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KSB Pumps: Margins offer no relief - Views on News from Equitymaster

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KSB Pumps: Margins offer no relief
Oct 20, 2011

KSB Pumps has announced its September quarter results. The company has reported a 14% growth in topline and 39% YoY fall in net profits for the quarter ended September 2011. Here is our analysis of the results.

Performance summary
  • Topline grows by 14% YoY during the quarter
  • Operating margins contract by 5.2% as all major cost heads take toll
  • Bottomline suffers a fall of 39% YoY on the back of poor operating performance
  • Half yearly bottomline falls 32% YoY despite a robust 19% growth in topline
  • Announces an interim dividend of Rs 1 per share

(Rs m) 3QCY10 3QCY11 Change 9mCY10 9mCY11 Change
Net sales 1,487 1,696 14.1%   4,399   5,240 19.1%
Expenditure 1,279 1,546 20.9%   3,751   4,794 27.8%
Operating profit (EBDITA) 208 150 -28.0%  649  446 -31.3%
EBDITA margin (%) 14.0% 8.8%   14.7% 8.5%  
Other income 15 13 -8.8% 76 99 30.6%
Interest (net) 1 7 871.4% 3 14  
Depreciation 52 55 5.2%  152  161 6.1%
Profit before tax 170 102 -40.2% 569 370 -35.0%
Extraordinary items - -   - -  
Tax 51 29 -43.9%  173  102 -41.1%
Profit after tax/(loss) 120 73 -38.6% 396 268 -32.3%
Net profit margin (%) 8.0% 4.3%   9.0% 5.1%  
No. of shares (m) 17.4 34.8   17.4 34.8  
Diluted earnings per share (Rs)*         11.1  
Price to earnings ratio (x)*         18.4  
(* on trailing twelve months earnings)

What has driven performance in 3QCY11?
  • Company's topline managed to grow by a decent 14% YoY during the quarter. This was driven by both its major segments viz. pumps and valves. These managed to grow by 16% and 8% respectively on a YoY basis. The overall growth during the quarter was lower than that witnessed in the first half of the year. However, it should be noted that the same came against a more challenging macroeconomic backdrop.

    Cost break-up...
    (Rs m) 3QCY10 3QCY11 Change 9mCY10 9mCY11 Change
    Raw materials 666 802 20.4% 2,015 2,608 29.4%
    % sales 44.8% 47.3%   45.8% 49.8%  
    Staff cost 217 260 19.7% 656 787 19.9%
    % sales 14.6% 15.3%   14.9% 15.0%  
    Other expenditure 395 484 22.4% 1,080 1,399 29.6%
    % sales 26.6% 28.5%   24.5% 26.7%  

  • As far as margins are concerned, they took a knock of a huge 5.2% over the same quarter last year. This was mainly on account of raw materials expenses that surged 20% YoY. On account of lack of pricing power, the company was able to pass on very little of this increase and hence, the huge fall in margins. 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 3QCY10 3QCY11 Change 9mCY10 9mCY11 Change
    Pumps
    Revenues 1,192 1,381 15.8% 3,602 4,205 16.8%
    PBIT 154 75 -50.9% 504 245 -51.3%
    PBIT margin 12.9% 5.5%   14.0% 5.8%  
    Valves
    Revenues 282 305 8.1% 751 996 32.6%
    PBIT 13 27 108.7% 24 72 205.1%
    PBIT margin 4.5% 8.7%   3.2% 7.3%  
    Others
    Revenues 109 168 54.8% 272 406 49.6%
    PBIT (0.2) 0.6   (1.3) (2.1)  
    PBIT margin N.A 0.4%   N.A N.A  

  • PBT for the quarter fell more than the operating profits owing to a hike in both interest as well as depreciation charages. Net profits for the quarter fell by 39% YoY. The decline was stemmed to some extent by the lower tax rate.

What to expect?
At the current price of Rs 205, 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 expectations that margin would improve in the forthcoming quarters on account of easing of raw materials cost pressure, we maintain our positive view on the stock.

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