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KSB Pumps: Lower sales, higher earnings - Views on News from Equitymaster
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KSB Pumps: Lower sales, higher earnings
Mar 16, 2010

Performance summary
  • Revenues decline by 12.4% YoY and 5.4% YoY during 4QCY09 and CY09 respectively.
  • However, operating profits grow by 23.9% YoY and 7.4% YoY in 4QCY09 and in CY09 respectively.
  • Compared to growth in operating profits, bottomline grows at a slower pace. This is on account of higher depreciation charges.
  • Net profit growth for 4QCY09 stands at 6.8% YoY, while the same for the full year is 2.2% YoY.
  • The board recommends a final dividend of Rs 10.5 per share. The total dividend for the year works out to Rs 12.5 per share (dividend yield of 2.7%).


Financial performance snapshot
(Rs m) 4QCY08 4QCY09 Change CY08 CY09 Change
Net sales 1,747 1,531 -12.4%    5,969    5,644 -5.4%
Expenditure     1,478     1,198 -18.9%    4,926    4,524 -8.2%
Operating profit (EBITDA)        269         333 23.9%    1,043    1,120 7.4%
EBITDA margin 15.4% 21.8%   17.5% 19.8%  
Other income           24           22 -7.9%          96        109 13.9%
Interest             9             1 -91.8%          23          18 -19.1%
Depreciation           38           78 107.7%        130        203 56.2%
Profit before tax/(loss)        247         276 12.0%        986    1,008 2.2%
Tax           85         103 21.8%        339        346 2.0%
Net profit         162         173 6.8%        647        662 2.2%
Net profit margin 9.3% 11.3%   10.8% 11.7%  
No of shares (m)       17.4 17.4  
Diluted EPS (Rs)*         38.0  
P/E (times)         12.2  
*trailing twelve month earnings

What has driven performance in CY09?
  • KSB Pumps, a leading pump and valve manufacturing company, reported 12.4% YoY decline in revenues in 4QCY09, while for the full year fall in net sales stood at 5.4% YoY. This could be attributed to the lag effect of slower economic growth. 60% of the company’s revenues come from project based spends. With the economic slowdown, end-user industries like energy and power have deferred their expansion plans or the same are running behind schedule. However, investment plans are back on track. Moreover, considering budget measures, we believe going forward the growth would be backed by the government’s increased focus and investments in the agricultural sector and infrastructural activities.

  • During 4QCY09, growth across segments was impacted. Pumps as well as the valves division reported decline in sales. The revenues of pumps division were lower by 6.7% YoY, while revenues of valves segment had come in lower by 37.1% YoY. However, as mentioned earlier, from here on the scenario is expected to improve on account of rebound in investment plans by end user industries. For the full year, pumps segment reported a muted growth of 1.4% YoY, while the valves division sales were down by 31.3% YoY.

  • Despite poor performance at the topline level, the company was able to report higher earnings. The same was on account of growth in operating profits. Softening of commodity prices, particularly steel prices, benefitted the company. Lower input costs led to margin expansion at the operating level. However, the growth in net profits for the full year was lower on account of higher depreciation charges and lower interest costs.

What to expect?
At the current price of Rs 465, the stock is trading at price to earnings multiple of 8.7 times our estimated CY11 earnings. Although the company has marginally underperformed our estimates for this year, we believe that the impact of the government’s increased investments in industrial, infrastructural and agricultural sectors will be reflected over a period of time. Post a management meeting we would review our estimates for the stock. Nevertheless, at the current juncture, the stock looks fairly valued. Considering this we advise investors to practice caution while investing in the stock.

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