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KSB Pumps: Margins show an improvement - Views on News from Equitymaster
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KSB Pumps: Margins show an improvement
May 2, 2013

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.

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