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KSB Pumps: Good show at operating level, but… - Views on News from Equitymaster
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KSB Pumps: Good show at operating level, but…
Oct 23, 2009

Performance summary
  • Revenues decline by 1.6% YoY in 3QCY09, while operating profits grow by 4.3% YoY.
  • Lower economic growth has led to the deferment of expansion plans of end-user industries. The same can be said to have impacted topline growth.
  • Softening of commodity prices like steel led to margin expansion.
  • Net profit falls by 3.1% YoY in 3QCY09 on account of higher depreciation charges and higher tax outgo.
  • The board has recommended interim dividend of Rs 2 per share, which translates into 0.5% dividend yield at the current level.


Financial performance snapshot
(Rs m) 3QCY08 3QCY09 Change 9mCY08 9mCY09 Change
Net sales 1,412 1,389 -1.6% 4,223 4,113 -2.6%
Expenditure 1,118 1,082 -3.2% 3,448 3,326 -3.5%
Operating profit (EBITDA) 294 307 4.3% 774 787 1.7%
EBITDA margin 20.8% 22.1%   18.3% 19.1%  
Other income 19 20 2.6% 72 87 21.1%
Interest 7 3 -55.7% 14 18 25.0%
Depreciation 32 43 33.5% 93 125 35.2%
Profit before tax/(loss) 274 280 2.3% 740 732 -1.1%
Tax 88 100 13.5% 254 243 -4.6%
Net profit 185 180 -3.1% 485 489 0.7%
Net profit margin 13.1% 12.9%   11.5% 11.9%  
No of shares (m)       17.4 17.4  
Diluted EPS (Rs)*         37.4  
P/E (times)         10.5  
*trailing twelve month earnings

What has driven performance in 3QCY09?
  • KSB Pumps, a leading pump and valve manufacturing company, has reported 1.6% YoY decline in topline during 3CY09. 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. This has impacted the topline growth of KSB. During 1HCY09 the pump and valve division had put up dismal show. While the company has not reported segmental results, we do not expect things to have significantly improved.

  • However, going forward, the growth is expected to rise on account of the government’s increased focus and investments in the agricultural sector and infrastructural activities.

  • Softening of commodity prices, particularly steel prices, has benefited the company. While the growth in profits has largely come in on account of lower input costs, focus on high margin products have also led to 1.3% expansion in operating margins.

  • Profit before tax grew by 2.3% YoY during 3QCY09. The higher depreciation restricted the growth in profits. At the net level, profits declined by 3.1% YoY in 3QCY09 on account of higher tax charges.

What to expect?
At the current price of Rs 393, the stock is trading at price to earnings multiple of 7.4 times our estimated CY11 earnings. Although the company has marginally underperformed our estimates for the nine months of this year, we believe that the impact of the government’s increased investments in industrial sector and announcement of stimulus packages will be reflected over a period of time. We shall shortly be reviewing our target price for the stock. Nevertheless, at the current juncture, the stock looks fairly valued. Considering this we advise investors to practice caution.

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