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KSB Pumps: Costs take toll - Views on News from Equitymaster

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KSB Pumps: Costs take toll
Oct 28, 2010

KSB Pumps has announced its September quarter results. The company has reported a 6% growth in topline and a 34% fall in bottomline on a YoY basis. Here is our analysis of the results.

Performance summary
  • Topline grows by 6% YoY during the quarter.
  • Strong contraction in operating margins leads to a 34% fall in operating profits.
  • Bottomline suffers a similar fall of 34% YoY as higher other income is offset by higher depreciation charges.
  • Net profit for the nine month period falls by 19% YoY on the back of a 6% YoY growth in topline.
  • The company has announced a dividend of Rs 2 per share, translating into a yield of 0.4%

(Rs m) 3QCY09 3QCY10 Change 9mCY09 9mCY10 Change
Net sales 1,399 1,487 6.3% 4,139 4,399 6.3%
Expenditure 1,081 1,279 18.3% 3,326 3,751 12.8%
Operating profit (EBDITA)     318     208 -34.4%  812  649 -20.1%
EBDITA margin (%) 22.7% 14.0%   19.6% 14.7%  
Other income 9 15 61.5%     62     76 22.7%
Interest (net) 3 1 -77.4%     18       3  
Depreciation 43 52 20.9%  125  152 21.5%
Profit before tax     281     170 -39.3%  732  569 -22.2%
Extraordinary items -   -     -   -    
Tax     100 51 -49.4%  243  173 -28.6%
Profit after tax/(loss)     181     120 -33.8%  489  396 -19.0%
Net profit margin (%) 12.9% 8.0%   11.8% 9.0%  
No. of shares (m)    17.4    17.4   17.4 17.4  
Diluted earnings per share (Rs)*         32.7  
Price to earnings ratio (x)*         15.3  
* on trailing twelve months earnings

What has driven performance in 3QCY10?
  • The company operates predominantly through 2 business segments viz. pumps and valves. The 6% growth in overall revenues was driven by the latter as it managed a 20% YoY growth. The pumps business, which is around 4 times bigger than the valves segment managed a growth of just 3%, thus pulling the overall revenue growth down. As per reports, the production though has come in higher by a strong 24% YoY during the quarter, indicating strong inventory build up which can get liquidated in the coming quarters.

    Cost break-up...
    (Rs m) 3QCY09 3QCY10 Change 9mCY09 9mCY10 Change
    Raw materials 658 725 10.2% 1,942 2,181 12.3%
    % sales 47.0% 48.7%   46.9% 49.6%  
    Staff cost 178 217 22.3%    582    656 12.7%
    % sales 12.7% 14.6%   14.1% 14.9%  
    Other expenditure 246 337 37.1%    802    914 14.0%
    % sales 17.6% 22.6%   19.4% 20.8%  

  • All the cost heads grew at a faster rate than the growth in topline, thus pulling down the operating margin by a huge 8.7% during the quarter. Other expenditure went up the most, registering a growth of 37% YoY. Raw material costs came in higher by 10% YoY, indicating limited ability to pass on the cost to customers.

  • Apart from significantly lower margins, a 21% growth in depreciation charge has led to the 39% decline in PBT during the quarter. At 34%, the fall in bottomline is slightly less and has been driven by a steep 49% fall in tax outgo.

What to expect?
At the current price of Rs 500, the stock trades at around 15 times its trailing twelve month earnings. Although the performance has come in below our estimates, we are positive on the company’s prospects on a medium term basis given its strong presence in the pumps space. We maintain our view on the stock.

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