6M                              improvement in margins can be attributed to a favorable product mix along with its effective cost control management
       2                (9)
                        ( )                   6            resulting into lower RM cost. Its APAT decreased by 1% to Rs. 708 mn, mainly due to higher depreciation and lower
           200 Days EMA Rs.414                             other income. KSB also declared a dividend of 125% for CY09.
           * On fully diluted equity Shares              ► Demand for its pumps are expected to grow substantially given that the municipal waste disposal facilities of the
                                                           Country need to be modernized and new sewage treatment plants are required. Moreover, the need of desalination of
           SHARE HOLDING (%)                               sea water is expected to increase very fast in India. KSB is very well placed and equipped with its special range products
 Promoters                                        66.8     to cater the demand of this segment. Necessity of long distance water transportation would also drive the demand for
 FII                                               0.2     KSB’s pumps & valves. Going ahead, though KSB’s margins are expected to be under pressure in CY10 as some projects
 FI / MF                                          11.4
                                                           could have been obtained at lower margins due to stiff completion, however with the recovery in economy & the
 Body Corporates                                   5.0
                                                           overall business environment, we expect margins to be on track in CY11 with new order inflows.
 Public & Others                                  16.6   ► At the CMP of Rs. 433, KSB is available at an attractive valuation of 8.7x its FY12E EPS of Rs.50. We believe it can get
                                                           valued at 12x its FY12E EPS implying a target price of Rs.600.
                       REVENUE               APAT              AEPS                                 AEPS                   ROE                 ROCE           P/E              P/BV
Y/E Dec.
                         (Rs.mn)          (Rs.mn)              (Rs.)                            (%  Chg.)                   (%)                  (%)           (x)               (x)
CY09                       5658.2            707.9              40.7                                 (1.0)                 18.0                 27.8         10.6                2.1 
CY10E                      6144.1            713.8              41.0                                   0.8                 15.7                 23.8         10.6                1.9 
CY11E                      7003.9            870.4              50.0                                 21.9                  16.9                 25.6          8.7                1.6 
 Dhananjay Mishra| dhananjay.mishra@sushilfinance.com | +91 22 4093 5084
 This report based on Techno Funda Research and our View / Target Price has been derived accordingly. Please refer to the disclaimer on the last page.                             1
                                                                                                                         KSB Pumps Ltd.

New product launched during CY09
During the year, KSB expanded its Water pumps product basket by introducing the super suction monobloc Pumps (HYDROSTAR). These monobloc
pumps are available in Premium, Standard and High Speed models.

                                                 HYDROSTAR ‐ Super suction monobloc pump sets
                Premium                                          Standard                                                High Speed




The biggest condensate extraction pump for UMPP
KSB manufactured and sold the biggest condensate extraction pumps (WKTA 350/3)
                                  y          j               (                p y)
for first UMPP in India, ordered by Costal Gujarat Pvt. Ltd. (a Tata Power Company)
for their 5 x 800 MW Ultra Mega Power Project at Mundra.




                                                                                                           u p       a e e g
                                                                                                          Pump with Barrel length 7.2 m
Other Business Developments
   KSB has revamped & modernized its steel foundry at Ahmednagar with a capex of Rs. 220 mn and the Capacity of steel foundry has increased to
   1200 MTPA, which will doubled in the second phase. The project of extending existing high pressure valve range from 12" to 24" is progressing as
   per schedule. With the completion of this project, the Company would be able to offer these valves indigenously to the energy sector. The Company
   has already started receiving orders for this range of valves from Q4CY09.
   KSB has set a new machine center at Coimbatore for machining of high pressure valve body in a single setup with double pallet to ensure continuous
                                                                    g    g p                y       g       p              p
   working with increase in productivity up to 60%.
   The Company has plans to develop alternatives of multistage open‐well submersible & surface pumps. It is also planning to introduce hydro‐
   pneumatic booster systems for commercial building service application and 75 mm diameter submersible motor.

June 10, 2010                                                                                                                                           2
                                                                                                                                   KSB Pumps Ltd.

Q1CY10 RESULTS UPDATE
KSB’s Revenues for Q1CY10 remained flattish at Rs. 1384.9 mn, showing an increase of just 2.7% YoY. However, its EBIDTA decreased by 6.9% YoY at Rs 215.5 mn,
while the EBIDTA margins stood at 15.6%. Its APAT decreased by 13% YoY to Rs.117.6 mn. The decline in earnings was largely on account of lukewarm
performance of its valves division, which witnessed a 16.3% drop in its revenues at Rs. 216 mn for the quarter with Rs. 4.7 mn loss at PBIT level. However, the
Revenues of Pumps business grew by 6.9% to Rs. 1157.8 mn, while its PBIT stood at 15.8%. The intense competition in the valves segment resulted in lower
                                                                          country,                                                   earlier,
realization and margins as one of the largest player in the valves in the country which used to export major parts of its production earlier has started selling to
domestic market due to sluggish global conditions.
SUBSIDIARY & ASSOCIATE’S PERFORMANCE
During the year under review, Pofran Sales and Agency Ltd (the Company’s wholly owned subsidiary) delivered a profit before tax of Rs. 14.2 mn (PBT of Rs. 11.3
mn during previous year) for sale of services business. The PAT during the period was at Rs. 9.4 mn and the Company expects to perform better in future. The
Associate Company, MIL Controls Ltd (MIL) has made a profit before tax of Rs. 208.7 mn for the year ended 31st December, 2009 (PBT of Rs. 190.2 mn for
previous year).
PUMPS & VALVES INDUSTRY
The Pumps industry in India is more than seven decades old with more than 500 manufacturers of pumps, which meet around 95% of domestic demand. The
growth of Indian pump industry in the last few decades was driven by increase in domestic requirement of pumps due to infrastructure development. At present,
the Country has various large & medium scale manufacturers, and plenty of foreign manufacturers in the organized sector producing pumps for various
applications, and the most of the players in the unorganized sector cater to agriculture sector demand. About 14 lakh pumps are produced every year and the
market is believed to be more than Rs 25 bn. With globalization and economic boom, customers demand good quality products and look for complete solution or
turnkey job by the vendor who can design, install, commission and complete the project. The first six months of the CY09 witnessed significant drop in the
business activities resulting in lower business volume for industrial pumps and valves business. However pumps mainly required for agriculture were less affected
by the economic slow down. Energy segment, which is one of the major segment of the economy, though not seriously affected, but witnessed some
postponement of projects. The same trend was also reflected in oil and oil related business. However, due to Government impetus to infrastructure projects,
investments in waste water and sewage projects continued uninterruptedly.
OUTLOOK FOR AGRICULTURE SECTOR’S PUMPS
                                                                              volumes.                                                                  sets,
The growth can be envisaged in the domestic & agriculture sectors in terms of volumes Green revolution prompted a spurt for agricultural monobloc pump sets
and sinking of groundwater tables caused spurt for submersible pumps. About 80 percent requirement of submersible pumps comes from agriculture sector. As a
result, many companies emerged in the organized sector, which produce good quality and efficient pumps. Although prospects in agriculture sector depend on
external factors like monsoon and cash crops by the farmers, the higher income level, lower water table and poor irrigation facilities by the government has
encouraged farmers to go for own water sources, this led to sudden spurt in demand of submersible pumps in the last two decades. The availability of subsidy,
low power cost and decision made by individual farmers has helped the unorganized players push their products in agriculture sector.
INDUSTRIAL PUMPS OUTLOOK
The industrial segment includes pumps for various water movement and process applications in different industries. These include major areas like chemicals,
sugar, fertilizers, paper and pharma. The overall segment is growing at around 10 percent annually. However, the sewage treatment segment is growing at a
faster pace.


June 10, 2010                                                                                                                                                         3
                                                                                                                             KSB Pumps Ltd.

 QUARTERLY PERFORMANCE‐ (Standalone)                                      (Rs.mn)    PROFIT & LOSS (Consolidated)                              (Rs.mn)

  Y/E Dec.                                        Q4CY09       Q1CY09     Q1CY10     Y/E Dec.                        CY08     CY09    CY10E     CY11E

  Net Sales                                       1,537.1      1,348.0    1,384.9    Net Sales                      5981.0   5658.2   6144.1   7003.9

  RM cost                                             611.2     624.1      669.6     RM Cost                        2871.4   2553.6   2857.0   3256.8

  Staff costs                                         215.8     200.3      210.1     Employee Expense                774.7    798.6    894.4    983.8

  Other Expenditure                                   370.6     292.2      289.7     Other Expenditure              1280.6   1172.3   1257.9   1364.8

  Total Expenditure                               1,197.6      1,116.6    1,169.4    Total Expenditure              4926.6   4524.5   5009.3   5605.4

  EBITDA                                              339.5     231.4      215.5     EBITDA                         1054.4   1133.7   1134.8   1398.4

  Interest                                              0.7        6.6        1.8    Interest                         22.5     18.3     16.5      15.7

  EBDT                                                338.8     224.8      213.7     EBTDA                          1031.8   1115.4   1118.3   1382.8

  Depreciation                                         78.3 
                                                       78 3       39 9
                                                                  39.9       48.5 
                                                                             48 5    Depreciation                    130.2
                                                                                                                     130 2    203 4
                                                                                                                              203.4    244 1
                                                                                                                                       244.1    280 7
                                                                                                                                                280.7

  PBT excl other income                               260.5     184.9      165.2     PBT Excl. Other Income          901.6    912.0    874.2   1102.1

  Other Income                                         15.8       17.4       13.7    Other Income                     96.1     79.2     95.0      99.8

  PBT incl OI                                         276.3     202.3      178.9     PBT Incl. Other Income          997.7    991.2    969.3   1201.9

  Tax                                                 103.2       67.1       61.3    Tax                             343.0    350.8    329.7    408.6

  APAT                                                173.1     135.2      117.6     Net Profit                      654.8    640.4    639.6    793.2

  AEPS                                                  9.9        7.8        6.8    Profit/Loss of Associates        60.3     67.5     74.2      77.2

  EBIDTA %                                             22.1       17.2       15.6    Extraordinary Exp./ (Income)      0.0      0.0      0.0       0.0

  NPM %                                                11.3       10.0        8.5    APAT after P/L of associates    715.1    707.9    713.8    870.4

 Source: Company, Sushil Finance Research Estimates


June 10, 2010                                                                                                                                            4
                                                                                                                      KSB Pumps Ltd.

 BALANCE SHEET (Consolidated)                                           (Rs.mn)   FINANCIAL RATIOS (Consolidated) 
 As on 31st Dec.                            CY08       CY09    CY10E     CY11E    Y/E Dec.                    CY08     CY09     CY10E    CY11E
  Share Capital                             174.0      174.0    174.0     174.0   Growth (%)

  R
  Reserves                                2926.3
                                          2926 3      3378 8
                                                      3378.8   3889 0
                                                               3889.0    4515.1
                                                                         4515 1   Net Sales
                                                                                  Net Sales                   28.2 
                                                                                                              28 2      (5.4)
                                                                                                                        (5 4)     8.6 
                                                                                                                                  86      14 0
                                                                                                                                          14.0 
                                                                                  APAT                        47.1      (2.2)    (0.1)    24.0 
  Shareholders Funds                      3100.3      3552.9   4063.0    4689.1
                                                                                  EBITDA                      51.2       7.5      0.1     23.2 
 Secured Loans                              309.6       73.3     73.3      73.3
                                                                                  Profitability (%)
 Unsecured Loans                               3.5       2.0      2.0       2.0   EBITDA Margin               17.6      20.0     18.5     20.0 
  Total Liabilities
  Total Liabilities                       3413 5
                                          3413.5      3628 1
                                                      3628.1   4138 3
                                                               4138.3    4764.4
                                                                         4764 4   Adj. PAT Margin
                                                                                  Adj PAT Margin              10 9
                                                                                                              10.9      11 3
                                                                                                                        11.3     10.4 
                                                                                                                                 10 4     11 3
                                                                                                                                          11.3 
  Fixed Assets                            1396.7      1579.2   1722.8    1832.4   ROCE                        29.9      27.8     23.8     25.6 
                                                                                  ROE                         21.1      18.0     15.7     16.9 
  Investments                               234.3      275.7    275.7     275.7
                                                                                  Per Share Data (Rs.)
  Sundry Debtors                          1378.8      1047.7   1141.9    1313.2   Adj. EPS                    41.1      40.7     41.0     50.0 
  Cash and Bank                             496.9      987.7   1378.5    1941.3   Adj. CEPS
                                                                                  Adj. CEPS                   48.6
                                                                                                              48.6      51.8
                                                                                                                        51.8     55.3
                                                                                                                                 55.3     66.5 
                                                                                                                                          66.5
  Loans and Advances                        414.4      534.0    560.7     616.7   BVPS                       178.1     204.1    233.5    269.4 
                                                                                  Valuations (X)
  Inventories                             1332.2      1163.4   1175.1    1198.6
                                                                                  PER                         10.5      10.6     10.6      8.7 
  Current Assets                          3622.2      3732.8   4256.2    5069.8
                                                                                  PEG                          0.3     (10.6)    12.7      0.4 
  Current Liabilities                     1592.4      1572.4   1713.9    1971.0    /
                                                                                  P/BV                         2.4       2.1      1.9      1.6 
  Provisions                                257.9      406.7    427.0     461.1   EV / EBITDA                  7.0       5.8      5.5      4.1 
  Net Current Assets                      1771.9      1753.7   2115.3    2637.7   EV / Net sales               1.2       1.2      1.0      0.8 
                                                                                  Dividend Yield (%)           1.3       2.9      2.3      2.8 
 Deferred Tax Assets (Net)                   10.6       19.6     14.6       8.6
                                                                                  Turnover Days 
  Miscellaneous Exp                            0.0       0.0     10.0      10.0
                                                                                  Debtors days                  83        67       67       68 
  Total Assets                            3413.5      3628.1   4138.3    4764.4   Creditors days               135       157     154      156 
 Source: Company, Sushil Finance Research Estimates



June 10, 2010                                                                                                                                     5
                                                                                                                                                  KSB Pumps Ltd.




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June 10, 2010                                                                                                                                                                          6

				
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