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KSB Pumps: Valves segment play spoilsport - Views on News from Equitymaster

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KSB Pumps: Valves segment play spoilsport

May 3, 2010

KSB Pumps has announced its 1QCY10 results. The company has reported a 2.5% YoY growth in sales and net profits have declined by 13% YoY. Here is our analysis of the results.

Performance summary
  • Topline grows marginally by 2.5% YoY during 1QCY10.
  • Costs grow at a faster pace resulting in 8.3% YoY fall in operating profits.
  • Despite substantial fall in interest cost and lower tax charges, net profit growth comes in lower by 13% YoY. This is because of poor show at the operating level and higher depreciation charges.

Financial performance snapshot
(Rs m) 1QCY09 1QCY10 Change
Net sales     1,342     1,376 2.5%
Expenditure 1,117 1,169 4.7%
Operating profit (EBITDA) 225 206 -8.3%
EBITDA margin 16.8% 15.0%  
Other income 24 23 -3.4%
Interest 7 2 -72.7%
Depreciation 40 49 21.6%
Profit before tax/(loss) 202 179 -11.6%
Tax 67 61 -8.6%
Net profit 135 118 -13.0%
Net profit margin 10.1% 8.5%  
No of shares (m) 17.4 17.4  
Diluted EPS (Rs)*   37.0  
P/E (times)   11.8  
*trailing twelve month earnings

What has driven performance in 1QCY10?
  • KSB Pumps, a leading pump and valve manufacturing company, has reported marginal 2.5% YoY growth in topline during 1QCY10. The growth has been driven by pumps segment sales. This division accounts for 80% of the sales and has reported nearly 7% YoY growth in revenues. On the other hand, valves segment (15% of total revenues) revenues declined by 16% YoY. 60% of the company’s revenues are accounted by project based sales. The growth of the sector and the company is dependent upon end user industries like energy and power. Economic slowdown led to postponement of planned projects. The same seems to have impacted the company’s performance.

  • The benefit of economic revival is expected to flow in the coming quarters. As with economic recovery investment plans have rebounded. Also, government’s increased focus and investments in the agricultural sector and infrastructural activities is likely to support the growth of the allied industries like the pumps and valves sector.

  • The operational costs for the company have increased at a faster rate as compared to growth in sales. This has resulted in 8.3% YoY fall in operating profits. The costs have scaled up on account of increase in raw material and employee costs. We believe that increase in staff cost could be the result of expansion plans as well as inflationary trends. Raw material costs must have scaled up owing to rising steel prices, a key input cost.

  • The valves segment has reported loss in the current quarter. The same has also exerted pressure on profitability. However, the pumps segment reported 17% YoY growth in earnings before tax. Thus, growth has largely come in on account of good numbers reported by the pumps segment.

  • During the year, the company was able to lower its finance charges substantially. The tax outgo was also lower in 1QCY10. Despite this, net profits declined by 13% YoY. This was because of poor show at the operating level and higher depreciation charges.

What to expect?
At the current price of Rs 436, the stock is trading at price to earnings multiple of 8.2 times our estimated CY11 earnings. The stock has breached our target price and at the current juncture is fairly valued. We maintain our cautious view on the stock. We shall soon review our estimates post the management meeting, which is scheduled next week.

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Mar 18, 2019 (Close)


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