Result Update
February 26, 2015
Rating matrix
Rating
Target
Target Period
Potential Upside
:
:
:
:
KSB Pumps (KSBPUM)
Buy
| 810
12-18 months
19%
Quarterly blip, long term growth story intact
What’s changed?
Target
EPS FY16E
EPS FY17E
Rating
Unchanged
Changed from | 28.9 to | 28.5
Unchanged
Unchanged
Quarterly performance
Revenue
EBITDA
EBITDA (%)
PAT
Q4CY14
230.1
17.8
7.7
10.0
Q4CY13 YoY (%)
182.1
26.4
21.7
-18.2
11.9 -421 bps
10.8
-7.6
Q3CY15 QoQ (%)
198.9
15.7
27.0
-34.3
13.6 -587 bps
17.9
-44.2
Key financials
| Crore
Net Sales
EBITDA
Net Profit
EPS (|)
CY13
733
100.8
66.7
19.2
CY14
795.0
101.1
68.4
19.7
CY15E
901.5
144.0
99.3
28.5
CY16E
1,025.5
173.2
122.6
35.2
CY13
35.5
42.3
21.9
4.6
13.0
14.4
CY14
34.6
41.2
21.9
4.2
12.3
12.7
CY15E
23.8
28.4
15.0
3.8
15.9
17.9
CY16E
19.3
23.0
12.0
3.3
17.3
19.7
Valuation summary
P/E
Target P/E
EV / EBITDA
P/BV
RoNW
RoCE
Stock data
Stock Data
Market Capitalization
Total Debt (CY14)
Cash and Investments (CY14)
EV
52 week H/L
Equity capital
Face value
MF Holding (%)
FII Holding (%)
| 2367.1 Crore
| 24.4 Crore
| 178.7 Crore
| 2212.7 Crore
780 / 235
| 34.8 Crore
| 10
14.5
2.6
Price performance
Return %
Kirloskar Brothers
KSB Pumps
Roto Pumps
Shakti Pumps
WPIL
1M
(6.1)
12.3
(16.3)
(7.2)
1.2
3M
(10.8)
19.8
14.1
(2.2)
6.6
6M
(25.8)
37.8
47.1
4.4
47.7
| 680
12M
39.6
200.7
312.2
207.2
218.2
Research Analyst
Chirag J Shah
[email protected]
Shashank Kanodia
[email protected]
ICICI Securities Ltd | Retail Equity Research
• KSB Pumps (KSB) reported a mixed set of Q4CY14 numbers. The
revenues came in robust with muted EBITDA margins
• KSB’s total standalone revenues came in at | 230.1 crore, up 26.4%
YoY (pumps sales at | 183.6 crore, valve sales at | 43.5 crore)
• Standalone EBITDA in Q4CY14 came in subdued at | 17.8 crore with
corresponding EBITDA margins at 7.7%. The margins came in lower
on account of higher raw material costs. Raw material costs as
percentage of sales were at 53% vis-à-vis normal trend of ~45-48%
• Standalone PAT in Q4CY14 stood at | 10.0 crore, down 7.6% YoY.
The associated company i.e. MIL Control Valves’ contribution to
consolidated PAT for CY14 stood at | 6.6 crore, down 31.0% YoY
Indian pump market on strong footing!!!
As per industry sources, the global pump market size is pegged at US$47
billion as of 2014 and is expected to reach US$56 billion in 2017, growing
at a CAGR of 6.0% in CY14-17E. The Indian pump market size is pegged
at ~| 8500 crore as of 2014 wherein a majority of it i.e. ~95% (~| 8000
crore) consists of centrifugal pumps while the remaining i.e. 5% (~| 500
crore) comprises positive displacement pumps. Out of the above;
agriculture and building services comprise the major portion (46%) of the
market by value i.e. ~| 4000 crore while the industrial sector constitutes
the remaining 54% of the market (pegged at ~| 4500 crore). It consists of
sectors such as water/sewage treatment, power generation, oil & gas, etc.
This segment of the pump market is technologically intensive and hard
for SMEs to penetrate. The Indian pump market is expected to grow at a
CAGR of 10% in FY14-17E to | 11300 crore in FY17E.
Strong parentage, leader in technological intensive pumps market!!!
KSB has a strong parentage with KBS AG, providing all R&D support and
technical assistance. In India, it commands a market share of ~7% (pump
sales of | 603 crore in CY13) out of the total industry size (~| 8500 crore
as of FY14). KSB supplies ~35% of its pumps in the standard pumps
segment (used for irrigation & building services). It supplies remaining
65% of its pumps (~| 400 crore sales vis-à-vis market size of ~| 4500
crore, market share ~9%) to the industrial segment, which is technology
intensive. Going forward, we expect KSB’s pump sales to grow at a CAGR
of 15.0% in CY14-16E to | 878 crore in CY16E (| 664 crore in CY14).
Valves segment, focus on increasing profitability; not chasing growth
Valves constitute ~16% (| 128 crore in CY14) of consolidated sales of
KSB. The performance of valves has been a laggard in the past few
quarters on account of fierce competition and subdued demand. Going
forward, KSB expects to consolidate its position in the valves market with
focus on increasing profitability rather than chasing sales growth. Going
forward, we expect valves sales to largely remain subdued (CY14-16E
sales CAGR at 6%) with CY16E sales at | 144 crore. KSB also owns 49%
in MIL Controls with an initial investment of | 6.3 crore. On this it is
reaping rich benefits (share of profit at | 6.6 crore in CY14, RoI at ~105%).
Likely beneficiary of capex cycle revival; balance sheet strength to grow!
KSB is likely to realise operating leverage benefits (margin expansion of
400 bps) in the form of higher demand for its product. This may lead to
improvement in RoEs & RoCEs and strong FCF generation of | 95 crore in
CY15E & | 115 crore in CY16E, going forward. We have partially revised
our estimates for KSB and maintained our BUY rating on the stock valuing
the company at 23x P/E (0.7x PEG) on CY16E EPS of | 35.2 with
consequent target price of | 810.
Variance analysis
Standalone Numbers
Sales
Q4CY14 Q4CY14E Q4CY13
227.2
190.6
179.5
YoY (%) Q3CY15 QoQ (%)
26.6
197.8
14.8
Other Operating Income
Total Operating Income
2.9
230.1
1.9
192.6
2.6
182.1
11.5
26.4
1.1
198.9
173.6
15.7
Total Raw Material Expenses
121.6
86.6
88.8
37.0
89.6
35.8
Employee Cost
Other operating expense
Total Expenditure
32.2
58.5
212.3
29.4
48.1
164.2
25.6
46.0
160.4
25.6
27.3
32.4
31.5
50.8
171.9
2.2
15.3
23.5
17.8
28.4
21.7
-18.2
27.0
-34.3
EBITDA Margin (%)
7.7
14.8
11.9 -421 bps
Depreciation
Interest
7.1
0.4
7.1
0.1
7.0
0.3
1.9
33.3
6.9
1.3
3.0
-68.0
Non Operating Expenses
Other Income
PBT
Taxes
PAT
5.5
15.8
5.8
10.0
4.2
25.4
8.7
16.8
2.4
16.8
6.0
10.8
-6.1
-3.3
-7.6
8.0
26.9
9.0
17.9
-41.4
-35.8
-44.2
Key Metrics
Pumps Sales (| crore)
Valves Sales (| crore)
184
44
165
26
154
26
19.4
69.1
165
33
11.3
32.7
EBITDA
13.6 -587 bps
Comments
Topline came in robust and was higher than our estimate
Raw material as a percentage of sales came in higher at 53% vis-à-vis
its usual trend of 45-48%. Raw material costs may be higher on
account of write-down of high cost inventory or increase in traded
goods in the quarter
Employee costs as a percentage of sales came in at 14%
Other expenses remained steady at 25% of sales
EBITDA margins came in subdued mainly on account of higher raw
material costs
Marginal increase in interest costs was on account of an increase in
short-term borrowing at the year end (CY2014)
Tax rate came in a bit higher 37%
Pumps sales came in robust
Valves segment performance improved with increasing sales and
positive EBIT margins (4.5% in Q4CY14)
Source: Company, ICICIdirect.com Research
Change in estimates
Consolidated
(| Crore)
Revenues
Old
869.3
EBITDA
144.0
144.0
0.0
173.7
173.2
-0.3
16.6
15.8
-76 bps
17.2
16.7
-48 bps
100.7
28.9
99.3
28.5
-1.3
-38 bps
122.5
35.2
122.6
35.2
0.1
0.1
EBITDA Margin (%)
PAT
EPS (|)
CY15E
New % Change
911.1
4.8
Old
1,009.6
CY16E
New % Change
1,036.0
2.6
Comments
Going forward, for CY15E & CY16E, we have revised upwards our sales estimates for
both pumps & valves segment on account of robust Q4CY14 sales
EBITDA has largely been maintained for CY15E & CY16E
We have partially lowered our margins estimates for CY15E & CY16E
We have largely maintained our EPS estimates
Source: Company, ICICIdirect.com Research
Assumptions
Pump Sales
Valve Sales
PAT, MIL Control Valves
CY13
603.4
122.3
9.6
CY14
664.1
128.4
6.6
Current
CY15E
CY16E
763.8
878.3
134.8
144.2
7.9
9.5
Earlier
CY15E
CY16E
742.2
875.7
116.7
122.5
11.1
12.4
Comments
We have revised upward our pumps segment sales
We have revised upward our valves segment sales
We have revised downward our estimates of MIL Control Valves on
account of subdued performance in CY14
Source: Company, ICICIdirect.com Research
ICICI Securities Ltd | Retail Equity Research
Page 2
Company Analysis
KSB Pumps, promoted by KSB AG (Germany), was established in 1960
and set up a pump manufacturing facility at Pimpri, Pune (Maharashtra).
The company has been at the forefront of importing technology from its
parent for delivering cutting edge, high quality products in the domestic
market. Globally, KSB AG is one of the largest pump manufacturers with
sales in excess of €2.2 billion (~US$2.8 billion) out of the total pump
market, which is pegged at US$47 billion as of 2014. In India, KSB
supplies pumps and valves to all major industries viz. power, waste water
treatment, irrigation (agriculture), chemicals, etc. KSB’s products are used
for pumping, transportation and flow control of fluids, which include clean
or contaminated water, explosive fluids, corrosive and viscous fluids,
slurries and fluid/solid mixtures. In India, KSB has a wide distribution
network that includes four zonal offices, 15 branch offices, over 800
authorised dealers, four service stations, 110 authorised service centres
and 22 warehouses.
Indian pump market on strong footing
Global pumps market
CAGR over 2014-17E: 6%
US$ Billion
60
CAGR over 2014-17E: 6%
56
55
50
47
45
40
2014
2017E
Source: Ficci, TSMG, ICICIdirect.com Research
| crore
The Indian pump market can also be segregated on the basis of end
usage. The main sectors in which pumps find application include:
agriculture (irrigation), building services, waste water/sewage
management and industrial uses (power, oil & gas, metals & mining, etc).
Exhibit 1: Indian pumps market segregation (value)
Indian pumps market
12000
10000
8000
6000
4000
2000
0
As per industry sources, the global pump market size is pegged at US$47
billion as of 2014 and is expected to reach US$56 billion in 2017, growing
at a CAGR of 6.0% in CY14-17E. The Indian pump market size is pegged
at ~| 8500 crore as of 2014 wherein a majority of it i.e. ~95% (~| 8000
crore) consists of centrifugal pumps (pumps used for increasing the flow
rate) while the remaining i.e. 5% (~| 500 crore) comprises positive
displacement pumps (pumps used for maintaining the flow rate). The
Indian pump market is expected to grow at a CAGR of 10% in FY14-17E
to | 11300 crore in FY17E.
CAGR over FY14-17E: 10%
11300
8500
others, | 1105 cr,
13%
Metals & Mining, |
340 cr, 4%
Agriculture, | 2295
cr, 27%
Oil & Gas,| 680 cr,
8%
FY14
FY17E
Source: Ficci, TSMG, ICICIdirect.com Research
Power Generation, |
1020 cr, 12%
Water & Wastewater
,
| 1445 cr, 17%
Building Services, |
1615 cr, 19%
Source: FICCI, Tata Strategic Management Group, ICICIdirect.com Research
Out of the above; agriculture and building services comprise the major
portion (46%) of the market by value i.e. ~| 4000 crore. This segment of
the pump market is highly fragmented and competitive in nature with a
whole lot of small & medium enterprises (SMEs) vying for the market pie.
On the other hand, the industrial sector constitutes the remaining 54% of
the market, which is pegged at ~| 4500 crore. It consists of sectors such
as water/sewage treatment, power generation, oil & gas and metals &
mining. This segment of the pump market is technologically intensive and
hard for SMEs to penetrate. The leadership of this segment is maintained
by companies like KSB and Kirloskar Brothers in the listed space while ITT
and Flowserve are key players from the private space.
ICICI Securities Ltd | Retail Equity Research
Page 3
End user segment demand drivers:
Exhibit 2: End user segment outlook
S.No Sector
1 Agriculture
2
Market Size: | 2300 cr
major players: KSB Pumps,
Kirloskar Brothers, Shakti
Pumps, CRI Pumps,
Grundfos, Flowmore, WPIL,
Crompton Greaves
Building Services
3
Market Size: | 1600 cr
major players: KSB Pumps,
Kirloskar Brothers, Shakti
Pumps, CRI Pumps,
Grundfos, Crompton
Greaves
Water & Wastewater
4
Market Size: | 1450 cr
major players: KSB Pumps,
Kirloskar
Brothers,Flowmore, WPIL
Power Generation
5
Market Size: | 1000 cr
major players: KSB Pumps,
Kirloskar Brothers, M&P,
Flowmore, Flowserve,
WPIL, Sulzer, Jyoti
Oil & Gas
6
Market Size: | 700 cr major
players: Kirloskar Brothers,
KSB (outsourced from
parent, KSB AG),
Flowserve, Sulzer
Metals & Mining
7
Usage
Irrigation
Demand drivers
Govt Initiative & Budget
Outlay
Outlook
Irrigation penetration in India stands at ~45% Pradan Mantri Krishi
as of 2011. Room for increase in penetration
Sinchayee Yojana;
propels the demand for pumps. Requirement of government earmarks |
more energy efficient pumps to save on power 1000 crore in 2014
& fuel costs - will propel move from
Budget; mega project
unorganised to organised segment
to link rivers
Pumping Water to height
With increasing urbanisation and demand for
housing in cities there exists a good visibility of
incremental usage of pumps in pumping water "House for all", special
to heights. Depleting ground water in urban
emphasis on low cost
areas will further augment usage
housing
Water treatment; Sewage treatment
Better sanitation, safe disposal of
waste/sewage, clean water for all - propels
demand for pumps. Development of 100 smart
cities in India will further drive investment in
this sector
Smart Cities
Thrust on augmenting power generation
domestically. Increase in usage of washed coal
to drive next leg of growth for all pump
manufacturers. Augmentation of nuclear power
and renewable (solar water pumps) also bodes
well
Power for all; rural
electrification
Need for shift to more environmental friendly
fuel (euro standards) will propel demand for
pumps. New exploration & refinery capacity
capex, however, remains limited given subdued
outlook for crude prices
"Make in India"
initiative
In the ferrous space, two major mega steel
projects expected to go on-stream, which
includes Posco Steel project & JSW Steel
expansion in its Bellary plant. In the non-ferrous
space, majority of the capex has already been
done and only some upgradation work is being
undertaken
"Make in India"
initiative
Shift of textiles and chemical manufacturing
base from China to India will propel the growth
of manufacturing of chemicals and textiles,
which will consequently create demand for
pumps
"Make in India"
initiative
Water Pumping, Heat Transfer, Cooling
Heat Transfer, ardent fuel emission control
Heat Transfer, Process Engineering
Market Size: | 350 cr major
players: WPIL
Chemicals & others
Market Size: | 1100 cr
major players: KSB Pumps,
Grundfos, M&P, Flowmore,
Flowserve, Sulzer, Jyoti
Source: ICICIdirect.com Research
Given the thrust of the government on augmenting the domestic
manufacturing and pumps being an integral part of process
manufacturing, we believe that the domestic pumps industry is poised for
robust growth, going ahead.
ICICI Securities Ltd | Retail Equity Research
Page 4
KSB; outperforming its peers; best placed to play capex revival
Domestically, in the listed space, there are five companies operating in
the pumps segment with sales leadership maintained in the order of
Kirloskar Brothers, KSB Pumps, WPIL, Shakti Pumps and Roto Pumps.
KSB clearly outperforms its peers on account of higher EBITDA margins,
a lean balance sheet (minimal leverage) and working capital discipline (on
account of no exposure to the project/EPC business), thereby emerging
as the best placed to capture the revival of the capex cycle and an up-tick
in economic activity domestically.
Exhibit 3: Financials - domestic pump manufacturers/players
Kirloskar
Brothers
2682.3
0.2%
199.4
7.4
64
KSB
803.7
2.2%
101.1
12.6
68
Debt:Equity
ROE
ROCE
0.3
6.4
12.1
0.0
12.3
12.7
1.4
22.3
21.0
0.8
18.8
19.0
0.6
20.7
21.7
Net Working Capital (days)
Promoter Holding (%)
52
63.3
55
66.4
158
61.1
154
47.8
119
69.7
Gross Block (| crore)
Asset Turnover (x)
Market Capitalization (| crore)
921
2.9
1604
427
1.9
2367
211
2.4
576
90
3.3
357
41
2.2
187
FY14/CY14
Net Sales (| crore)
3 year CAGR
EBITDA (| crore)
EBITDA Margin (%)
PAT
WPIL Shakti Pumps
511.1
292.1
32.5%
29.4%
81.6
43.3
16.0
14.8
30
25
Roto Pumps
89.6
14.6%
18.3
20.4
10
Source: Capitaline, Company, ICICIdirect.com Research
Working capital discipline: Strong positive
The working capital management of KSB is one of the best in the industry
wherein its net working capital days are well below 60 days whereas
majority of the industry players have working capital days at ~120 days.
In CY13 and CY14, KSB’s net working capital days stood at 42 days and
55 days, respectively.
Exhibit 4: Net working capital days (pump players in India)
85
68
190 186
200
55
51
55
55
42
41
net WC days
68
142
150
100
50
44 48 52
68
42
154
129
150 154 158
119
55
CY16E
CY15E
CY14E
CY13
CY12
CY11
CY10
0
CY09
90
80
70
60
50
40
30
20
10
0
CY08
days
Net working capital days (KSB India)
Source: Company, ICICIdirect.com Research
Kirloskar
KSB Pumps
FY12
Roto Pumps
FY13
Shakti
WPIL
FY14
Source: Capitaline, ICICIdirect.com Research
Going forward, we have built in the net working capital days of KSB at 55
days in CY5E and CY16E. The working capital is likely to be controlled for
KSB as it has no exposure to the project/EPC business while the
management’s focus is on scaling up the product basket.
ICICI Securities Ltd | Retail Equity Research
Page 5
Valves segment; Calibrated approach - chasing profitability not growth
KSB is also one of the leading manufacturers of industrial valves and
manufactures a wide range of on/off valves. KSB’s sales from the valve
segment have largely been flat over CY08-14 with sales in CY14 at | 128
crore (| 124 crore in CY08). On the profitability front, its EBIT margins are
on a declining trend with EBIT margins declining to negative 1.3% in
CY14, a sharp drop from the peak EBIT margins realised in CY08 at
25.7%. Despite being a reliable brand in the valves market, the company’s
profitability in this segment is subdued due to the enhanced presence of
the unorganised segment, thereby resulting in fierce competition.
Exhibit 5: KSB valves segmental revenue, EBIT & EBIT (%) (Annual)
146
160
144
30
140
25.7
20
CY15E
CY16E
-20
CY08
CY09
CY10
Sales
Source: Company, ICICIdirect.com Research
CY11
122
128
%
15
10.9
10
5
CY12
EBIT
1.6
2
16
0
11.2
CY13
-1.3
CY14
-2
CY14
5.0
5.2
20
CY13
103
85
40
141
13.0
11.1
60
15.8
80
124
122
146
100
128
CY12
25
120
135
32
150
145
140
135
130
125
120
115
110
| crore
| crore
KSB valves segment sales
0
-5
EBIT %
Source: Company, ICICIdirect.com Research
Going forward, the company expects to consolidate its position in the
valves market with focus on increasing profitability rather than chasing
sales growth. Going forward, we expect valves sales growth to remain
subdued (CY14-16E Sales CAGR at 6%) with CY16E sales at | 144 crore.
MIL Controls: Feather in the cap; small but key player
MIL Controls (MIL) is an associate company of KSB (ownership share
49%) and a subsidiary of the parent i.e. KSB AG (ownership share 51%)
involved in manufacturing high precision critical industrial control valves
in India. These valves find application in thermal & nuclear power plants,
exploration & production of oil, gas & oil products (petrochemicals) and
chemical industry (process industry), including fertilisers. KSB had made
an initial investment worth | 6.3 crore in MIL and is reaping rich returns
out of it. MIL’s contribution to KSB’s consolidated PAT in CY14 came in at
| 6.6 crore (105% RoI in CY14). We believe MIL, even though small, will
remain key and be a feather in KSB’s cap, going forward.
Exhibit 6: Financials- MIL
Particulars
Net Sales
EBITDA
EBITDA Margin
PAT
PAT margins (%)
Units
| crore
| crore
%
| crore
%
CY09
77.1
22.8
29.6
13.8
17.9
CY10
95.2
29.9
31.4
18.5
19.4
CY12
137.3
36.7
26.8
22.6
16.5
CY13
132.6
35.5
26.8
21.0
15.8
Gross Block
Asset Turnover
| crore
x
26.0
3.0
32.2
3.0
42.0
3.3
66.4
2.0
Equity
Debt
| crore
| crore
41.3
0.0
50.5
0.0
73.0
0.0
81.5
0.0
ROCE
ROE
%
%
51.6
33.3
61.6
40.2
44.7
31.0
39.6
27.1
Source: Capitaline, ICICIdirect.com Research
Going forward, we have built in a 20.0% CAGR (CY14-16E) in its PAT
contribution to the consolidated numbers of KSB. We have built in KSB’s
share of PAT from MIL at | 7.9 crore and | 9.5 crore in CY15E and CY16E.
ICICI Securities Ltd | Retail Equity Research
Page 6
Consolidated revenues to grow at 13.6% CAGR in CY14-16E
We expect KSB to clock modest revenue growth of 13.6% CAGR in CY1416E to | 1026 crore in CY16E (| 795 crore in CY14). In the pumps
segment, revenues are expected to grow a CAGR of 15.0% in CY14-16E
to | 878 crore in CY16E (| 664 crore in CY14), primarily on the back of a
revival in industrial activity domestically. In the valves segment, sales
growth is expected to remain subdued (CY14-16E Sales CAGR at 6%)
with CY16E sales at | 144 crore
Exhibit 7: Consolidated revenue trend
1100
Exhibit 8: Revenue bifurcation (pumps vs. valves)
CY14-16E CAGR: 13.6%
1000
715
795
733
| crore
| crore
800
878
800
902
900
CY14-16E CAGR: 15.0%
1000
1026
700
600
400
600
200
500
0
146
400
CY12
CY12
CY13
CY14
CY15E
664
603
565
764
135
144
CY14
CY15E
Pumps Valves
CY16E
128
122
CY13
CY16E
Source: Company, ICICIdirect.com Research
Source: Company, ICICIdirect.com Research
In the pumps segment, going forward, for CY15E and CY16E, we have
built in sales growth of 15%, on the back of domestic industrial activity
being at the cusp of cyclical recovery (in CY15E) with lot of emphasis
being laid on increasing the manufacturing base out of India. This will
directly result in a revival of domestic capex cycle with consequent
demand for pumps.
Consolidated EBITDA & PAT to grow 30.9% & 33.9% CAGR in CY14-16E
We expect KSB’s consolidated EBITDA to grow at a CAGR of 30.9% in
CY14-16E to | 173 crore in CY16E, primarily on the back of an
improvement in EBITDA margins from 12.7% in CY14 to 16.9% in CY16E.
EBITDA margins are expected to improve on the back of subdued pig iron
prices, increasing share of profitable pumps segment in the overall sales
mix and benefits of operating leverage. We expect KSB’s PAT to grow at
a CAGR of 33.9% in CY14-16E to | 123 crore in CY16E.
Exhibit 9: EBITDA & EBITDA margins (%) trend
0
CY12
CY13
CY14
EBITDA
CY15E
EBITDA Margins
Source: Company, ICICIdirect.com Research
ICICI Securities Ltd | Retail Equity Research
CY16E
18
16
14
12
10
8
6
4
2
0
140
CY13-16E CAGR: 33.9%
120
80
123
99
100
| crore
144
101
101
50
173
12.7
100
92
| crore
150
12.9
13.8
16.9
%
16.0
200
Exhibit 10: PAT trend
64
67
68
CY12
CY13
CY14
60
40
20
0
CY15E
CY16E
Source: Company, ICICIdirect.com Research
Page 7
Outlook and valuation
KSB is among the industry leaders in the pumps segment domestically
with a strong presence in the industrial (power segment) and agricultural
segments. KSB has no exposure to the project/EPC business in India with
strong focus on product business, which will always keep its working
capital cycle under control. The company realises 65% of its pumps
segment revenues from the technology intensive industrial pumps
segment wherein it enjoys leadership and, consequent, higher margins.
Domestically, industrial activity has been subdued in the recent past with
mining operations across India taking a hit due to policy logjam. The
same was reflected in the IIP index, which fell from 8.2% in FY11 to -0.1%
in FY14. However, with a new government at the helm and the recent
initiatives undertaken by them viz. coal blocks auctioning (to make coal
production incremental to increase power generation) and thrust on
making India a global manufacturing hub (Make in India campaign) bodes
well for the domestic pump industry and is likely to lead to a rejuvenation
of the industry, going forward. We expect KSB to record modest revenue
growth of 13.6% CAGR in CY14-16E to | 1026 crore in CY16E (| 795 crore
in CY14). In the pumps segment, revenues are expected to grow at a
CAGR of 15.0% in CY14-16E to | 878 crore in CY16E (| 664 crore in
CY14). In the valves segment, revenues are largely expected to remain
subdued (CY14-16E sales CAGR of 6%) at | 144 crore in CY16E (| 128
crore in CY14) primarily on the back of the company’s focus on improving
profitability rather than chasing growth. The EBITDA and PAT are
expected to grow at a CAGR of 30.9% and 33.9%, respectively, in CY1416E. We have valued the company at 23x P/E (0.7x PEG) on CY16E EPS of
| 35.2 and arrived at a target price of | 810 with a BUY rating on the stock.
We believe KSB is a quality play and any correction in the stock price
should be used a buying opportunity in the counter. With industrial
activity at the cusp of a cyclical recovery, we believe KSB is on a strong
footing on recovery with increasing sales and profitability, going forward.
Exhibit 11: Two year forward P/E (KSB currently trading at 19.3x)
800
700
600
(|)
500
400
300
200
100
Price
21x
18x
15x
13x
12x
10x
Jan-15
Jul-14
Jan-14
Jul-13
Jan-13
Jul-12
Jan-12
Jul-11
Jan-11
Jul-10
Jan-10
Jul-09
Jan-09
Jul-08
Jan-08
Jul-07
Jan-07
0
9x
Source: Reuters, ICICIdirect.com Research
We also believe that phased implementation of the Goods & Services Tax
(GST) and a shift towards star rated pumps (energy rating) is likely to
result in a shift of the residual domestic pump market from the
unorganised segment to the organised segment. This, in turn, will also be
beneficial for KSB.
ICICI Securities Ltd | Retail Equity Research
Page 8
Company snapshot
900
Target Price: 810
800
700
600
500
400
300
200
100
Dec-15
Jun-15
Dec-14
Jun-14
Dec-13
Jun-13
Dec-12
Jun-12
Dec-11
Jun-11
Dec-10
Jun-10
Dec-09
Jun-09
Jun-08
Dec-08
0
Source: Bloomberg, Company, ICICIdirect.com Research
Key events
Date/Year
2008
2009
2010
2011
2012
2013
2014
Event
During 2008, the company had partly executed a large order of Bharat Oman Refinery, whose order was worth | 27 crore. The company was also able to bag a
prestigious order of | 32 crore from Coastal Gujarat Power. For 2007-08, the company had planned capital expenditure (capex) of | 150 crore, which was spread
over three years. However, due to the economic slowdown, the capex programme was put on hold
The company faced severe competition in the valves segment domestically on account of aggressive marketing of products by its competitor and the largest
domestic valve manufacturer i.e. AUDCO (a JV of L&T). During CY09, the management had also revamped and modernised its steel foundry at the cost of | 22 crore.
It has increased the capacity to 1200 metric tonne per annum
KSB has received order from Nuclear Power Corporation of India (NPCIL) for manufacture of nuclear pumps, which will be delivered during CY12
The management has earmarked a capex of around | 90-100 crore for KSB Pumps India for CY11. The capex is for brownfield expansions largely in the pump
segment, which will result in an increase in capacity both for existing line of products as well as newer products
The company has guided for a capex spend of ~| 30 crore in CY'12. On the valves business, the company has completed its entire restructuring process and the
management expects to realise benefits of cost rationalisation and product differentiation, going forward. The company for the first time clocked exports of | 100
crore wherein it only exports through its parent arm based out of Singapore
The company's performance was a bit subdued in CY13 on account of a delay in order execution. The company is also facing increasing competition from companies
like Flowserve, etc. which are expanding their capacities domestically
The company completely executes the order received from NPCIL for nuclear pumps. KSB plans to take a calibrated approach in its valves segment with focus on
improving profitability rather than chasing growth
Source: Company, ICICIdirect.com Research
Top 10 Shareholders
Shareholding Pattern
Rank
1
2
3
4
5
6
7
8
9
10
(in %)
Promoter
FII
DII
Others
Name
Latest Filing Date % O/S Position (m) Position Change (m)
Canadian Kay Pump, Ltd.
31-Dec-14 40.54
14.1
0.0
Industrial and Prudential Investment Co Ltd
31-Dec-14 20.51
7.1
0.0
Reliance Capital Asset Management Ltd.
31-Dec-14 7.33
2.6
0.0
Paharpur Cooling Towers, Ltd.
31-Dec-14 4.17
1.5
0.0
ThyssenKrupp AG
31-Dec-14 3.10
1.1
0.0
PineBridge Investments Asia Limited
31-Dec-14 2.36
0.8
0.0
UTI Asset Management Co. Ltd.
31-Dec-14 2.26
0.8
0.0
Bajaj Allianz Life Insurance Company Limited
31-Dec-14 2.17
0.8
0.0
31-Dec-14 1.40
0.5
0.2
Sundaram Asset Management Company Limit
31-Jan-15 0.77
0.3
0.0
DSP BlackRock Investment Managers Pvt. Ltd
Dec-13 Mar-14 Jun-14 Sep-14
66.4
66.4
66.4
66.4
1.2
2.0
2.3
2.6
12.3
13.1
13.8
14.2
20.1
18.5
17.5
16.8
Dec-14
66.4
2.6
14.5
16.5
Source: Reuters, ICICIdirect.com Research
Recent Activity
Buys
Investor name
Sundaram Asset Management Company Limited
Bajaj Allianz Life Insurance Company Limited
PineBridge Investments Asia Limited
Value
1.66m
0.21m
0.08m
Shares
0.16m
0.02m
0.01m
Sells
Investor name
PineBridge Investments Asset Management Company (India)
Reliance Capital Asset Management Ltd.
Dimensional Fund Advisors, L.P.
Value
-0.58m
-0.10m
-0.04m
Shares
-0.06m
-0.01m
0.00m
Source: Reuters, ICICIdirect.com Research
ICICI Securities Ltd | Retail Equity Research
Page 9
Financial summary (Consolidated)
Profit and loss statement
(Year-end March)
Net Sales
Other Operating Income
Total Operating Income
Growth (%)
Raw Material Expenses
Employee Expenses
Other Operating Expense
Total Operating Expenditure
EBITDA
Growth (%)
Depreciation
Interest
Other Income
PBT
Exceptional Item
Total Tax
PAT
Profit from Associates
Reported Net Profit
Growth (%)
EPS (|)
| Crore
CY13
732.7
0.0
732.7
2.4
344.4
110.1
177.4
631.9
100.8
9.6
26.5
2.6
12.7
84.4
-1.1
28.4
57.1
9.6
66.7
4.9
19.2
CY14
795.0
8.7
803.7
9.7
381.5
127.1
193.9
702.6
101.1
0.3
27.6
2.2
22.9
94.3
0.0
32.5
61.8
6.6
68.4
8.2
19.7
CY15E
901.5
9.5
911.1
13.4
408.6
140.5
217.9
767.1
144.0
42.4
31.0
1.4
24.8
136.4
0.0
45.0
91.4
7.9
99.3
47.9
28.5
CY16E
1025.5
10.5
1036.0
13.7
464.9
157.2
240.7
862.8
173.2
20.3
33.1
0.2
28.8
168.8
0.0
55.7
113.1
9.5
122.6
23.7
35.2
Cash flow statement
(Year-end March)
Profit after Tax
Add: Depreciation
(Inc)/dec in Current Assets
Inc/(dec) in CL and Provisions
Others
CF from operating activities
(Inc)/dec in Investments
(Inc)/dec in Fixed Assets
Others
CF from investing activities
Issue/(Buy back) of Equity
Inc/(dec) in loan funds
Dividend paid & dividend tax
Inc/(dec) in Share Cap
Others
CF from financing activities
Net Cash flow
Opening Cash
Closing Cash
| Crore
CY13
66.7
26.5
19.8
14.0
2.6
129.6
-5.7
-30.8
0.1
-36.4
0.0
-13.7
-22.4
0.2
-2.6
-38.5
54.8
105.2
160.0
CY14
68.4
27.6
-81.1
47.6
2.2
64.6
-1.4
-38.8
-1.5
-41.7
0.0
21.2
-22.4
-0.7
-2.2
-4.0
18.8
160.0
178.7
CY15E
99.3
31.0
-26.1
19.6
1.4
125.3
-4.9
-30.0
0.0
-34.9
0.0
-20.0
-30.5
0.7
-1.4
-51.3
39.0
178.7
217.8
CY16E
122.6
33.1
-58.6
47.5
0.2
144.8
-6.5
-30.0
0.0
-36.5
0.0
-4.0
-38.7
0.0
-0.2
-42.9
65.3
217.8
283.1
CY13
CY14
CY15E
CY16E
19.2
26.8
147.0
5.5
45.9
19.7
27.6
160.1
5.5
51.3
28.5
37.4
180.0
7.5
62.6
35.2
44.7
204.1
9.5
81.3
13.8
11.5
9.1
91.3
63.1
112.3
12.6
11.7
8.5
92.7
82.2
120.0
15.8
15.0
10.9
90.0
75.0
110.0
16.7
16.3
11.8
90.0
75.0
110.0
13.0
14.4
21.0
12.3
12.7
18.3
15.9
17.9
27.5
17.3
19.7
32.9
35.5
21.9
3.0
3.2
4.6
34.6
21.9
2.8
3.0
4.2
23.8
15.0
2.4
2.6
3.8
19.3
12.0
2.0
2.3
3.3
0.0
0.0
2.0
1.3
0.0
0.0
2.0
1.4
0.0
0.0
2.1
1.4
0.0
0.0
2.1
1.5
Source: Company, ICICIdirect.com Research
Source: Company, ICICIdirect.com Research
Balance sheet
| Crore
(Year-end March)
Liabilities
Equity Capital
Reserve and Surplus
Total Shareholders funds
Total Debt
Deferred Tax Liability
Minority Interest / Others
Total Liabilities
CY13
CY14
CY15E
CY16E
34.8
477.0
511.8
3.2
0.0
6.0
521.1
34.8
522.4
557.2
24.4
0.0
6.7
588.3
34.8
591.8
626.7
4.4
0.0
6.7
637.8
34.8
675.8
710.6
0.4
0.0
6.7
717.7
Assets
Gross Block
Less: Acc Depreciation
Net Block
Capital WIP
Total Fixed Assets
Liquid Investments
Other Investments
Goodwill on Consolidation
Inventory
Debtors
Loans and Advances
Other Current Assets
Cash
Total Current Assets
Creditors
Provisions
Current Liabilities & Prov
Net Current Assets
Others Assets
Application of Funds
388.4
207.0
181.4
8.1
189.5
0.0
48.5
0.0
183.3
126.7
79.7
3.5
160.0
553.2
225.5
52.4
277.9
275.3
7.8
521.1
427.2
234.6
192.7
8.1
200.8
0.0
49.9
0.0
201.8
179.0
87.5
6.0
178.7
653.1
261.4
64.0
325.5
327.6
10.0
588.3
457.2
265.5
191.7
8.1
199.8
0.0
54.8
0.0
222.3
185.2
88.4
4.5
217.8
718.2
271.7
73.4
345.1
373.1
10.0
637.8
487.2
298.6
188.6
8.1
196.7
0.0
61.4
0.0
252.9
210.7
90.2
5.1
283.1
842.1
309.1
83.4
392.5
449.6
10.0
717.7
Key ratios
(Year-end March)
Per share data (|)
EPS
Cash EPS
BV
DPS
Cash Per Share (Incl Invst)
Operating Ratios (%)
EBITDA Margin
PBT / Total Op. income
PAT Margin
Inventory days
Debtor days
Creditor days
Return Ratios (%)
RoE
RoCE
RoIC
Valuation Ratios (x)
P/E
EV / EBITDA
EV / Net Sales
Market Cap / Sales
Price to Book Value
Solvency Ratios
Debt/EBITDA
Debt / Equity
Current Ratio
Quick Ratio
Source: Company, ICICIdirect.com Research
Source: Company, ICICIdirect.com Research
ICICI Securities Ltd | Retail Equity Research
Page 10
RATING RATIONALE
ICICIdirect.com endeavours to provide objective opinions and recommendations. ICICIdirect.com assigns
ratings to its stocks according to their notional target price vs. current market price and then categorises them
as Strong Buy, Buy, Hold and Sell. The performance horizon is two years unless specified and the notional
target price is defined as the analysts' valuation for a stock.
Strong Buy: >15%/20% for large caps/midcaps, respectively, with high conviction;
Buy: >10%/15% for large caps/midcaps, respectively;
Hold: Up to +/-10%;
Sell: -10% or more;
Head – Research
Pankaj Pandey
[email protected]
ICICIdirect.com Research Desk,
ICICI Securities Limited,
1st Floor, Akruti Trade Centre,
Road No 7, MIDC,
Andheri (East)
Mumbai – 400 093
[email protected]
ICICI Securities Ltd | Retail Equity Research
Page 11
ANALYST CERTIFICATION
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report accurately reflect our views about the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s)
or view(s) in this report.
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Page 12