KSB Pumps: Margins show an improvement

KSB Pumps has announced its March quarter results. The company has reported 1.4% growth in topline and 88% YoY growth in net profits for the quarter ended March 2013. Here is our analysis of the results.

Performance summary

• Topline grows by 1% YoY during the quarter
• Operating margins expand by 4.9% on the back of fall in raw material expenses
• Bottomline witnesses a growth of 88% YoY on the back of good operating performance and lower taxes

Financial picture

(Rs m)	1QCY12	1QCY13	Change
Net sales	1,616	1,638	1.4%
Expenditure	1,481	1,421	-4.1%
Operating profit	135	217	61.0%
Operating margins (%)	8.3%	13.3%
Other Income	59	65	10.6%
Interest (net)	17	7	-60.9%
Depreciation	57	62	10.1%
Profit before Tax	120	213	78.1%
Extraordinary item	-	-	-
Tax	37	57	55.9%
Profit after Tax/(Loss)	83	156	87.9%
Net profit margin (%)	5.1%	9.5%
No. of Shares (m)	17.4	34.8
Diluted Earnings per share (Rs)*		18.8
Price to earnings ratio (x)*		11.2

*On the basis of trailing 12 months earnings

What has driven performance in 1QCY13?

• Company's topline grew by a small 1.4% during the quarter. This was led by the 31% fall in the valves division of the company. The pumps division on the other hand performed well, logging in growth rate of 11% YoY. This was a marked improvement from the performance of the previous financial year, where pumps segment growth came in lower by 5% YoY. Thus, the revival seems a result of a pick-up in activity in the company's target markets. The valves division, by virtue of being more commoditized in nature, continues to struggle as sales fell 31% YoY.
  Segmental break-up...

  (Rs m)	1QCY12	1QCY13	Change
  Pumps
  Revenues	1,225	1,364	11.3%
  PBIT	61	176	190.1%
  PBIT margins	4.9%	12.9%
  Valves
  Revenues	381	264	-30.8%
  PBIT	60	1	-99.2%
  PBIT margins	15.8%	0.2%
  Others
  Revenues	95	99	4.2%
  PBIT	(2)	(4)	n.a.
  PBIT margins	-2.3%	-3.7%

  
  
• As far as margins are concerned, they improved by 4.9% over the same quarter last year. This was mainly on account of raw materials expenses that fell by 4% YoY as a percent of sales. In fact, other than other expenses, all the other cost heads went down on a percentage of sales basis. On a segmental basis, the valves division barely managed to keep its PBIT in the positive. 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.

  (Rs m)	1QCY12	1QCY13	Change
  Raw materials	760	705	-7.2%
  % of sales	47.0%	43.1%
  Purchase of traded goods	25	17	-30.2%
  % of sales	1.5%	1.0%
  Staff cost	288	283	-1.9%
  % of sales	17.8%	17.3%
  Other expenditure	408	416	1.8%
  % of sales	25.3%	25.4%

  
  
• 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 210, the stock trades at a multiple of around 11 times its trailing twelve month 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 has not been able to grow on account of the overall macroeconomic situation. Once the scenario improves, the growth should revert to the long term average. And this in turn should make the stock climb to its intrinsic value as identified by us. 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.