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KSB Pumps: Topline struggle persists - Views on News from Equitymaster

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KSB Pumps: Topline struggle persists
Feb 26, 2013

KSB Pumps has announced its December quarter results. The company has reported 13% drop in topline and 21% YoY growth in net profits for the quarter ended December 2012. Here is our analysis of the results.

Performance summary
  • Topline falls by 13% YoY during the quarter
  • Operating margins expand by 2.3% on the back of fall in raw material expenses
  • Bottomline witnesses a growth of 21% YoY on the back of good operating performance and lower taxes
  • Full year bottomline grows 35% YoY despite a robust 4% drop in topline
  • Announces a second interim dividend of Rs 4.5 per share

Financial Performance : A snapshot
(Rs m) 4QCY11 4QCY12 Change CY11 CY12 Change
Net sales 2,272 1,971 -13.3% 7,495 7,224 -3.6%
Expenditure 1,978 1,671 -15.5% 6,772 6,311 -6.8%
Operating profit (EBDITA) 294 299 1.7% 724 913 26.2%
EBDITA margin (%) 12.9% 15.2%   9.7% 12.6%  
Other income 31 33 7.2% 146 181 24.1%
Interest (net) 14 12 -12.8% 28 52 88.5%
Depreciation 58 62 7.8% 219 235 7.5%
Profit before tax 253 257 1.7% 623 807 29.5%
Extraordinary items - -   - -  
Tax 91 62 -31.9% 193 226 17.2%
Profit after tax/(loss) 162 195 20.6% 430 580 35.0%
Net profit margin (%) 7.1% 9.9%   5.7% 8.0%  
No. of shares (m) 34.8 34.8   34.8 34.8  
Diluted earnings per share (Rs)* 36.0% 24.1%     16.7  
Price to earnings ratio (x)*         12.0  
(* on trailing twelve months earnings)

What has driven performance in 4QCY12?
  • Company's topline fell by around 13% during the quarter. This was led by the 14% fall in the pumps division of the company. The retail segment remains intensely competitive while sluggish industrial growth has led to the poor performance of the industrial pumps segment and hence, the overall sluggishness in topline we believe. The valves division of the company also performed poorly, recording negative 9% YoY growth

    Segmental break up...
    Segment 4QCY11 4QCY12 Change CY11 CY12 Change
    Pumps
    Revenues 1,839 1,580 -14.1% 6,037 5,711 -5.4%
    PBIT 162 226 39.0% 408 633 55.2%
    PBIT margin 8.8% 14.3%   6.8% 11.1%  
    Valves            
    Revenues 422 384 -8.9% 1,416 1,475 4.2%
    PBIT 86 34 -59.9% 158 159 0.7%
    PBIT margin 20.3% 9.0%   11.2% 10.8%  
    Others
    Revenues 69 94 36.5% 475 383 -19.3%
    PBIT (0.4) (4.4)   -2.5 -19.5  
    PBIT margin n.a. n.a.   -0.5% -5.1%  

  • As far as margins are concerned, they improved by 2.3% over the same quarter last year. This was mainly on account of raw materials expenses that fell by 9% YoY as a percent of sales. However, significant jump in other expenses restricted any further improvement. On a segmental basis, the valves division suffered huge margin erosion to the tune of more than 11%. Had it not been for the margin expansion in the pumps division, the overall margin profile for the company would have not have looked good.

    Cost break-up...
    (Rs m) 4QCY11 4QCY12 Change CY11 CY12 Change
    Raw materials 1,263 918 -27.4% 3,871 3,473 -10.3%
    % sales 55.6% 46.6%   51.6% 48.1%  
    Staff cost 263 244 -7.2% 1,044 1,036 -0.8%
    % sales 11.6% 12.4%   13.9% 14.3%  
    Other expenditure 452 510 12.8% 1,856 1,801 -3.0%
    % sales 19.9% 25.9%   24.8% 24.9%  

  • PBT for the quarter grew in line with the operating profits owing to a fall in interest expenses and growth in other income. Net profits for the quarter grew by 21% YoY. Tax rates fell substantially, leading to 32% fall in tax outgo and strong 21% growth in net profits.

What to expect?
At the current price of Rs 200, the stock trades at a multiple of around 12 times its CY12 earnings per share. It should be noted that we had revised the target price of the company to Rs 316 per share. Please note that while the fundamentals of the company are good, it is suffering on account of the overall macroeconomic situation. Once the scenario improves, the stock should do well. In view of this, one could continue to HOLD on to the stock provided it is not more than 5% of one's overall stock portfolio.

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