Best Pump Stock: Shakti Pumps vs KSB

The Indian pump industry has been experiencing steady growth over the last few years.

It is currently valued at US$ 930 million (m) (Rs 77.3 billion) and is expected to grow at a compound annual growth rate (CAGR) of 4.8% to reach US$ 1.19 billion (Rs 158 billion) by 2029.

The government's focus on agriculture and growing industrialisation are pushing the growth of the Indian pump industry.

To add to this, end-user industries such as oil and gas, water and wastewater, chemicals, petrochemicals, mining, and power generation are increasing their capex to meet the growing demand for their products.

This positively impacts the Indian pump industry as the sales are expected to grow.

Moreover, government initiatives such as PM KUSUM are encouraging the use of solar pumps.

India is also a major exporter of pumps globally.

While there are very few listed players in the industry, whose primary activity is manufacturing pumps, the two companies that stand out are Shakti Pumps and KSB.

In this article, we compare these two companies on various parameters to see who has a better chance of making the most of the industry's growth.

Business Overview

# Shakti Pumps

Shakti Pumps is primarily engaged in manufacturing pumps, motors, and controllers. It also offers advanced pumping solutions for a wide range of uses, such as irrigation, horticulture, domestic water supply, and commercial and industrial applications.

It has an extensive product portfolio with a wide range of applications in several industries, including agriculture, building services, power, oil and gas, and mining.

The company has two manufacturing units that can produce over 500,000 pumps per annum.

It is also the only company which has in-house manufacturing of an entire range of products, such as variable frequency drives, motors, and inventors for solar pump installation.

The company also has a market share of around 30% in the domestic solar pump market under the PM KUSUM scheme (Pradhan Mantri Kisan Urja Suraksha evam Utthaan Mahabhiyan Yojana).

# KSB

KSB is engaged in the manufacturing of pumps and valves. It has an extensive product portfolio of pumps, including standard industrial end suction, high-pressure multistage pumps, submersible motor pumps, monoblock pumps, and nuclear pumps.

The company's products are used in water, energy, agriculture, construction, oil and gas, and process industries.

It has seven manufacturing facilities, four zonal offices, 14 branch offices, five service stations, 200 authorised service centres, and 1,000 authorised dealers in India.

It also has a market share of around 7.5% in the domestic pumps and valves industry.

Particulars	Shakti Pumps	KSB
Market Cap (in Rs billion)*	23.3	120.8
Order Book (in Rs billion)**	22.5	22.0

Source: Equitymaster, company presentation|*as on January 29, 2024|** as of September 2023

Between the two, KSB has a higher marketcap of Rs 120.8 billion (bn), as compared to Shakti Pumps, which has a marketcap of Rs 23.3 bn.

However, both companies have a similar order book of Rs 22 bn. Despite being a small company, Shakti Pumps' order book is growing rapidly, primarily due to the government's PM KUSUM scheme.

If we compare the performance of both companies on the stock market over the last year, both have outperformed the Nifty 50 by giving multibagger returns.

However, Shakti Pumps clearly outperformed by giving a 196.4% return as against 100.6% returns from KSB.

# Revenue

In terms of revenue growth, Shakti Pumps has outpaced KSB .

In the last five years, its net sales have grown at a compound annual growth rate (CAGR) of 12.2%, whereas KSB's net sales grew at a CAGR of 10.8%.

Revenue

Net Sales (in Rs m)	Mar -2019	Mar -2020	Mar -2021	Mar -2022	Mar -2023	5-Year CAGR
Shakti Pumps	5,437	3,828	9,297	11,785	9,677	12.2%
KSB	10,931	12,939	12,081	14,973	18,220	10.8%

Source: Equitymaster

Dominant market position in solar pumps under the PM KUSUM scheme and a wide distribution network have helped the company grow its volumes.

For KSB, the revenue has grown primarily due to its leadership position in the energy, oil and gas, and nuclear (pumps) sectors in the domestic market.

With high order in-flow, both companies have good prospects to grow their revenue in the medium term.

# Profitability

In the last five years, the earnings before interest tax depreciation and amortisation (EBITDA) of KSB has grown at a CAGR of 13.9%, as against the Shakti Pumps, which saw a degrowth of 5.7%.

KSB's profit after tax grew at a CAGR of 20.6%, whereas Shakti Pumps witnessed a degrowth of 11.8%.

Profitability

EBITDA (in Rs m)	Mar-2019	Mar-2020	Mar-2021	Mar-2022	Mar-2023	5-Year CAGR
Shakti Pumps	893	123	1,421	1,105	666	-5.7%
KSB	1,327	1,699	1,731	2,159	2,545	13.9%
PAT (in Rs m)	Mar-2019	Mar-2020	Mar-2021	Mar-2022	Mar-2023	5-Year CAGR
Shakti Pumps	451	-141	756	648	241	-11.8%
KSB	716	1,007	938	1,494	1,827	20.6%
Gross Profit Margin	Mar-2019	Mar-2020	Mar-2021	Mar-2022	Mar-2023
Shakti Pumps	16.4%	3.2%	15.3%	9.4%	6.9%
KSB	12.1%	13.1%	14.3%	14.4%	14.0%
Net Profit Margin	Mar-2019	Mar-2020	Mar-2021	Mar-2022	Mar-2023
Shakti Pumps	8.3%	-3.7%	8.1%	5.5%	2.5%
KSB	6.6%	7.8%	7.8%	10.0%	10.0%

Source: Equitymaster

Cost optimisation measures, increased share of after-sale services, and high order inflow from customers have helped KSB grow its profit despite the increase in the price of raw materials.

Shakti Pumps' profit, on the other hand, fell due to high raw material prices and intense competition. Moreover, the company majorly caters to tender-based government orders with a fixed price. This also affected the company's margins.

However, in the last three quarters, the company's profits and margins have grown. High order inflow, faster execution, and its focus on cost-cutting has led to a sharp rerating for Shakti Pumps.

Shares of the company spiked big time after it recently announced blockbuster Q3 numbers.

# Debt Management

Both Shakti Pumps and KSB are debt-free companies. While KSB has been debt-free for a long time now, Shakti Pumps became debt-free two years ago.

Debt Management

Debt to equity ratio (x)	Mar-2019	Mar-2020	Mar-2021	Mar-2022	Mar-2023
Shakti Pumps	0.1	0.1	0.1	0.0	0.0
KSB	0.0	0.0	0.0	0.0	0.0

Source: Equitymaster

Both companies have high capex plans, which they plan to fund from internal accruals.

Shakti Pumps is investing heavily in research and technology (R&D) and secured four new patents in the financial year 2024, taking the total patent count to 11.

It is also expanding its capacity by 200,000 , taking the total capacity to 700,000 units per annum to foray into the electric vehicles (EV) segment.

KSB, on the other hand, has moderate capex plans for maintenance. It also has sufficient liquidity and a high interest coverage ratio of 41x at the end of the financial year 2023, whereas Shakti Pumps has an interest coverage ratio of 2.7x.

# Financial Efficiency

A company's financial efficiency can be measured through return on capital employed (RoCE) and return on equity (RoE).

RoCE measures the company's ability to generate profits from invested capital, whereas RoE measures the company's ability to generate profits from equity capital.

Financial Efficiency

ROCE	Mar-2019	Mar-2020	Mar-2021	Mar-2022	Mar-2023
Shakti Pumps	25.0%	-0.3%	35.4%	24.4%	12.2%
KSB	14.9%	17.6%	18.0%	20.4%	22.0%
ROE	Mar-2019	Mar-2020	Mar-2021	Mar-2022	Mar-2023
Shakti Pumps	15.5%	-5.3%	22.2%	16.5%	5.8%
KSB	9.4%	12.2%	10.5%	14.8%	16.0%

Source: Equitymaster

The RoCE and RoE of KSB have continuously expanded in the last few years, driven by higher profitability.

For Shakti Pumps, the return ratios contracted due to a degrowth in profits in the last five years.

# Dividend

Dividends are the profits that the company distributes to its shareholders. A company paying consistent dividends to its shareholders is considered more stable than a company that doesn't.

Dividend

Dividend Per Share (Rs)	Mar-2019	Mar-2020	Mar-2021	Mar-2022	Mar-2023	5-Year CAGR
Shakti Pumps	5.0	0.0	8.0	2.0	2.0	-16.7%
KSB	6.0	8.0	8.5	12.5	15.0	20.1%
Dividend Yield	Mar-2019	Mar-2020	Mar-2021	Mar-2022	Mar-2023
Shakti Pumps	0.9%	0.0%	2.3%	0.3%	0.4%
KSB	0.8%	1.2%	1.5%	1.2%	1.00%
Dividend Payout Ratio	Mar-2019	Mar-2020	Mar-2021	Mar-2022	Mar-2023
Shakti Pumps	20.4%	0.0%	19.5%	5.7%	15.2%
KSB	29.2%	27.6%	31.5%	29.1%	28.6%

Source: Equitymaster

In terms of dividends, KSB is clearly leading.

Its dividend per share grew at a CAGR of 20.1% in the last five years, whereas Shakti Pump's dividend per share saw a degrowth of 16.7%.

KSB's dividend yield averaged at 1.14% in the last five years, and its dividend payout averaged at 29.2%

On the other hand, Shakti Pumps' five-year average dividend payout is 12.16%, and the dividend yield is 0.78%.

# Valuations

A company's real worth can be measured through valuation ratios. They give us an idea of whether the company's shares are overvalued or undervalued when compared to its peers.

The two important valuation ratios are price to earnings (P/E) and price to book value (P/Bv). These ratios help us make investing decisions.

A high ratio in comparison to its peers indicates the company's shares are overvalued, whereas a low ratio indicates they are undervalued.

Valuations	Shakti Pumps	5-Year Average	KSB	5-Year Average
P/E (x)	43.0	9.7	60.2	27.3
P/B (x)	4.2	2.5	9.7	3.4

Source: Equitymaster

In terms of P/E and P/BV, KSB's shares are overvalued when compared to Shakti Pumps' shares. When compared to the five-year average, both companies look overvalued.

Moreover, when compared to the industry average, both companies are overvalued.

Which Pump Stock is Better: Shakti Pumps or KSB?

In terms of profitability, profit margins, financial efficiency, and dividends, KSB is clearly racing ahead of Shakti Pumps.

However, in terms of revenue growth and valuations, Shakti Pumps is ahead of KSB.

Despite being a small player in terms of marketcap and revenue, Shakti Pumps holds a dominating position in the pumps industry.

It caters to government and non-government orders and domestic and export orders with its well-diversified portfolio of over 1,200 stock-keeping units (SKU).

Moreover, it is also recognised as Star Export House by the government of India.

The company is also entering the high-growth electric vehicle (EV) industry by expanding its production capacity of motors and controllers.

There is a huge market for solar pumps in India under the government's PM KUSUM scheme, which is estimated to be around Rs 1,050 bn.

With Shakti Pumps holding a dominating market share of 30%, it is set to benefit from this.

KSB, on the other hand, is a leading supplier of pumps for energy, oil and gas, and nuclear (pumps) sectors.

It is planning to expand its product portfolio across petrochemical, water handling, and building services segments.

The company is also focussing on developing new hydraulics and sizes to cater to the market needs.

With the capex cycle expanding across user industries, the growth for pumps is set to increase, and both companies stand to benefit from it.

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...