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KSB Pumps: Boosted by margins - Views on News from Equitymaster

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KSB Pumps: Boosted by margins
Mar 5, 2012

KSB Pumps has announced its December quarter results. The company has reported a 30% growth in topline and 35% YoY growth in net profits for the quarter ended December 2011. Here is our analysis of the results.

Performance summary
  • Topline grows by 30% YoY during the quarter
  • Operating margins expand by 2.3% on the back of fall in other expenses
  • Bottomline witnesses a growth of 35% YoY on the back of strong operating performance
  • Full year bottomline falls 17% YoY despite a robust 22% growth in topline
  • Announces a final dividend of Rs 3 per share


(Rs m) 4QCY10 4QCY11 Change CY10 CY11 Change
Net sales 1,752 2,273 29.8% 6,151 7,513 22.1%
Expenditure 1,564 1,978 26.5% 5,315 6,772 27.4%
Operating profit (EBDITA) 188 295 57.1% 837 741 -11.4%
EBDITA margin (%) 10.7% 13.0%   13.6% 9.9%  
Other income 43 30 -30.5% 119 129 8.5%
Interest (net) 2 14 642.1% 5 28 424.5%
Depreciation 55 58 4.0% 207 219 5.5%
Profit before tax 173 253 45.9% 743 623 -16.1%
Extraordinary items - -   - -  
Tax 53 91 70.4% 227 193 -14.9%
Profit after tax/(loss) 120 162 35.0% 516 430 -16.7%
Net profit margin (%) 6.9% 7.1%   8.4% 5.7%  
No. of shares (m) 17.4 34.8   17.4 34.8  
Diluted earnings per share (Rs)*         12.3  
Price to earnings ratio (x)*         19.2  
(* on trailing twelve months earnings)

What has driven performance in 4QCY11?
  • Company's topline managed to grow by a strong 30% YoY during the quarter. This was driven by both its major segments viz. pumps and valves. These managed to grow by 28% and 46% respectively on a YoY basis. The overall growth during the quarter was higher than the 20% growth witnessed in the nine months of the year. It should be noted that the same came against a challenging macroeconomic backdrop.

    Cost break-up...
    (Rs m) 4QCY10 4QCY11 Change CY10 CY11 Change
    Raw materials 825 1,263 53.2% 2,987 3,871 29.6%
    % sales 47.1% 55.6%   48.6% 51.5%  
    Staff cost 262 263 0.6% 918 1,050 14.4%
    % sales 14.9% 11.6%   14.9% 14.0%  
    Other expenditure 478 452 -5.4% 1,410 1,851 31.3%
    % sales 27.3% 19.9%   22.9% 24.6%  

  • 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 5% YoY. The margin performance of the company was a vast improvement over the other quarters of the financial year where it remained in the range of 7%-8%. On a segmental basis, the pumps division suffered huge margin erosion to the tune of 7.4%. Had it not been for the margin expansion in the valves division, the overall margin profile for the company would have looked even worse.

    Segmental break up...
    Segment 4QCY10 4QCY11 Change CY10 CY11 Change
    Pumps            
    Revenues 1,442 1,841 27.7% 5,043 6,046 19.9%
    PBIT 128 162 26.8% 633 408 -35.6%
    PBIT margin 8.9% 8.8%   12.5% 6.7%  
    Valves            
    Revenues 290 423 46.0% 1,041 1,419 36.3%
    PBIT 29 86 201.1% 52 158 202.9%
    PBIT margin 9.8% 20.3%   5.0% 11.1%  
    Others            
    Revenues 119 69 -42.3% 391 475 21.5%
    PBIT (1.4) (0.4)   -2.7 -2.5  
    PBIT margin -1.2% n.a.   -0.7% -0.5%  

  • PBT for the quarter grew less than the operating profits owing to a hike in interest expenses as well as fall in other income. Net profits for the quarter grew by 35% YoY. Tax rates jumped substantially, leading to 70% growth in tax outgo.

What to expect?
At the current price of Rs 234, the stock trades at a multiple of around 11 times its expected CY12 earnings per share. It should be noted that we had revised the target price of the company to Rs 316 per share. On account of the buoyant topline growth and the improvement in margins in the fourth quarter, we maintain our positive view on the stock.

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