KSB Pumps Stock Analysis – An Indian Agri Growth Story?

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Business:

Pumps, Valves, and Others (3 segmental business)

Pumps Business:

In March 2020 quarter Pumps business accounted for 79% of the business.

The pumps segment includes manufacturing/trading of all types of pumps like industrial pumps, submersible pumps, effluent treatment pumps, etc. and spares and services in respect thereof.

Valves Business:

In March 2020 quarter Valves business accounted for 14.7% of the business. The valves segment consists basically of manufacturing and trading of industrial valves and spares and services in respect thereof.

Other Business:

In March 2020 quarter other businesses accounted for 6.3% of the business. Represents the manufacture of castings.

Industrial uses of its Products:

  • Water Segment, Waste Water, Process Industry, Energy(Nuclear Power stations), Construction, Oil and Gas, etc.

Management and Shareholding:

  • KSB Group was founded in Germany in 1871 and is a leading supplier of pumps, valves, and related systems.
  • On 11th April 1960, the foresight of Mr. F. K. Heller and Mr. V. C. Setalvad gave birth to KSB Pumps Limited
  • Canadian Kay Pump Limited, which holds 40.54%, is a wholly-owned subsidiary of KSB AG (KSB german group)
  • Institutional holding is at 16.83% which includes Bajaj Alliance Life insurance(3.47%), Sundaram Mutual fund (2.72%), Vantage equity fund(1.26%), Pinebridge Investment Maurities ltd(2.74%) etc.
  • Promoter including Industrial and Prudential Investment co Ltd (Mumbai based company with more than 90 years) whose Chairman and MD is Gaurav Swarup (not much info about him)
  • Chairman and MD o Mr. Rajeev Jain was the Managing Director at KSB in Indonesia for over a decade and successfully steered the company to a leadership position in that region
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Financials (FY ends in December)

  • In FY19 revenue rose 18% while profit rose by 40% YoY.
  • In the last 8 years (2012 to 2019) Revenue and profit have never reduced YoY although growth has been slow while eps rose from 17.37 to 28.9.
  • Debt to equity is very low around 0.07 (Based on the Balance sheet as on 31 December 2019) also net debt-free.
  • Net cash per share as on 31 Dec 2019 is 83rs or around 17% of Market cap.
  • Pump Segment which contributes the most to its share in Total revenue has been more or less the same around 78% during the past 5 years. However, the profit margin has been reducing continuously since 2015 from 12.7% to 10.4% in 2018 however showed a revival in 2019 and rose to 11.5%
  • Net Asset Turnover ratio for the Pump segment which was reduced from 2.9 to 2.1 from 2016 to 2.1 in 2018 showed a swift revival and touched a high of 2.6.
  • Combining the above two points 2019 seems a revival for the pump segment as Pump segment revenue rose by as high as 18.8%YoY breaking the increasing trend of 13.2%, 9.8%, 8.9% respectively for 2018, 2017 & 2016 YoY with profit margin reviving and Net asset Turnover also joining the race seems very attractive.
  • PPE life is around 6.7 years which can be considered a good number.
  • Of the total sales for 2018 exports accounted for around 14% thus much of its dependence on domestic push.
  • Company has been launching new products in spite of the COVID19 situation seems they are optimistic of demand
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Concerns

  • Debtor and inventory days remain elevated around 89 days and 83 days respectively 43% of total assets account for Debtor and Inventory.
  • The depreciation rate seems to elevate from 11.8% in 2017, 12.7% in 2018 & 14.6% in 2019 needs clarification from management for the reason of the same.

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Arman Nahar
C.A. who is a USA CFA L3 candidate | Cleared L1 & L2 | Doing independent equity research since 2016 | Screens stocks for investment | Makes in-depth valuation models | Crafts portfolios.
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