Quarterly blip, long term growth story intact • KSB Pumps ICICI Securities,

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Quarterly blip, long term growth story intact • KSB Pumps (KSB) reported a mixed set of Q4CY14 numbers. The revenues came in robust with muted EBITDA margins • KSB’s total standalone revenues came in at | 230.1 crore, up 26.4% YoY (pumps sales at | 183.6 crore, valve sales at | 43.5 crore) • Standalone EBITDA in Q4CY14 came in subdued at | 17.8 crore with corresponding EBITDA margins at 7.7%. The margins came in lower on account of higher raw material costs. Raw material costs as percentage of sales were at 53% vis-à-vis normal trend of ~45-48% • Standalone PAT in Q4CY14 stood at | 10.0 crore, down 7.6% YoY. The associated company i.e. MIL Control Valves’ contribution to consolidated PAT for CY14 stood at | 6.6 crore, down 31.0% YoY Indian pump market on strong footing!!! As per industry sources, the global pump market size is pegged at US$47 billion as of 2014 and is expected to reach US$56 billion in 2017, growing at a CAGR of 6.0% in CY14-17E. The Indian pump market size is pegged at ~| 8500 crore as of 2014 wherein a majority of it i.e. ~95% (~| 8000 crore) consists of centrifugal pumps while the remaining i.e. 5% (~| 500 crore) comprises positive displacement pumps. Out of the above; agriculture and building services comprise the major portion (46%) of the market by value i.e. ~| 4000 crore while the industrial sector constitutes the remaining 54% of the market (pegged at ~| 4500 crore). It consists of sectors such as water/sewage treatment, power generation, oil & gas, etc. This segment of the pump market is technologically intensive and hard for SMEs to penetrate. The Indian pump market is expected to grow at a CAGR of 10% in FY14-17E to | 11300 crore in FY17E. Strong parentage, leader in technological intensive pumps market!!! KSB has a strong parentage with KBS AG, providing all R&D support and technical assistance. In India, it commands a market share of ~7% (pump sales of | 603 crore in CY13) out of the total industry size (~| 8500 crore as of FY14). KSB supplies ~35% of its pumps in the standard pumps segment (used for irrigation & building services). It supplies remaining 65% of its pumps (~| 400 crore sales vis-à-vis market size of ~| 4500 crore, market share ~9%) to the industrial segment, which is technology intensive. Going forward, we expect KSB’s pump sales to grow at a CAGR of 15.0% in CY14-16E to | 878 crore in CY16E (| 664 crore in CY14). Valves segment, focus on increasing profitability; not chasing growth Valves constitute ~16% (| 128 crore in CY14) of consolidated sales of KSB. The performance of valves has been a laggard in the past few quarters on account of fierce competition and subdued demand. Going forward, KSB expects to consolidate its position in the valves market with focus on increasing profitability rather than chasing sales growth. Going forward, we expect valves sales to largely remain subdued (CY14-16E sales CAGR at 6%) with CY16E sales at | 144 crore. KSB also owns 49% in MIL Controls with an initial investment of | 6.3 crore. On this it is reaping rich benefits (share of profit at | 6.6 crore in CY14, RoI at ~105%). Likely beneficiary of capex cycle revival; balance sheet strength to grow! KSB is likely to realise operating leverage benefits (margin expansion of 400 bps) in the form of higher demand for its product. This may lead to improvement in RoEs & RoCEs and strong FCF generation of | 95 crore in CY15E & | 115 crore in CY16E, going forward. We have partially revised our estimates for KSB and maintained our BUY rating on the stock valuing the company at 23x P/E (0.7x PEG) on CY16E EPS of | 35.2 with consequent target price of | 810.

LINK
 http://content.icicidirect.com/mailimages/IDirect_KSBPumps_Q4CY14.pdf